##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED June 30, 2008

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For The Transition Period From  to

Commission file number 000-23377





INTERVEST BANCSHARES CORPORATION

(Exact name of registrant as specified in
its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 13-3699013                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

One Rockefeller Plaza, Suite 400

New York, New York 10020-2002

(Address of principal executive offices) (Zip
Code)

(212) 218-2800

(Registrants telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)





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  x    NO   ̈.

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). Check one:



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  | x
|                        |  |   | 
|Non-accelerated Filer   |  |  ̈ |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act):    YES   ̈    NO  x.

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:



|                                                |  |                                          
|----------------------------------------------- |  | -----------------------------------------
|Title of Each Class:                            |  | Shares Outstanding:                      
|Class A Common Stock, $1.00 par value per share |  | 7,690,812 outstanding as of July 25, 2008
|                                                | 
|Class B Common Stock, $1.00 par value per share |  | 580,000 outstanding as of July 25, 2008  









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##### Table of Contents

INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES

FORM 10-Q

June 30, 2008

TABLE OF CONTENTS



|                                                                                                                                 |  |      
|-------------------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                                 |  | Page 
|PART I. FINANCIAL INFORMATION                                                                                                    |  |      
|                                                                                                                                 | 
|Item 1. Financial Statements Financial Statements                                                                                |  |      
|Condensed Consolidated Balance Sheetsas of June 30, 2008 (Unaudited) and December 31,
2007                                       |  | 3    
|Condensed Consolidated Statements of Earnings (Unaudited)for the Quarters and Six-Months Ended June 
30, 2008 and 2007           |  | 4    
|Condensed Consolidated Statements of Changes in Stockholders Equity (Unaudited)for the Six-Months Ended June 30,
 2008 and 2007 |  | 5    
|Condensed Consolidated Statements of Cash Flows (Unaudited)for the Six-Months Ended June 30, 2008 and 2007                       |  | 6    
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                 |  | 7    
|Review by Independent Registered Public Accounting Firm                                                                          |  | 18   
|Report of Independent Registered Public Accounting Firm                                                                          |  | 19   
|                                                                                                                                 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                    |  | 20   
|                                                                                                                                 | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                               |  | 36   
|                                                                                                                                 | 
|Item 4. Controls and Procedures                                                                                                  |  | 37   
|                                                                                                                                 | 
|PART II. OTHER INFORMATION                                                                                                       |  |      
|                                                                                                                                 | 
|Item 1. Legal Proceedings                                                                                                        |  | 37   
|                                                                                                                                 | 
|Item 1A. Risk Factors                                                                                                            |  | 37   
|                                                                                                                                 | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                              |  | 37   
|                                                                                                                                 | 
|Item 3. Defaults Upon Senior Securities                                                                                          |  | 37   
|                                                                                                                                 | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                                      |  | 37   
|                                                                                                                                 | 
|Item 5. Other Information                                                                                                        |  | 38   
|                                                                                                                                 | 
|Item 6. Exhibits                                                                                                                 |  | 38   
|                                                                                                                                 | 
|Signatures                                                                                                                       |  | 38   
|                                                                                                                                 | 
|Certifications                                                                                                                   |  | 39-41

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 concerning future events affecting 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 Companys risk factors are disclosed in the Risk Factors
section of the Companys annual report on Form 10-K for the year ended December 31, 2007, where such factors are discussed on pages 24 through 29.



2



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##### Table of Contents

PART 1. FINANCIAL INFORMATION - ITEM 1. Financial Statements

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Balance Sheets



|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | - | ------------------- | - | --------- | -
|($ in thousands, except par value)                                                                                                     |  | At June 30,2008 |           |   | At December 31,2007 |  
|                                                                                                                                       |  | (Unaudited)     |           |   | (Audited)           |  
|ASSETS                                                                                                                                 |  |                 |           |   |                     |   |           |  
|Cash and due from banks                                                                                                                |  | $               | 6,402     |   |                     | $ | 5,371     |  
|Federal funds sold                                                                                                                     |  |                 | 3,186     |   |                     |   | 24,178    |  
|Commercial paper and other short-term investments                                                                                      |  |                 | 7,138     |   |                     |   | 3,537     |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total cash and cash equivalents                                                                                                        |  |                 | 16,726    |   |                     |   | 33,086    |  
|Securities held to maturity, net (estimated fair value of $428,069 and $345,536, respectively)                                         |  |                 | 430,934   |   |                     |   | 344,105   |  
|Federal Reserve Bank and Federal Home Loan Bank stock, at cost                                                                         |  |                 | 8,428     |   |                     |   | 6,351     |  
|Loans receivable (net of allowance for loan losses of $26,609 and $21,593, respectively)                                               |  |                 | 1,696,604 |   |                     |   | 1,592,439 |  
|Accrued interest receivable                                                                                                            |  |                 | 12,057    |   |                     |   | 10,981    |  
|Loan fees receivable                                                                                                                   |  |                 | 9,746     |   |                     |   | 9,781     |  
|Premises and equipment, net                                                                                                            |  |                 | 5,641     |   |                     |   | 5,897     |  
|Foreclosed real estate                                                                                                                 |  |                 | 7,272     |   |                     |   |          |  
|Deferred income tax asset                                                                                                              |  |                 | 12,429    |   |                     |   | 10,387    |  
|Deferred debenture offering costs, net                                                                                                 |  |                 | 3,533     |   |                     |   | 4,098     |  
|Other assets                                                                                                                           |  |                 | 3,800     |   |                     |   | 4,267     |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total assets                                                                                                                           |  | $               | 2,207,170 |   |                     | $ | 2,021,392 |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|LIABILITIES                                                                                                                            |  |                 |           |   |                     |   |           |  
|Deposits:                                                                                                                              |  |                 |           |   |                     |   |           |  
|Noninterest-bearing demand deposit accounts                                                                                            |  | $               | 3,485     |   |                     | $ | 4,303     |  
|Interest-bearing deposit accounts:                                                                                                     |  |                 |           |   |                     |   |           |  
|Checking (NOW) accounts                                                                                                                |  |                 | 6,237     |   |                     |   | 5,668     |  
|Savings accounts                                                                                                                       |  |                 | 8,603     |   |                     |   | 8,399     |  
|Money market accounts                                                                                                                  |  |                 | 325,677   |   |                     |   | 235,804   |  
|Certificate of deposit accounts                                                                                                        |  |                 | 1,465,681 |   |                     |   | 1,405,000 |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total deposit accounts                                                                                                                 |  |                 | 1,809,683 |   |                     |   | 1,659,174 |  
|Borrowed Funds:                                                                                                                        |  |                 |           |   |                     |   |           |  
|Federal Home Loan Bank advances                                                                                                        |  |                 | 40,000    |   |                     |   |          |  
|Subordinated debentures                                                                                                                |  |                 | 68,000    |   |                     |   | 76,250    |  
|Subordinated debentures - capital securities                                                                                           |  |                 | 56,702    |   |                     |   | 56,702    |  
|Accrued interest payable on all borrowed funds                                                                                         |  |                 | 3,169     |   |                     |   | 3,282     |  
|Mortgage note payable                                                                                                                  |  |                 | 192       |   |                     |   | 200       |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total borrowed funds                                                                                                                   |  |                 | 168,063   |   |                     |   | 136,434   |  
|Accrued interest payable on deposits                                                                                                   |  |                 | 6,575     |   |                     |   | 6,706     |  
|Mortgage escrow funds payable                                                                                                          |  |                 | 27,741    |   |                     |   | 24,079    |  
|Official checks outstanding                                                                                                            |  |                 | 8,205     |   |                     |   | 12,417    |  
|Other liabilities                                                                                                                      |  |                 | 3,354     |   |                     |   | 3,021     |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total liabilities                                                                                                                      |  |                 | 2,023,621 |   |                     |   | 1,841,831 |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|STOCKHOLDERS EQUITY                                                                                                                   |  |                 |           |   |                     |   |           |  
|Preferred stock (300,000 shares authorized, none issued and outstanding)                                                               |  |                 |          |   |                     |   |          |  
|Class A common stock ($1.00 par value; 12,000,000 shares authorized; 8,095,151 shares issued; and 7,690,812 outstanding)               |  |                 | 8,095     |   |                     |   | 8,095     |  
|Class B common stock ($1.00 par value, 700,000 shares authorized, and 580,000 and 385,000 shares issued and outstanding,
respectively) |  |                 | 580       |   |                     |   | 385       |  
|Additional paid-in-capital, common                                                                                                     |  |                 | 78,895    |   |                     |   | 77,176    |  
|Retained earnings                                                                                                                      |  |                 | 105,979   |   |                     |   | 103,905   |  
|Treasury stock (404,339 shares, at cost)                                                                                               |  |                 | (10,000   | ) |                     |   | (10,000   | )
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total stockholders equity                                                                                                             |  |                 | 183,549   |   |                     |   | 179,561   |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  
|Total liabilities and stockholders equity                                                                                             |  | $               | 2,207,170 |   |                     | $ | 2,021,392 |  
|                                                                                                                                       |  |                 |           |   |                     |   |           |  

See accompanying notes to condensed consolidated financial statements.



3



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)



|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|---------------------------------------------------------------- | ---- | --------------------- | ------ |  | ------------------------ | ------ | - | ---- | - | ------ |  | - | ------
|($ in thousands, except per share data)                          |      | Quarter EndedJune 30, |        |  | Six-Months EndedJune 30,
|                                                                 | 2008 |                       | 2007   |  |                          | 2008   |   | 2007
|INTEREST AND DIVIDEND INCOME                                     |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Loans receivable                                                 |      | $                     | 27,002 |  | $                        | 28,652 |   |      | $ | 53,864 |  | $ | 56,640
|Securities                                                       |      |                       | 4,629  |  |                          | 5,193  |   |      |   | 9,332  |  |   | 10,180
|Other interest-earning assets                                    |      |                       | 145    |  |                          | 237    |   |      |   | 368    |  |   | 527   
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Total interest and dividend income                               |      |                       | 31,776 |  |                          | 34,082 |   |      |   | 63,564 |  |   | 67,347
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|                                                                 |      |                       |        | 
|INTEREST EXPENSE                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Deposits                                                         |      |                       | 20,361 |  |                          | 19,799 |   |      |   | 40,763 |  |   | 38,536
|Subordinated debentures                                          |      |                       | 1,380  |  |                          | 1,693  |   |      |   | 2,947  |  |   | 3,464 
|Subordinated debentures - capital securities                     |      |                       | 886    |  |                          | 886    |   |      |   | 1,772  |  |   | 1,772 
|Other borrowed funds                                             |      |                       | 85     |  |                          | 111    |   |      |   | 163    |  |   | 412   
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Total interest expense                                           |      |                       | 22,712 |  |                          | 22,489 |   |      |   | 45,645 |  |   | 44,184
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Net interest and dividend income                                 |      |                       | 9,064  |  |                          | 11,593 |   |      |   | 17,919 |  |   | 23,163
|Provision for loan losses                                        |      |                       | 2,753  |  |                          | 715    |   |      |   | 5,016  |  |   | 1,569 
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Net interest and dividend income after provision for loan losses |      |                       | 6,311  |  |                          | 10,878 |   |      |   | 12,903 |  |   | 21,594
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|                                                                 |      |                       |        | 
|NONINTEREST INCOME                                               |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Customer service fees                                            |      |                       | 112    |  |                          | 77     |   |      |   | 226    |  |   | 156   
|Income from mortgage lending activities                          |      |                       | 463    |  |                          | 392    |   |      |   | 734    |  |   | 659   
|Income from the early repayment of mortgage loans                |      |                       | 557    |  |                          | 1,380  |   |      |   | 691    |  |   | 2,626 
|Gain (loss) from early call of investment securities             |      |                       | 7      |  |                          | (7     | ) |      |   | 431    |  |   | 3     
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Total noninterest income                                         |      |                       | 1,139  |  |                          | 1,842  |   |      |   | 2,082  |  |   | 3,444 
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|                                                                 |      |                       |        | 
|NONINTEREST EXPENSES                                             |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Salaries and employee benefits                                   |      |                       | 1,390  |  |                          | 1,291  |   |      |   | 2,876  |  |   | 2,666 
|Occupancy and equipment, net                                     |      |                       | 428    |  |                          | 495    |   |      |   | 869    |  |   | 958   
|FDIC and general insurance                                       |      |                       | 415    |  |                          | 438    |   |      |   | 863    |  |   | 534   
|Professional fees and services                                   |      |                       | 507    |  |                          | 245    |   |      |   | 839    |  |   | 475   
|Data processing                                                  |      |                       | 253    |  |                          | 214    |   |      |   | 501    |  |   | 415   
|Director and committee fees                                      |      |                       | 88     |  |                          | 85     |   |      |   | 168    |  |   | 173   
|Stationery, printing and supplies                                |      |                       | 57     |  |                          | 53     |   |      |   | 105    |  |   | 115   
|Advertising and promotion                                        |      |                       | 61     |  |                          | 48     |   |      |   | 114    |  |   | 109   
|Postage and delivery                                             |      |                       | 27     |  |                          | 35     |   |      |   | 58     |  |   | 70    
|Real estate activities expense                                   |      |                       | 714    |  |                          | 53     |   |      |   | 927    |  |   | 53    
|Loss on the early extinguishment of debentures                   |      |                       | 118    |  |                          | 6      |   |      |   | 118    |  |   | 19    
|All other                                                        |      |                       | 139    |  |                          | 154    |   |      |   | 277    |  |   | 299   
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Total noninterest expenses                                       |      |                       | 4,197  |  |                          | 3,117  |   |      |   | 7,715  |  |   | 5,886 
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Earnings before income taxes                                     |      |                       | 3,253  |  |                          | 9,603  |   |      |   | 7,270  |  |   | 19,152
|Provision for income taxes                                       |      |                       | 1,392  |  |                          | 4,236  |   |      |   | 3,128  |  |   | 8,432 
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|Net earnings                                                     |      | $                     | 1,861  |  | $                        | 5,367  |   |      | $ | 4,142  |  | $ | 10,720
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       
|                                                                 |      |                       |        | 
|Basic earnings per share                                         |      | $                     | 0.22   |  | $                        | 0.64   |   |      | $ | 0.50   |  | $ | 1.28  
|Diluted earnings per share                                       |      | $                     | 0.22   |  | $                        | 0.63   |   |      | $ | 0.50   |  | $ | 1.25  
|Cash dividends per share                                         |      | $                     | 0.25   |  | $                        | 0.25   |   |      | $ | 0.25   |  | $ | 0.25  
|                                                                 |      |                       |        |  |                          |        |   |      |   |        |  |   |       

See accompanying notes to condensed consolidated financial statements.



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Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders Equity

(Unaudited)



|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------------------ | - |  | ------ | ------- | - | ------ | --------- | - | ------ | - | ------- | -
|                                                                                                 |  | Six-Months EndedJune 30, |  
|                                                                                                 |  | 2008                     |   |  | 2007   |        
|($ thousands)                                                                                    |  | Shares                   |   |  | Amount |         |   | Shares |           |   | Amount |  
|CLASS A COMMON STOCK                                                                             |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  | 8,095,151                |   |  | $      | 8,095   |   |        | 7,986,595 |   |        | $ | 7,986   |  
|Issuance of shares upon the conversion of debentures                                             |  |                         |   |  |        |        |   |        | 108,556   |   |        |   | 109     |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  | 8,095,151                |   |  |        | 8,095   |   |        | 8,095,151 |   |        |   | 8,095   |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|                                                                                                 |  |                          |   | 
|CLASS B COMMON STOCK                                                                             |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  | 385,000                  |   |  |        | 385     |   |        | 385,000   |   |        |   | 385     |  
|Issuance of shares upon the exercise of stock warrants                                           |  | 195,000                  |   |  |        | 195     |   |        |          |   |        |   |        |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  | 580,000                  |   |  |        | 580     |   |        | 385,000   |   |        |   | 385     |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|                                                                                                 |  |                          |   | 
|ADDITIONAL PAID-IN-CAPITAL, COMMON                                                               |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  |                          |   |  |        | 77,176  |   |        |           |   |        |   | 75,098  |  
|Issuance of shares upon the conversion of debentures                                             |  |                          |   |  |        |        |   |        |           |   |        |   | 1,833   |  
|Issuance of shares upon the exercise of Class B stock warrants, inclusive of income tax benefits |  |                          |   |  |        | 1,608   |   |        |           |   |        |   |        |  
|Compensation expense related to common stock options                                             |  |                          |   |  |        | 111     |   |        |           |   |        |   |        |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  |                          |   |  |        | 78,895  |   |        |           |   |        |   | 76,931  |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|                                                                                                 |  |                          |   | 
|RETAINED EARNINGS                                                                                |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  |                          |   |  |        | 103,905 |   |        |           |   |        |   | 86,577  |  
|Net earnings for the period                                                                      |  |                          |   |  |        | 4,142   |   |        |           |   |        |   | 10,720  |  
|Dividends on common stock                                                                        |  |                          |   |  |        | (2,068  | ) |        |           |   |        |   | (2,112  | )
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  |                          |   |  |        | 105,979 |   |        |           |   |        |   | 95,185  |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|                                                                                                 |  |                          |   | 
|TREASURY STOCK                                                                                   |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  | (404,339                 | ) |  |        | (10,000 | ) |        |          |   |        |   |        |  
|Class A common stock repurchased                                                                 |  |                         |   |  |        |        |   |        | (115,200  | ) |        |   | (2,786  | )
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  | (404,339                 | ) |  |        | (10,000 | ) |        | (115,200  | ) |        |   | (2,786  | )
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  
|Total stockholders equity at end of period                                                      |  | 8,270,812                |   |  | $      | 183,549 |   |        | 8,364,951 |   |        | $ | 177,720 |  
|                                                                                                 |  |                          |   |  |        |         |   |        |           |   |        |   |         |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                                         |  |                          |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                         |  | Six-Months EndedJune 30, |         
|($ in thousands)                                                                                                         |  | 2008                     |          |   | 2007 |  
|OPERATING ACTIVITIES                                                                                                     |  |                          |          |   |      |   |          |  
|Net earnings                                                                                                             |  | $                        | 4,142    |   |      | $ | 10,720   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:                                      |  |                          |          |   |      |   |          |  
|Depreciation and amortization                                                                                            |  |                          | 279      |   |      |   | 316      |  
|Provision for loan losses                                                                                                |  |                          | 5,016    |   |      |   | 1,569    |  
|Deferred income tax benefit                                                                                              |  |                          | (2,042   | ) |      |   | (637     | )
|Amortization of deferred debenture offering costs                                                                        |  |                          | 447      |   |      |   | 520      |  
|Loss on early extinguishments of debentures                                                                              |  |                          | 118      |   |      |   | 19       |  
|Compensation expense related to common stock options                                                                     |  |                          | 111      |   |      |   |         |  
|Amortization of premiums (accretion) of discounts and deferred loan fees, net                                            |  |                          | (3,152   | ) |      |   | (3,956   | )
|Net decrease in accrued interest payable on debentures                                                                   |  |                          | (122     | ) |      |   | (133     | )
|Net decrease in official checks outstanding                                                                              |  |                          | (4,212   | ) |      |   | (165     | )
|Net decrease in loan fees receivable                                                                                     |  |                          | 35       |   |      |   | 464      |  
|Net change in all other assets and liabilities                                                                           |  |                          | 1,548    |   |      |   | 6,215    |  
|                                                                                                                         |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                                                                                |  |                          | 2,168    |   |      |   | 14,932   |  
|                                                                                                                         |  |                          |          |   |      |   |          |  
|                                                                                                                         |  |                         
|INVESTING ACTIVITIES                                                                                                     |  |                          |          |   |      |   |          |  
|Maturities and calls of securities held to maturity                                                                      |  |                          | 260,073  |   |      |   | 91,857   |  
|Purchases of securities held to maturity                                                                                 |  |                          | (346,426 | ) |      |   | (47,200  | )
|Net increase in loans receivable                                                                                         |  |                          | (115,723 | ) |      |   | (127,575 | )
|Net purchases of FRB and FHLB stock                                                                                      |  |                          | (2,077   | ) |      |   | (1,573   | )
|Net purchases of premises and equipment                                                                                  |  |                          | (23      | ) |      |   | (63      | )
|                                                                                                                         |  |                          |          |   |      |   |          |  
|Net cash used in investing activities                                                                                    |  |                          | (204,176 | ) |      |   | (84,554  | )
|                                                                                                                         |  |                          |          |   |      |   |          |  
|                                                                                                                         |  |                         
|FINANCING ACTIVITIES                                                                                                     |  |                          |          |   |      |   |          |  
|Net increase in deposits                                                                                                 |  |                          | 150,509  |   |      |   | 47,753   |  
|Net increase in mortgage escrow funds payable                                                                            |  |                          | 3,662    |   |      |   | 6,820    |  
|Net increase in short-term FHLB advances                                                                                 |  |                          | 40,000   |   |      |   | 23,000   |  
|Principal repayments of debentures and mortgage note payable                                                             |  |                          | (8,258   | ) |      |   | (3,837   | )
|Class A common stock repurchased                                                                                         |  |                          |         |   |      |   | (2,876   | )
|Cash dividends paid to common stockholders                                                                               |  |                          | (2,068   | ) |      |   | (2,112   | )
|Cash received from issuance of common stock upon exercise of stock warrants                                              |  |                          | 1,467    |   |      |   |         |  
|Excess tax benefit from exercise of stock warrants recorded to paid in capital                                           |  |                          | 336      |   |      |   |         |  
|                                                                                                                         |  |                          |          |   |      |   |          |  
|Net cash provided by financing activities                                                                                |  |                          | 185,648  |   |      |   | 68,748   |  
|                                                                                                                         |  |                          |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                                                                |  |                          | (16,360  | ) |      |   | (874     | )
|Cash and cash equivalents at beginning of period                                                                         |  |                          | 33,086   |   |      |   | 40,195   |  
|                                                                                                                         |  |                          |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                                               |  | $                        | 16,726   |   |      | $ | 39,321   |  
|                                                                                                                         |  |                          |          |   |      |   |          |  
|                                                                                                                         |  |                         
|SUPPLEMENTAL DISCLOSURES                                                                                                 |  |                          |          |   |      |   |          |  
|Cash paid during the period for:                                                                                         |  |                          |          |   |      |   |          |  
|Interest                                                                                                                 |  | $                        | 45,442   |   |      | $ | 42,686   |  
|Income taxes                                                                                                             |  |                          | 4,425    |   |      |   | 7,875    |  
|Noncash activities:                                                                                                      |  |                          |          |   |      |   |          |  
|Loans transferred to foreclosed real estate                                                                              |  |                          | 7,272    |   |      |   | 975      |  
|Conversion of debentures and related accrued interest payable and deferred offering costs into Class A common stock, net |  |                          |         |   |      |   | 1,942    |  
|                                                                                                                         |  |                          |          |   |      |   |          |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)



Note 1 - Principles of Consolidation, Basis of Presentation and
Use of Estimates

The condensed consolidated financial statements of Intervest Bancshares Corporation and Subsidiaries in this report have not been
audited except for information derived from the 2007 audited consolidated financial statements and notes thereto. The condensed consolidated financial statements in this report should be read in conjunction with the 2007 audited consolidated
financial statements and notes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2007.

All
significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to United States generally accepted accounting principles and to general practices within the
banking industry. In preparing the consolidated financial statements, 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. 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. Certain information and note disclosures normally
included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

Note 2 - Description of Business

Intervest Bancshares Corporation is
a registered financial holding company referred to by itself in this report as the Holding Company. Its wholly owned consolidated subsidiaries are Intervest National Bank (the Bank) and Intervest Mortgage Corporation. All
three entities are referred to collectively in this report as the Company on a consolidated basis. The Companys business is banking and real estate lending. The Holding Companys Class A Common Stock is listed on the
NASDAQ Global Select Market: Trading Symbol IBCA.

The offices of the Holding Company, Intervest Mortgage 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 and the main telephone number is 212-218-2800.

The Holding Companys principal business is the ownership and operation of its subsidiaries. It does not engage in any other substantial business activities other than a limited amount of real estate mortgage
lending, including the purchase of participations in loans originated by the Bank. From time to time, the Holding Company also issues debt and equity securities to raise funds for working capital purposes. The Holding Company also has four wholly
owned subsidiaries, Intervest Statutory Trust II, III, IV and V, that are unconsolidated entities as required by Financial Accounting Standards Board (FASB) Interpretation 46-R, Consolidation of Variable Interest Entities. Intervest
Statutory Trust II, III, IV and V are statutory business trusts that were formed for the sole purpose of issuing and administering trust preferred securities and lending the proceeds to the Holding Company. They do not conduct any trade or business.

The Bank is a nationally chartered commercial bank that has its headquarters and full-service banking office at One Rockefeller Plaza, Suite 400, in New
York City, and a total of six full-service banking offices in Pinellas County, Florida - four in Clearwater, one in Clearwater Beach and one in South Pasadena. The Bank conducts a personalized commercial and consumer banking business that attracts
deposits from the general public in the areas served by its banking offices. The Bank also provides internet banking services through its web site: www.intervestnatbank.com, which also attracts deposit customers from outside its primary market
areas. Information on this web site is not and should not be considered part of this report and is not incorporated by reference. The deposits, together with funds generated from operations, principal repayments on loans and securities and other
sources, are mainly used to originate mortgage loans secured by commercial and multifamily real estate and to purchase investment securities. The Bank maintains capital ratios in excess of the regulatory requirements to be designated as a
well-capitalized institution.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 2 - Description of Business - Continued



Intervest Mortgage Corporations business focuses on the origination of first and junior mortgage loans secured
by commercial and multifamily real estate. It also provides loan origination services to the Bank and earns fees for such services. Intervest Mortgage Corporation funds its loans through the issuance of subordinated debentures in public offerings.
Competitive market conditions and resulting lower pricing since early 2007 for new loans have decreased Intervest Mortgage Corporations loan originations significantly from its historical levels, and only one loan was originated in the first
six months of 2008. Intervest Mortgage Corporation has also experienced a significant increase in nonaccrual loans. At June 30, 2008, 33% of its mortgage loan portfolio ($28.8 million) was on nonaccrual status, which has adversely affected its
net interest income and cash flows derived therefrom, and has placed an even greater reliance on fee income and cash flows generated from Intervest Mortgage Corporations intercompany services provided to the Bank. Such fee income is eliminated
in the Companys consolidated financial statements.

The Companys lending activities are comprised almost entirely of the origination for its
loan portfolio of mortgage loans secured by commercial and multifamily real estate (including rental and cooperative/condominium apartment buildings, office buildings, mixed-use properties, shopping centers, hotels, restaurants, industrial/warehouse
properties, parking lots/garages, mobile home parks, self-storage facilities and vacant land). Loans in the portfolio had an average life of approximately 4 years at June 30, 2008.

The Company tends to lend in areas that are in the process of being revitalized or redeveloped, with a concentration of loans on properties located in New York State and the State of Florida. A large number of the
properties in New York are located in Manhattan, Brooklyn, Queens, Long Island, Staten Island and the Bronx. A large number of the properties in Florida are located in Clearwater, Tampa, St. Petersburg, Orlando, Fort Lauderdale, Hollywood and Miami.
Many of the multifamily properties located in New York City and surrounding boroughs are also subject to rent control and rent stabilization laws, which limit the ability of the property owners to increase rents, which may in turn limit the
borrowers ability to repay those mortgage loans. At June 30, 2008, the Company also had loans on properties in Alabama, Connecticut, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Maryland, Michigan, New Jersey, North Carolina,
Ohio, Pennsylvania, South Carolina and Virginia.

The Companys revenues consist of interest, dividends and fees earned on its interest-earning
assets, which are comprised of mortgage loans, securities and other short-term investments, and noninterest income. The Companys expenses consist of interest paid on its interest-bearing liabilities, which are comprised of deposits, debentures
and other short-term borrowings, as well as its operating and general expenses.

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 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 affected 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 of the recognition of unearned fees associated with such loans at the time of payoff and the receipt of additional prepayment fees and or interest in certain
cases, in accordance with the prepayment provisions of the mortgage loan. The Companys income from loan prepayments fluctuates and cannot be predicted. Normally, loan prepayments tend to increase during periods of declining interest rates and
tend to decrease during periods of increasing interest rates. However, given the nature and type of mortgage loans the Company originates, including their short average life, the Company may still experience loan prepayments notwithstanding the
effects of movements in interest rates. Noninterest expenses consist of the following: salaries and employee benefits, occupancy and equipment, data processing, advertising and promotion, professional fees and services, FDIC insurance, general
insurance and other operating and general expenses. The Companys profitability is also significantly affected by general and local economic conditions, competition, changes in market interest rates, changes in real estate values, government
policies and actions of regulatory authorities.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 2 - Description of Business - Continued



The Company has experienced a significant increase in nonperforming assets since March 2007. As described in more
detail elsewhere in this report, total nonperforming assets at June 30, 2008 aggregated to $126.4 million, or 5.72% of the Companys total assets. At June 30, 2008, nonperforming assets were comprised of $119.1 million of nonaccrual
loans, or 23 loans, and $7.3 million of real estate acquired through foreclosure, or 2 properties. Although the Company has never originated or acquired subprime loans nor invested in securities collateralized by subprime loans, the subprime loan
crisis and resulting impact on the credit markets has affected the Company indirectly through reductions in overall real estate values, reduced home sales and construction, and a weakening of the overall economy, particularly in the State of
Florida. The Company has also experienced the effects of misconduct committed by certain of its borrowers, which required the Company to place certain loans that are collateralized by income producing properties on nonaccrual status, in some
instances due to involuntary bankruptcy filings filed by third parties against the borrowers. Such filings resulted in the cessation of monthly loan payments to the Company and delay the Companys ability to move forward with foreclosure or
other proceedings to acquire and sell the collateral property. Although the Company has not experienced any loan chargeoffs in connection with its nonaccrual loans to date, it has incurred increased provisions for loan losses, expenses associated
with credit collections and protecting its interest in nonperforming assets, and the loss of interest income on such assets, all of which has adversely affected the Companys results of operations. At June 30, 2008, two nonaccrual loans
totaling $32.9 million have a specific valuation allowance in the aggregate amount of $2.5 million (recorded as part of the overall allowance for loan losses) in accordance with SFAS 114. The Company believes that the estimated fair value of each of
the remaining properties that collateralize its nonaccrual loans continues to exceed its net recorded investment in each related nonaccrual loan as of June 30, 2008, and as such a specific SFAS 114 valuation allowance was not maintained on
those loans. Estimated loan-to-value ratios on such loans range from 52% to 87% at June 30, 2008.

The Company expects $22.2 million (outstanding
principal) of nonaccrual loans ($18.4 million is held by Intervest Mortgage Corporation and $3.8 million is held by the Bank) to be repaid in full in the third quarter of 2008 through the scheduled sale of various collateral properties by the
bankruptcy trustee. In addition, properties acquired through foreclosure are being marketed for sale, although the timing of the disposition is uncertain.

There can be no assurance that the Company will not incur additional loan loss provisions, loan chargeoffs or significant expenses in connection with the ultimate collection of its nonaccrual loans, which collection is anticipated to be
through the eventual sale of the collateral property in most cases. The Company may also incur significant expenses in carrying and disposing of properties acquired through foreclosure. A prolonged downturn in real estate values and local economic
conditions, as well as other factors, could have an adverse impact on the Companys asset quality and the future level of nonperforming assets, chargeoffs and profitability.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 3 - Securities

The carrying value (amortized cost) and estimated fair value of securities held to maturity are as follows:



|                             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|---------------------------- |  | ------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | ------------------ | ----- | ------------ | - | ------- | ------------------------ | ---- | - |  | ----------
|($ in thousands)             |  | Number ofSecurities |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedFairValue |       | Wtd-AvgYield |   |         | Wtd-AvgRemainingMaturity
|At June 30, 2008             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|U.S. government agencies (1) |  | 271                 |  | $             | 422,903 |                      | $ | 861                   |  | $                  | 1,929 |              | $ | 421,835 |                          | 4.25 | % |  | 4.3 Years 
|Corporate                    |  | 8                   |  |               | 8,031   |                      |   |                      |  |                    | 1,797 |              |   | 6,234   |                          | 4.73 | % |  | 25.1 Years
|                             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|                             |  | 279                 |  | $             | 430,934 |                      | $ | 861                   |  | $                  | 3,726 |              | $ | 428,069 |                          | 4.26 | % |  | 4.7 Years 
|                             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|At December 31, 2007         |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|U.S. government agencies (1) |  | 214                 |  | $             | 336,074 |                      | $ | 1,640                 |  | $                  | 14    |              | $ | 337,700 |                          | 4.99 | % |  | 3.5 Years 
|Corporate                    |  | 8                   |  |               | 8,031   |                      |   | 7                     |  |                    | 202   |              |   | 7,836   |                          | 5.78 | % |  | 25.6 Years
|                             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|                             |  | 222                 |  | $             | 344,105 |                      | $ | 1,647                 |  | $                  | 216   |              | $ | 345,536 |                          | 5.01 | % |  | 4.0 Years 
|                             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           



|(1) | Consist of debt obligations of FHLB, FNMA, FHLMC or FFCB.
|--- | ---------------------------------------------------------

The estimated
fair values of securities with gross unrealized losses segregated between securities that have been in a continuous unrealized loss position for less than twelve months at the respective dates and those that have been in a continuous unrealized loss
position for twelve months or longer are summarized as follows:



|                         |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      
|------------------------ |  | ------------------- |  | ----------------------- | ------- | ----------------------- | - | --------------------- |  | ------------------ | ------ | --------------------- | - | --- |  | - | ------- |  | - | -----
|($ in thousands)         |  | Number ofSecurities |  | Less Than Twelve Months |         | Twelve Months or Longer |   | Total                
|                         |  | EstimatedFairValue  |  | GrossUnrealizedLosses   |         | EstimatedFairValue      |   | GrossUnrealizedLosses |  | EstimatedFairValue |        | GrossUnrealizedLosses
|At June 30, 2008         |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      
|U.S. government agencies |  | 164                 |  | $                       | 260,546 |                         | $ | 1,929                 |  | $                  |       |                       | $ |    |  | $ | 260,546 |  | $ | 1,929
|Corporate                |  | 8                   |  |                         | 5,451   |                         |   | 1,580                 |  |                    | 783    |                       |   | 217 |  |   | 6,234   |  |   | 1,797
|                         |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      
|                         |  | 172                 |  | $                       | 265,997 |                         | $ | 3,509                 |  | $                  | 783    |                       | $ | 217 |  | $ | 266,780 |  | $ | 3,726
|                         |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      
|At December 31, 2007     |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      
|U.S. government agencies |  | 6                   |  | $                       | 5,348   |                         | $ | 6                     |  | $                  | 5,997  |                       | $ | 8   |  | $ | 11,345  |  | $ | 14   
|Corporate                |  | 6                   |  |                         | 939     |                         |   | 83                    |  |                    | 4,911  |                       |   | 119 |  |   | 5,850   |  |   | 202  
|                         |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      
|                         |  | 12                  |  | $                       | 6,287   |                         | $ | 89                    |  | $                  | 10,908 |                       | $ | 127 |  | $ | 17,195  |  | $ | 216  
|                         |  |                     |  |                         |         |                         |   |                       |  |                    |        |                       |   |     |  |   |         |  |   |      

Management believes that the cause of unrealized gains and losses in the portfolio is directly related to changes
in interest rates, which is consistent with its experience. In general, as interest rates rise, the estimated fair value of fixed rate securities will decrease; as interest rates fall, their estimated fair value will increase. Nearly all of the
securities in the portfolio have fixed rates or have predetermined scheduled rate increases, and many have call features that allow the issuer to call the security at par before its stated maturity without penalty. The estimated fair values for all
of the securities above are obtained from third-party brokers, who provide the Bank quoted prices derived from active markets for identical or similar securities.

Management views the gross unrealized losses to be temporary based on the impact of interest rates and the high credit quality of the securities. In addition, the Bank, which holds the portfolio, has the ability and intent to hold its
investments for a period of time sufficient for the estimated fair value of the securities with unrealized losses to recover, which may be at maturity. Historically, the Bank has always recovered the cost of its investment securities upon maturity.
Management evaluates the securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. There were no other-than-temporary impairment write-downs recorded,
securities classified as available for sale, or sales of securities during the reporting periods in this report.

The amortized cost and estimated fair
value of securities held to maturity by remaining term to contractual maturity as of June 30, 2008 is as follows:



|                                       |  |                |         |                      |   |               |  |      |  
|-------------------------------------- |  | -------------- | ------- | -------------------- | - | ------------- |  | ---- | -
|($ in thousands)                       |  | Amortized Cost |         | Estimated Fair Value |   | Average Yield | 
|Due in one year or less                |  | $              | 23,835  |                      | $ | 23,968        |  | 4.65 | %
|Due after one year through five years  |  |                | 274,796 |                      |   | 274,199       |  | 3.96 |  
|Due after five years through ten years |  |                | 110,291 |                      |   | 109,953       |  | 4.77 |  
|Due after ten years                    |  |                | 22,012  |                      |   | 19,949        |  | 4.91 |  
|                                       |  |                |         |                      |   |               |  |      |  
|                                       |  | $              | 430,934 |                      | $ | 428,069       |  | 4.26 | %
|                                       |  |                |         |                      |   |               |  |      |  



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 4 - Loans Receivable

Major classifications of loans receivable are summarized as follows:



|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  
|-------------------------------------- |  | ---------------- |  | ------ | -------------------- | - | ---------- | --- | ------ | - | --------- | -
|                                       |  | At June 30, 2008 |  |        | At December 31, 2007 |  
|($ in thousands)                       |  | # of Loans       |  | Amount |                      |   | # of Loans |     | Amount |  
|Commercial real estate loans           |  | 357              |  | $      | 1,039,171            |   |            | 322 |        | $ | 932,351   |  
|Residential multifamily loans          |  | 245              |  |        | 662,055              |   |            | 244 |        |   | 657,387   |  
|Land development and other land loans  |  | 15               |  |        | 30,109               |   |            | 17  |        |   | 33,318    |  
|Residential 1-4 family loans           |  | 2                |  |        | 475                  |   |            | 2   |        |   | 486       |  
|Commercial business loans              |  | 17               |  |        | 645                  |   |            | 19  |        |   | 575       |  
|Consumer loans                         |  | 23               |  |        | 428                  |   |            | 15  |        |   | 315       |  
|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  
|Loans receivable                       |  | 659              |  |        | 1,732,883            |   |            | 619 |        |   | 1,624,432 |  
|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  
|Deferred loan fees                     |  |                  |  |        | (9,670               | ) |            |     |        |   | (10,400   | )
|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  
|Loans receivable, net of deferred fees |  |                  |  |        | 1,723,213            |   |            |     |        |   | 1,614,032 |  
|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  
|Allowance for loan losses              |  |                  |  |        | (26,609              | ) |            |     |        |   | (21,593   | )
|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  
|Loans receivable, net                  |  |                  |  | $      | 1,696,604            |   |            |     |        | $ | 1,592,439 |  
|                                       |  |                  |  |        |                      |   |            |     |        |   |           |  

At June 30, 2008 and December 31, 2007, there were $119.1 million and $90.8 million of loans on a
nonaccrual status, respectively, and considered impaired under the criteria of SFAS 114. At June 30, 2008, two nonaccrual loans totaling $32.9 million have a specific valuation allowance in the aggregate amount of $2.5 million (recorded as part
of the overall allowance for loan losses) in accordance with SFAS 114. The Company believes that the estimated fair value of each of the remaining properties that collateralize its nonaccrual loans exceeded its net recorded investment in each
related nonaccrual loan during the reporting periods, and as such a specific SFAS 114 valuation allowance was not maintained on those loans at any time. No other loans were classified as impaired. At June 30, 2008, two loans in the amount of
$3.1 million were classified as ninety days past due and still accruing interest, compared to two loans totaling $11.9 million at December 31, 2007.

Interest income that was not recorded on nonaccrual loans under their contractual terms amounted to $2.6 million for the quarter ended June 30, 2008 and $4.8 million for the six-months ended June 30, 2008, compared to $0.4 million
and $0.6 million, respectively, for the same periods of 2007. The average principal balance of nonaccrual loans (same as impaired loans) for the quarter and six-months ended June 30, 2008 was $123.1 million and $109.5 million, respectively, and
$22.2 million and $15.1 million for the quarter and six-months ended June 30, 2007, respectively.

Note 5 - Allowance for Loan Losses

Activity in the allowance for loan losses is summarized as follows:



|                                             |  |                       |        |                          |   |        |  |      |        |  |   |       
|-------------------------------------------- |  | --------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                             |  | Quarter EndedJune 30, |        | Six-Months EndedJune 30,
|($ in thousands)                             |  | 2008                  |        | 2007                     |   | 2008   |  | 2007
|Balance at beginning of period               |  | $                     | 23,856 |                          | $ | 18,687 |  | $    | 21,593 |  | $ | 17,833
|Provision for loan losses charged to expense |  |                       | 2,753  |                          |   | 715    |  |      | 5,016  |  |   | 1,569 
|                                             |  |                       |        |                          |   |        |  |      |        |  |   |       
|Balance at end of period                     |  | $                     | 26,609 |                          | $ | 19,402 |  | $    | 26,609 |  | $ | 19,402
|                                             |  |                       |        |                          |   |        |  |      |        |  |   |       

Note 6 - Deposits

Scheduled maturities of certificates of deposit accounts are as follows:



|                         |  |                  |           |                    |                      |   |        |   |                    |  |      |  
|------------------------ |  | ---------------- | --------- | ------------------ | -------------------- | - | ------ | - | ------------------ |  | ---- | -
|                         |  | At June 30, 2008 |           |                    | At December 31, 2007 |  
|($ in thousands)         |  | Amount           |           | Wtd-AvgStated Rate |                      |   | Amount |   | Wtd-AvgStated Rate | 
|Within one year          |  | $                | 576,980   |                    | 4.43                 | % |        | $ | 495,002            |  | 4.82 | %
|Over one to two years    |  |                  | 357,525   |                    | 4.69                 |   |        |   | 296,318            |  | 4.74 |  
|Over two to three years  |  |                  | 156,842   |                    | 4.86                 |   |        |   | 233,248            |  | 4.81 |  
|Over three to four years |  |                  | 150,596   |                    | 5.27                 |   |        |   | 129,949            |  | 5.27 |  
|Over four years          |  |                  | 223,738   |                    | 5.09                 |   |        |   | 250,483            |  | 5.16 |  
|                         |  |                  |           |                    |                      |   |        |   |                    |  |      |  
|                         |  | $                | 1,465,681 |                    | 4.73                 | % |        | $ | 1,405,000          |  | 4.90 | %
|                         |  |                  |           |                    |                      |   |        |   |                    |  |      |  

Certificate of deposit accounts (CDs) of $100,000 or more totaled $620 million and $586 million at June 30,
2008 and December 31, 2007, respectively, and included brokered CDs of $165 million and $166 million at each date, respectively. At June 30, 2008, CDs of $100,000 or more by remaining maturity were as follows: $196 million due within one
year; $136 million due over one to two years; $64 million due over two to three years; $76 million due over three to four years; and $148 million due over four years.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 7 - Subordinated Debentures and Mortgage Note Payable

Subordinated debentures by series and mortgage note payable are summarized as follows:



|                                                                        |  |                 |        |                     |   |       
|----------------------------------------------------------------------- |  | --------------- | ------ | ------------------- | - | ------
|($ in thousands)                                                        |  | At June 30,2008 |        | At December 31,2007
|INTERVEST MORTGAGE CORPORATION:                                         |  |                 |        |                     |   |       
|Series 01/21/03 - interest at 7.00% fixed - due July 1, 2008 (1)        |  | $               |       |                     | $ | 3,000 
|Series 07/25/03 - interest at 6.75% fixed - due October 1, 2008         |  |                 | 3,000  |                     |   | 3,000 
|Series 11/28/03 - interest at 6.50% fixed - due April 1, 2009           |  |                 | 3,500  |                     |   | 3,500 
|Series 03/21/05 - interest at 6.25% fixed - due April 1, 2009           |  |                 | 3,000  |                     |   | 3,000 
|Series 01/17/02 - interest at 7.75% fixed - due October 1, 2009 (1)     |  |                 |       |                     |   | 2,250 
|Series 08/12/05 - interest at 6.25% fixed - due October 1, 2009         |  |                 | 2,000  |                     |   | 2,000 
|Series 08/05/02 - interest at 7.75% fixed - due January 1, 2010 (1)     |  |                 |       |                     |   | 3,000 
|Series 06/07/04 - interest at 6.50% fixed - due January 1, 2010         |  |                 | 4,000  |                     |   | 4,000 
|Series 01/21/03 - interest at 7.25% fixed - due July 1, 2010            |  |                 | 3,000  |                     |   | 3,000 
|Series 06/12/06 - interest at 6.50% fixed - due July 1, 2010            |  |                 | 2,000  |                     |   | 2,000 
|Series 07/25/03 - interest at 7.00% fixed - due October 1, 2010         |  |                 | 3,000  |                     |   | 3,000 
|Series 11/28/03 - interest at 6.75% fixed - due April 1, 2011           |  |                 | 4,500  |                     |   | 4,500 
|Series 03/21/05 - interest at 6.50% fixed - due April 1, 2011           |  |                 | 4,500  |                     |   | 4,500 
|Series 08/12/05 - interest at 6.50% fixed - due October 1, 2011         |  |                 | 4,000  |                     |   | 4,000 
|Series 06/07/04 - interest at 6.75% fixed - due January 1, 2012         |  |                 | 5,000  |                     |   | 5,000 
|Series 06/12/06 - interest at 6.75% fixed - due July 1, 2012            |  |                 | 4,000  |                     |   | 4,000 
|Series 03/21/05 - interest at 7.00% fixed - due April 1, 2013           |  |                 | 6,500  |                     |   | 6,500 
|Series 08/12/05 - interest at 7.00% fixed - due October 1, 2013         |  |                 | 6,000  |                     |   | 6,000 
|Series 06/12/06 - interest at 7.00% fixed - due July 1, 2014            |  |                 | 10,000 |                     |   | 10,000
|                                                                        |  |                 |        |                     |   |       
|                                                                        |  |                 | 68,000 |                     |   | 76,250
|INTERVEST NATIONAL BANK:                                                |  |                 |        |                     |   |       
|Mortgage note payable (2)  interest at 7% fixed - due February 1, 2017 |  |                 | 192    |                     |   | 200   
|                                                                        |  |                 |        |                     |   |       
|                                                                        |  | $               | 68,192 |                     | $ | 76,450
|                                                                        |  |                 |        |                     |   |       



|(1) | Debentures were repaid with cash on hand on April 1, 2008 prior to their stated maturity as follows: Series 1/17/02 debentures due October 1, 2009; Series 8/5/02
debentures due January 1, 2010; and Series 1/21/03 debentures due 7/1/08 for an aggregate total of $8.3 million of principal and $496,000 of related accrued interest payable. A loss of $118,000 from the early extinguishment was recorded in
April 2008, which represents the expensing of remaining related unamortized issuance costs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The note cannot be prepaid except during the last year of its term.
|--- | -------------------------------------------------------------------

Interest is paid quarterly on the debentures except for the following: $1.3 million of Series 11/28/03; $1.4 million of Series 6/7/04; $1.9 million of Series 3/21/05; $1.8 million of Series 8/12/05 and $2.3 million of Series 6/12/06, all of
which accrue and compound interest quarterly, with such interest due and payable at maturity. Holders of Series 1/21/03 through Series 8/12/05 can require Intervest Mortgage Corporation, on a first come basis during a specified time, to repurchase
the debentures for face amount plus accrued interest once each year (beginning April 1, 2009 for Series 3/21/05 and October 1, 2009 for Series 8/12/05). 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 may redeem its debentures at any time, in whole or in part, for face value. All the debentures are unsecured and subordinate
to all present and future senior indebtedness, as defined in the indenture related to each debenture.

Scheduled contractual maturities as of June 30,
2008 were as follows:



|                                                     |  |           |        |                  |   |      
|---------------------------------------------------- |  | --------- | ------ | ---------------- | - | -----
|($ in thousands)                                     |  | Principal |        | Accrued Interest
|For the period July 1, 2008 to December 31, 2008 (1) |  | $         | 3,008  |                  | $ | 1,002
|For the year ended December 31, 2009 (2)             |  |           | 8,517  |                  |   | 328  
|For the year ended December 31, 2010 (3)             |  |           | 12,019 |                  |   | 268  
|For the year ended December 31, 2011                 |  |           | 13,020 |                  |   | 574  
|For the year ended December 31, 2012                 |  |           | 9,021  |                  |   | 282  
|Thereafter                                           |  |           | 22,607 |                  |   | 569  
|                                                     |  |           |        |                  |   |      
|                                                     |  | $         | 68,192 |                  | $ | 3,023
|                                                     |  |           |        |                  |   |      



|(1) | Includes debentures scheduled to be repaid from cash on hand on August 1, 2008 prior to their stated maturity as follows:
|--- | -------------------------------------------------------------------------------------------------------------------------

Series 7/25/03 debentures due October 1, 2008 for $3.0 million in principal and $17,000 of related accrued interest payable.



|(2) | Includes debentures scheduled to be repaid from cash on hand on September 1, 2008 prior to their stated maturity as follows:
|--- | ----------------------------------------------------------------------------------------------------------------------------

Series 11/28/03 and 3/21/05 due April 1, 2009 for aggregate principal of $6.5 million and $247,000 of related accrued interest payable.



|(3) | Includes debentures scheduled to be repaid from cash on hand on September 1, 2008 prior to their stated maturity as follows:
|--- | ----------------------------------------------------------------------------------------------------------------------------

Series 1/23/03 due July 1, 2010 for $3.0 million of principal and $36,000 of related accrued interest payable. A loss from the early extinguishments
(on August 1 and September 1, 2008) of all these debentures totaling approximately $113,000 will be recorded in the third quarter of 2008. The loss represents the expensing of remaining related unamortized issuance costs.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 8 - Short-Term Borrowings and Lines of Credit

At June 30, 2008, the Bank had agreements with correspondent banks whereby it could borrow up to $28 million 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. At June 30, 2008, the Bank had available collateral consisting of investment
securities to support additional total borrowings of $369 million from the FHLB and FRB.

The following is a summary of certain information regarding
short-term borrowings in the aggregate:



|                                                   |  |                       |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | --------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | Quarter EndedJune 30, |        |   | Six-Months EndedJune 30, |  
|($ in thousands)                                   |  | 2008                  |        |   | 2007                     |   |        | 2008 |  |   | 2007   |  
|Balance at period end (1)                          |  | $                     | 40,000 |   |                          | $ | 48,000 |      |  | $ | 40,000 |   |  | $ | 48,000 |  
|Maximum amount outstanding at any month end        |  | $                     | 40,000 |   |                          | $ | 48,000 |      |  | $ | 40,000 |   |  | $ | 48,000 |  
|Average outstanding balance for the period         |  | $                     | 14,237 |   |                          | $ | 7,838  |      |  | $ | 11,545 |   |  | $ | 14,844 |  
|Weighted-average interest rate paid for the period |  |                       | 2.28   | % |                          |   | 5.48   | %    |  |   | 2.72   | % |  |   | 5.49   | %
|Weighted-average interest rate at period end       |  |                       | 2.31   | % |                          |   | 5.40   | %    |  |   | 2.31   | % |  |   | 5.40   | %
|                                                   |  |                       |        |   |                          |   |        |      |  |   |        |   |  |   |        |  



|(1) | Balance at June 30, 2008 matures in July 2008.
|--- | ----------------------------------------------

Note 9 - Common
Stock Options and Warrants

The Holding Company has a shareholder-approved Long Term Incentive Plan (the Plan) under which stock options and
other forms of incentive compensation may be awarded to officers, employees and directors of the Holding Company and its subsidiaries. The maximum number of shares of Class A common stock that may be awarded under the Plan is 750,000. At
June 30, 2008, 617,860 shares of Class A common stock were available for award.

A summary of the activity in the Holding Companys common
stock options and warrants and related information for the six-months ended June 30, 2008 follows (intrinsic value is presented in thousands):



|                                                    |  |                          |            |   |                         |   |      
|--------------------------------------------------- |  | ------------------------ | ---------- | - | ----------------------- | - | -----
|                                                    |  | Exercise PricePer Option |            |   | Wtd.-Avg.Exercise Price
|Class A Common Stock Options:                       |  | $                        | 17.10      |   |                         |   |      
|                                                    |  |                          |            |   |                         |   |      
|Outstanding at December 31, 2007                    |  |                          | 137,640    |   |                         | $ | 17.10
|Forfeited                                           |  |                          | (4,800     | ) |                         | $ | 17.10
|Expired (1)                                         |  |                          | (700       | ) |                         | $ | 17.10
|                                                    |  |                          |            |   |                         |   |      
|Outstanding at June 30, 2008                        |  |                          | 132,140    |   |                         | $ | 17.10
|                                                    |  |                          |            |   |                         |   |      
|Remaining contractual term at June 30, 2008 (2) (3) |  |                          | 9.46 years |   |                         |   |      
|                                                    |  |                          |            |   |                         |   |      



|                                 |  |                           |          |   |               |   |         |                         |  |          |   |  |   |     
|-------------------------------- |  | ------------------------- | -------- | - | ------------- | - | ------- | ----------------------- |  | -------- | - |  | - | ----
|                                 |  | Exercise PricePer Warrant |          |   | TotalWarrants |   |         | Wtd.-Avg.Exercise Price
|Class B Common Stock Warrants:   |  | $                         | 6.67     |   |               | $ | 10.00   |                         |  |          |   |  |   |     
|                                 |  |                           |          |   |               |   |         |                         |  |          |   |  |   |     
|Outstanding at December 31, 2007 |  |                           | 145,000  |   |               |   | 50,000  |                         |  | 195,000  |   |  | $ | 7.52
|Exercised (4)                    |  |                           | (145,000 | ) |               |   | (50,000 | )                       |  | (195,000 | ) |  | $ | 7.52
|                                 |  |                           |          |   |               |   |         |                         |  |          |   |  |   |     
|Outstanding at June 30, 2008     |  |                           |         |   |               |   |        |                         |  |         |   |  |   |     
|                                 |  |                           |          |   |               |   |         |                         |  |          |   |  |   |     



|(1) | Represent vested options issued to former employees that expired unexercised.
|--- | -----------------------------------------------------------------------------

|(2) | Options expire on December 13, 2017, or earlier under certain conditions, and vest in equal installments as follows: one third (45,880) vested on December 13, 2007
(grant date) and are exercisable, and one third vest and become exercisable on December 13, 2008 and 2009, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Intrinsic value is zero since the closing price of the Class A common stock on June 30, 2008 of $5.12 was below the exercise price of the options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Total intrinsic value of Class B warrants exercised in 2008 was $1.0 million and the related income tax benefit was $0.3 million, which was recorded in paid in capital. Intrinsic
value was calculated using the closing stock price of $12.40 of the Class A common stock on January 22, 2008 in excess of the exercise price multiplied by the number of warrants exercised. There is no trading market for the Class B common
stock. The Class B common stock can be converted into Class A common stock on a share-for-share basis at anytime.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the
first six-months of 2008, $111,000 of compensation expense was recorded in connection with stock options outstanding with a corresponding increase to paid in capital. There was no such compensation expense in the same period of 2007. At
June 30, 2008, there was $325,000 of unrecognized compensation cost related to outstanding stock options granted in 2007, of which approximately $111,000 is expected to be recognized over the remainder of 2008 and $214,000 in 2009.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 10 - Earnings Per Share (EPS)

Basic and diluted EPS are calculated in accordance with SFAS 128, Earnings per Share. Basic EPS is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding.
Diluted EPS is calculated by dividing adjusted net earnings by the weighted-average number of shares of common stock and dilutive potential common stock shares that may be outstanding in the future.

Potential common stock shares consist of shares that may arise from outstanding dilutive common stock warrants/options (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/options 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).

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 EndedJune 30, |           | Six-Months EndedJune 30,
|($ in thousands, except share and per share amounts)                       |  | 2008                  |           | 2007                     |   | 2008      |  | 2007
|Basic Earnings Per Share:                                                  |  |                       |           |                          |   |           |  |      |           |  |   |          
|Net earnings applicable to common stockholders                             |  | $                     | 1,861     |                          | $ | 5,367     |  | $    | 4,142     |  | $ | 10,720   
|Weighted-Average number of common shares outstanding                       |  |                       | 8,270,812 |                          |   | 8,416,248 |  |      | 8,247,241 |  |   | 8,394,791
|                                                                           |  |                       |           |                          |   |           |  |      |           |  |   |          
|Basic Earnings Per Share                                                   |  | $                     | 0.22      |                          | $ | 0.64      |  | $    | 0.50      |  | $ | 1.28     
|                                                                           |  |                       |           |                          |   |           |  |      |           |  |   |          
|Diluted Earnings Per Share:                                                |  |                       |           |                          |   |           |  |      |           |  |   |          
|Net earnings applicable to common stockholders                             |  | $                     | 1,861     |                          | $ | 5,367     |  | $    | 4,142     |  | $ | 10,720   
|Adjustment to net earnings from assumed conversion of debentures (1)       |  |                       |          |                          |   | 11        |  |      |          |  |   | 44       
|Adjusted net earnings for diluted earnings per share computation           |  | $                     | 1,861     |                          | $ | 5,378     |  | $    | 4,142     |  | $ | 10,764   
|                                                                           |  |                       |           |                          |   |           |  |      |           |  |   |          
|Weighted-Average number of common shares outstanding:                      |  |                       |           |                          |   |           |  |      |           |  |   |          
|Common shares outstanding                                                  |  |                       | 8,270,812 |                          |   | 8,416,248 |  |      | 8,247,241 |  |   | 8,394,791
|Potential dilutive shares resulting from exercise of warrants /options (2) |  |                       |          |                          |   | 81,341    |  |      | 4,348     |  |   | 83.832   
|Potential dilutive shares resulting from conversion of debentures (3)      |  |                       |          |                          |   | 80,450    |  |      |          |  |   | 108,195  
|                                                                           |  |                       |           |                          |   |           |  |      |           |  |   |          
|Total average number of common shares outstanding used for dilution        |  |                       | 8,270,812 |                          |   | 8,578,039 |  |      | 8,251,589 |  |   | 8,586,818
|                                                                           |  |                       |           |                          |   |           |  |      |           |  |   |          
|Diluted Earnings Per Share                                                 |  | $                     | 0.22      |                          | $ | 0.63      |  | $    | 0.50      |  | $ | 1.25     
|                                                                           |  |                       |           |                          |   |           |  |      |           |  |   |          



|(1) | Represents interest expense on dilutive convertible debentures, net of taxes, that would not occur if they were assumed converted.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(2) | All outstanding options/warrants were considered for the EPS computations, except for 132,140 options granted in December 2007, which were not dilutive because the exercise price
was above the average market price of the Class A common stock during both periods of 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Convertible debentures (principal and accrued interest outstanding) were convertible into common stock at a price of $18.00 per share in 2007. Shares are computed based on average
balances outstanding during each period of 2007. There were no convertible debentures outstanding in the 2008 periods.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 11 -
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.

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 normally require payment of fees to the Company. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in the underwriting of letters of credit is essentially the same as that involved in originating loans.



14



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 11 - Off-Balance Sheet Financial Instruments - Continued



The contractual amounts of off-balance sheet financial instruments is summarized as follows:



|                          |  |                 |         |                     |   |       
|------------------------- |  | --------------- | ------- | ------------------- | - | ------
|($ in thousands)          |  | At June 30,2008 |         | At December 31,2007
|Unfunded loan commitments |  | $               | 112,602 |                     | $ | 82,545
|Available lines of credit |  |                 | 840     |                     |   | 654   
|Standby letters of credit |  |                 |        |                     |   | 300   
|                          |  |                 |         |                     |   |       
|                          |  | $               | 113,442 |                     | $ | 83,499
|                          |  |                 |         |                     |   |       

Note 12 - Regulatory Capital

The Company is subject to regulation, examination and supervision by the FRB. The Bank is also subject to regulation, examination and supervision by the Federal Deposit Insurance Corporation (FDIC) and the Office of
the Comptroller of the Currency of the United States of America (OCC).

The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to meet them can initiate certain mandatory and possible discretionary actions by the regulators that, if undertaken, could have a direct material effect on the
Companys and the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. These capital amounts are also subject to qualitative judgement by the regulators about components, risk weighting and other
factors. Quantitative measures established by the regulations to ensure capital adequacy require the Company, on a consolidated basis, and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of
Tier 1 capital to average assets, as defined by the regulations.

The Federal Reserve allows trust preferred securities to be included in the Tier 1
capital of bank holding companies (BHC), but with stricter limitations on the use of such securities becoming fully effective by March 31, 2009. Until then, BHCs generally must comply with the current Tier 1 capital limits. As of June 30,
2008 and December 31, 2007, assuming the Holding Company had excluded all of its eligible trust preferred securities (which totaled $55 million) from Tier 1 Capital and included such amount in Tier 2 capital, the Company would still have
exceeded its minimum capital requirement threshold under the regulatory framework for prompt corrective action.

Management believes, as of June 30,
2008 and December 31, 2007, that the Company and the Bank met all capital adequacy requirements to which they are subject. The most recent notification from the Banks regulators categorized the Bank as a well-capitalized institution under
the regulatory framework for prompt corrective action, which requires minimum Tier 1 leverage and Tier 1 and total risk-based capital ratios of 5%, 6% and 10%, respectively. Management is not aware of any current conditions or events outstanding
that would change the designation from well capitalized.

At June 30, 2008, the actual capital of the Company (consolidated basis) on a percentage
basis was as follows:



|                                                                                       |  |              |   |  |                    |   |  |                                  |  
|-------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------------ | - |  | -------------------------------- | -
|                                                                                       |  | ActualRatios |   |  | MinimumRequirement |   |  | To Be ConsideredWell Capitalized |  
|Total capital to risk-weighted assets                                                  |  | 14.07        | % |  | 8.00               | % |  | NA                               |  
|Tier 1 capital to risk-weighted assets                                                 |  | 12.82        | % |  | 4.00               | % |  | NA                               |  
|Tier 1 capital to total average assets  leverage ratio                                |  | 10.95        | % |  | 4.00               | % |  | NA                               |  
|                                                                                       |  |              |  
|At June 30, 2008, the actual capital of the Bank on a percentage basis was as follows: |  |              |   |  |                    |   |  |                                  |  
|                                                                                       |  |              |  
|                                                                                       |  | ActualRatios |   |  | MinimumRequirement |   |  | To Be ConsideredWell Capitalized |  
|Total capital to risk-weighted assets                                                  |  | 12.69        | % |  | 8.00               | % |  | 10.00                            | %
|Tier 1 capital to risk-weighted assets                                                 |  | 11.44        | % |  | 4.00               | % |  | 6.00                             | %
|Tier 1 capital to total average assets  leverage ratio                                |  | 9.72         | % |  | 4.00               | % |  | 5.00                             | %



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 13 - Contingencies

The Company is periodically a party to or otherwise involved in legal proceedings arising in the normal course of business, such as foreclosure proceedings. Based on review and consultation with legal counsel, management does not believe
that there is any pending or threatened proceeding against the Company, which, if determined adversely, would have a material effect on the business, results of operations, financial position or liquidity of the Company.

Note 14 - Recent Accounting Pronouncements

SFAS 141(R) -
Business Combinations. SFAS 141(R) is effective for the Companys 2009 financial statements. SFAS 141(R) requires, among other things, the acquiring entity in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect of the business combination. The adoption of this statement is expected to have no effect on the Companys financial statements.

SFAS 157 - Fair Value Measurements.On January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements. SFAS 157, among other
things, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an
instrument is carried at fair value. The adoption of this statement had no effect on the Companys financial statements.

The following disclosures,
which include certain disclosures that are generally not required in interim period financial statements, are included herein as a result of the adoption of SFAS 157.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Currently, the Company has no assets or liabilities that are
recorded at fair value on a recurring basis, such as securities available for sale. From time to time however, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as impaired loans and
foreclosed real estate. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

In accordance with SFAS 157, the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine
fair value, as follows:



| |  | Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets;
|- |  | ---------------------------------------------------------------------------------------------------



| |  | Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are
not active and model-based valuation techniques for which all significant assumptions are observable in the market; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These assumptions reflect the
Companys estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be
determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company bases
its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 requires the Company to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)





Note 14 - Recent Accounting Pronouncements - Continued



The following describes valuation methodologies used for assets measured at fair value on a non-recurring basis.

Impaired Loans. Nearly all of the Companys loans are evaluated individually for impairment. A loan is considered impaired when, based upon
current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. The Companys impaired loans are normally collateral
dependent and, as such, are carried at the lower of the Companys net recorded investment in the loan or the estimated fair value of the collateral less estimated selling costs. Adjustments to recorded investment are made through specific
valuation allowances that are recorded as part of the overall allowance for loan losses. Estimates of fair value is determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed
appraisers or local real estate brokers and the knowledge and experience of the Companys two senior lending officers (the Chairman and the President of the Bank) related to values of properties in the Companys market areas. These
officers take into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans
is classified as Level 3.

Foreclosed Real Estate.Foreclosed real estate represents real estate acquired by the Company as a result of foreclosure
or by deed in lieu of foreclosure and is carried, net of any allowance for losses if any, at the lower of cost or estimated fair value less estimated selling costs. Fair value is estimated in the same manner as impaired loans and, as such, is also
classified as Level 3. As these properties are actively marketed, estimated fair value may be periodically adjusted though an allowance for losses to reflect changes in values resulting from changing market conditions.

The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value at June 30, 2008.



|                       |  |                                     |         |                  |   |         |   |         |   |                           |  |                              |       |  |   |      
|---------------------- |  | ----------------------------------- | ------- | ---------------- | - | ------- | - | ------- | - | ------------------------- |  | ---------------------------- | ----- |  | - | -----
|                       |  | Net carrying value at June 30, 2008 |         | Total Losses (1)
|($ in thousands)       |  | Total                               |         | Level 1          |   | Level 2 |   | Level 3 |   | QuarterEndedJune 30, 2008 |  | Six-MonthsEndedJune 30, 2008
|Impaired loans         |  | $                                   | 119,078 |                  |  |         |  |         | $ | 119,078                   |  | $                            | 2,458 |  | $ | 2,458
|Foreclosed real estate |  | $                                   | 7,272   |                  |  |         |  |         | $ | 7,272                     |  |                              |      |  |   |     
|                       |  |                                     |         |                  |   |         |   |         |   |                           |  |                              |       |  |   |      



|(1) | Represents a specific valuation allowance (recorded as part of the overall allowance for loan losses) for two nonaccrual loans totaling $32.9 million in accordance with SFAS 114.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SFAS 159 - Fair Value Accounting. On January 1, 2008, the Company adopted SFAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities. SFAS 159 allows companies to elect to follow fair value accounting for certain financial assets and liabilities in an effort to mitigate volatility in earnings without having to apply complex hedge
accounting provisions. The adoption of this statement had no effect on the Companys financial statements.

SFAS 160 - Noncontrolling Interest
in Consolidated Financial Statements.In December 2007, the FASB issued SFAS 160 and its effective for the Companys 2009 financial statements. Its objective is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for deconsolidation of a subsidiary. The adoption
of this statement is not expected to have any effect on the Companys financial statements.

SFAS 161 - Disclosures about Derivative Instruments
and Hedging Activities, an amendment of SFAS 133. In March 2008, the FASB issued SFAS 161, which provides for enhanced disclosures about how and why an entity uses derivatives and how and where those derivatives and related hedged
items are reported in the entitys financial statements. SFAS 161 also requires certain tabular formats for disclosing such information. SFAS 161 is effective for the Company in 2009. SFAS 161 applies to all entities and all derivative
instruments and related hedged items accounted for under SFAS 133. Among other things, SFAS 161 requires disclosures of an entitys objectives and strategies for using derivatives by primary underlying risk and certain disclosures about the
potential future collateral or cash requirements as a result of contingent credit-related features. The Company does not engage in trading or hedging activities, nor does it invest in interest rate derivatives or enter into interest rate swaps.
Accordingly, the adoption of SFAS 161 is expected to have no impact on its financial statements.



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##### Table of Contents

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 June 30, 2008 and for the three and six-month
periods ended June 30, 2008 and 2007 presented in this document, in accordance with the standards established by the Public Company Accounting Oversight Board.

The report of Hacker, Johnson & Smith, P.A., P.C. furnished pursuant to Article 10 of Regulation S-X is included herein.



18



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##### Table of Contents

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 June 30, 2008 and the related condensed consolidated statements of earnings for the three- and six-month periods ended
June 30, 2008 and 2007, and the related condensed consolidated statements of changes in stockholders equity and cash flows for the six-month periods ended June 30, 2008 and 2007. These interim financial statements are the
responsibility of the Companys management.

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, 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, 2007, and the related consolidated statements of earnings, changes in stockholders equity and cash flows
for the year then ended (not presented herein); and in our report dated February 22, 2008, we, based on our audit 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, 2007 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                         
|July 25, 2008                          



19



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##### Table of Contents

|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Overview

The following managements discussion of financial condition and results of operations of
Intervest Bancshares Corporation and Subsidiaries should be read in conjunction with the accompanying quarterly condensed consolidated financial statements in this report on Form 10-Q as well as the entire annual report on Form 10-K for the
year ended December 31, 2007.

Intervest Bancshares Corporation has two wholly owned consolidated subsidiaries, Intervest National Bank and Intervest
Mortgage Corporation (hereafter, together with Intervest Bancshares Corporation, 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. The Holding Company also has four wholly owned unconsolidated subsidiaries, Intervest Statutory Trust II, III, IV and V, which were formed in connection with the
issuance of trust preferred securities. For a more detailed discussion of the Companys business, see note 2 to the condensed consolidated financial statements in this report.

Critical Accounting Policies

The Company believes that currently its only accounting policy that is critical
to the presentation of its financial statements and requires estimates and judgment on the part of management relates to the determination of the Companys allowance for loan losses. The allowance for loan losses is a critical accounting
estimate because it is highly susceptible to change from period to period requiring management to make assumptions about future loan chargeoffs. The impact of a sudden large chargeoff could deplete the allowance and potentially require increased
provisions to replenish the allowance, which could negatively affect the Companys earnings and financial position.

A more detailed discussion of the
factors and estimates used in computing the allowance can be found under the caption Critical Accounting Policies on pages 37 to 39 of the Companys annual report on Form 10-K for the year ended December 31, 2007.

Comparison of Financial Condition at June 30, 2008 and December 31, 2007

Selected balance sheet information by entity as of June 30, 2008 follows:



|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|------------------------------------------- |  | -------------- | ------- | - | --------------------- | - | --------- | ---------------------------- |  | - | ------------------------ | - |  | ------------ | -------- | - |  | - | --------- | -
|($ in thousands)                            |  | HoldingCompany |         |   | IntervestNationalBank |   |           | IntervestMortgageCorporation |  |   | Inter-CompanyAmounts (1) |   |  | Consolidated |         
|Cash and cash equivalents                   |  | $              | 1,927   |   |                       | $ | 8,503     |                              |  | $ | 14,001                   |   |  | $            | (7,705   | ) |  | $ | 16,726    |  
|Security investments                        |  |                |        |   |                       |   | 439,362   |                              |  |   |                         |   |  |              |         |   |  |   | 439,362   |  
|Loans receivable, net of deferred fees      |  |                | 2,606   |   |                       |   | 1,634,186 |                              |  |   | 86,421                   |   |  |              |         |   |  |   | 1,723,213 |  
|Allowance for loan losses                   |  |                | (30     | ) |                       |   | (25,181   | )                            |  |   | (1,398                   | ) |  |              |         |   |  |   | (26,609   | )
|Investment in consolidated subsidiaries     |  |                | 232,564 |   |                       |   |          |                              |  |   |                         |   |  |              | (232,564 | ) |  |   |          |  
|All other assets                            |  |                | 3,459   |   |                       |   | 46,336    |                              |  |   | 4,776                    |   |  |              | (93      | ) |  |   | 54,478    |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Total assets                                |  | $              | 240,526 |   |                       | $ | 2,103,206 |                              |  | $ | 103,800                  |   |  | $            | (240,362 | ) |  | $ | 2,207,170 |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Deposits                                    |  | $              |        |   |                       | $ | 1,817,389 |                              |  | $ |                         |   |  | $            | (7,706   | ) |  | $ | 1,809,683 |  
|Borrowed funds and related interest payable |  |                | 56,839  |   |                       |   | 40,201    |                              |  |   | 71,023                   |   |  |              |         |   |  |   | 168,063   |  
|All other liabilities                       |  |                | 138     |   |                       |   | 43,797    |                              |  |   | 2,032                    |   |  |              | (92      | ) |  |   | 45,875    |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Total liabilities                           |  |                | 56,977  |   |                       |   | 1,901,387 |                              |  |   | 73,055                   |   |  |              | (7,798   | ) |  |   | 2,023,621 |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Stockholders equity                        |  |                | 183,549 |   |                       |   | 201,819   |                              |  |   | 30,745                   |   |  |              | (232,564 | ) |  |   | 183,549   |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Total liabilities and stockholders equity  |  | $              | 240,526 |   |                       | $ | 2,103,206 |                              |  | $ | 103,800                  |   |  | $            | (240,362 | ) |  | $ | 2,207,170 |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  



|(1) | All significant intercompany balances and transactions are eliminated in consolidation. Such amounts arise largely from intercompany deposit accounts and investments in
subsidiaries.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

A comparison of selected consolidated balance sheet information follows:



|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  
|-------------------------------------------------------------- |  | ---------------- | --------- | ---------------- | -------------------- | - | ------------- | - | ---------------- |  | ----- | -
|                                                               |  | At June 30, 2008 |           |                  | At December 31, 2007 |  
|($ in thousands)                                               |  | CarryingValue    |           | % ofTotal Assets |                      |   | CarryingValue |   | % ofTotal Assets | 
|Cash and cash equivalents                                      |  | $                | 16,726    |                  | 0.7                  | % |               | $ | 33,086           |  | 1.6   | %
|Security investments                                           |  |                  | 439,362   |                  | 19.9                 |   |               |   | 350,456          |  | 17.3  |  
|Loans receivable, net of deferred fees and loan loss allowance |  |                  | 1,696,604 |                  | 76.9                 |   |               |   | 1,592,439        |  | 78.8  |  
|All other assets                                               |  |                  | 54,478    |                  | 2.5                  |   |               |   | 45,411           |  | 2.3   |  
|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  
|Total assets                                                   |  | $                | 2,207,170 |                  | 100.0                | % |               | $ | 2,021,392        |  | 100.0 | %
|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  
|Deposits                                                       |  | $                | 1,809,683 |                  | 82.0                 | % |               | $ | 1,659,174        |  | 82.1  | %
|Borrowed funds and related interest payable                    |  |                  | 168,063   |                  | 7.6                  |   |               |   | 136,434          |  | 6.7   |  
|All other liabilities                                          |  |                  | 45,875    |                  | 2.1                  |   |               |   | 46,223           |  | 2.3   |  
|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  
|Total liabilities                                              |  |                  | 2,023,621 |                  | 91.7                 |   |               |   | 1,841,831        |  | 91.1  |  
|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  
|Stockholders equity                                           |  |                  | 183,549   |                  | 8.3                  |   |               |   | 179,561          |  | 8.9   |  
|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  
|Total liabilities and stockholders equity                     |  | $                | 2,207,170 |                  | 100.0                | % |               | $ | 2,021,392        |  | 100.0 | %
|                                                               |  |                  |           |                  |                      |   |               |   |                  |  |       |  

Cash and Cash Equivalents

Cash and cash equivalents include interest-bearing and noninterest-bearing cash balances with banks, and other short-term investments that have original maturities of three months or less. Cash and cash equivalents
decreased to $17 million at June 30, 2008, from $33 million at December 31, 2007. 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.

Security Investments

Securities are classified as held to maturity and are carried at amortized cost when management has the intent and ability to hold them to maturity. Such investments, all
of which are held by the Bank, increased to $431 million at June 30, 2008, from $344 million at December 31, 2007. The increase reflected new purchases exceeding maturities and calls during the period.

The Bank invests in U.S. government agency debt obligations to emphasize safety and liquidity. The Company does not own or invest in collateralized debt obligations or
collateralized mortgage obligations. At June 30, 2008, securities held to maturity consisted of debt obligations of the Federal Home Loan Bank, Federal Farm Credit Bank, Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation totaling $423 million and corporate securities (trust preferred notes) of $8 million. At June 30, 2008, the entire portfolio had a weighted-average yield of 4.26% and a weighted-average remaining maturity of 4.7 years, compared to
5.01% and 4.0 years, respectively, at December 31, 2007. Nearly all of the securities in the portfolio have fixed rates of interest or have predetermined rate increases, and many have call features that allow the issuer to call the security
before its stated maturity without penalty. The sharp decline in market interest rates during the first quarter of 2008 resulted in a higher level of securities being called by the issuers.

At June 30, 2008 and December 31, 2007, the held-to-maturity portfolios estimated fair value was $428 million and $346 million, respectively. At
June 30, 2008, the held-to-maturity portfolio had a net unrealized loss of $2.9 million, compared to a net unrealized gain of $1.4 million at December 31, 2007. Management believes that the cause of unrealized losses and gains in the
portfolio is directly related to changes in market interest rates, which is consistent with its experience. In general, as interest rates rise, the estimated fair value of fixed-rate securities will decrease; as interest rates fall, their estimated
fair value will increase. Management views any unrealized losses to be temporary based on the impact of changes in interest rates and the high credit quality of the securities. In addition, the Bank has the ability and intent to hold the securities
that have unrealized losses for a period of time sufficient for the estimated fair value of the securities to recover, which may be at maturity. Historically, the Bank has always recovered the cost of its investment securities upon maturity.

In order for the Bank to be a member of the Federal Reserve Bank (FRB) and the Federal Home Loan Bank of New York (FHLB), the Bank maintains an investment
in the capital stock of each entity, which amounted to $3.6 million and $4.8 million, respectively, at June 30, 2008. The FRB stock has historically paid a dividend of 6%, while the FHLB stock dividend fluctuates quarterly and most recently was
7.8%. The total investment, which amounted to $8.4 million at June 30, 2008, compared to $6.4 million at December 31, 2007, fluctuates based on the Banks capital level for the FRB stock and the Banks loans and outstanding FHLB
borrowings for the FHLB stock.



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##### Table of Contents

Loans Receivable, Net of Deferred Fees and Allowance for Loan Losses

Loans receivable, net of deferred fees, increased to $1.72 billion at June 30, 2008, from $1.61 billion at December 31, 2007. The growth reflected new mortgage
loan originations secured by commercial and multifamily real estate exceeding principal repayments. The new loans are predominantly fixed-rate with a weighted-average yield and term of 6.36% and 5.3 years, respectively.

Competitive market conditions and resulting lower pricing for new loans has made it more difficult to identify suitable mortgage investment opportunities, which has
resulted in lower volumes of loan originations, particularly in the case of Intervest Mortgage Corporation. In addition, the Company has historically originated short-term real estate mortgage loans with either fixed or variable interest rates.
Commencing in early 2007, as a result of competitive market conditions, the Company began placing greater reliance on fixed rate loan originations with somewhat longer maturities. To illustrate, fixed-rate loans constituted approximately 67% of the
loan portfolio at June 30, 2008, compared to approximately 40% at December 31, 2006. Loans in the portfolio had an average life of approximately 4 years at June 30, 2008, compared with 3 years at December 31, 2006.

Loan originations and repayments for the last eight consecutive quarters are summarized in the following table:



|                         |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|------------------------ |  | ----------- | ------- | ----------- | - | ----------- |  | ----------- | ------- | ----------- | - | ----------- |  | ----------- | ------- | ----------- | - | ------- |  | - | ------- |  | - | -------
|($ in thousands)         |  | Jun 30,2008 |         | Mar 31,2008 |   | Dec 31,2007 |  | Sep 30,2007 |         | Jun 30,2007 |   | Mar 31,2007 |  | Dec 31,2006 |         | Sep 30,2006
|Originations:            |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|Intervest National Bank  |  | $           | 129,013 |             | $ | 95,990      |  | $           | 80,919  |             | $ | 140,137     |  | $           | 146,499 |             | $ | 138,687 |  | $ | 105,941 |  | $ | 142,016
|Intervest Mortgage Corp  |  |             |        |             |   | 1,200       |  |             | 6,933   |             |   | 16,650      |  |             | 18,355  |             |   | 6,450   |  |   | 5,033   |  |   | 5,400  
|                         |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|                         |  | $           | 129,013 |             | $ | 97,190      |  | $           | 87,852  |             | $ | 156,787     |  | $           | 164,854 |             | $ | 145,137 |  | $ | 110,974 |  | $ | 147,416
|                         |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|Principal Repayments:    |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|Intervest National Bank  |  | $           | 73,948  |             | $ | 26,129      |  | $           | 99,316  |             | $ | 140,155     |  | $           | 82,040  |             | $ | 78,302  |  | $ | 96,373  |  | $ | 83,526 
|Intervest Mortgage Corp. |  |             | 5,927   |             |   | 4,452       |  |             | 3,252   |             |   | 6,759       |  |             | 12,459  |             |   | 7,714   |  |   | 16,391  |  |   | 11,172 
|Holding Company (1)      |  |             | 12      |             |   | 12          |  |             | 14      |             |   | 41          |  |             | 1,830   |             |   | 72      |  |   | 70      |  |   | 57     
|                         |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|                         |  | $           | 79,887  |             | $ | 30,593      |  | $           | 102,582 |             | $ | 146,955     |  | $           | 96,329  |             | $ | 86,088  |  | $ | 112,834 |  | $ | 94,755 
|                         |  |             |         |             |   |             |  |             |         |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        



|(1) | Excludes the repurchase by the Bank of the Holding Companys participations in loans originated by the Bank.
|--- | ------------------------------------------------------------------------------------------------------------

Loans receivable is concentrated in mortgage loans secured by commercial and multifamily real estate properties (including rental and cooperative/condominium apartment
buildings, office buildings, mixed-use properties, shopping centers, hotels, restaurants, industrial/warehouse properties, parking lots/garages, mobile home parks, self storage facilities and vacant land). At June 30, 2008, such loans consisted
of 617 loans with an aggregate principal balance of $1.73 billion and an average loan size of $2.8 million. Loans with principal balances of more than $10 million consisted of 20 loans or $272 million, with the largest loan being $20.6 million.
Loans with principal balances of $5 million to $10 million consisted of 78 loans and aggregated to $532 million.

Nonaccrual (Impaired) Loans

Nonaccrual loans increased to $119.1 million (23 loans) at June 30, 2008, from $90.8 million (18 loans) at December 31, 2007. At
June 30, 2008, there were two loans totaling $3.1 million classified as ninety days past due and still accruing interest, compared to two loans totaling $11.9 million classified as such at December 31, 2007. Nonaccrual loans are considered
impaired under the criteria of SFAS 114 Accounting by Creditors for Impairment of a Loanan amendment of FASB Statements 5 and 15. At June 30, 2008, two nonaccrual loans totaling $32.9 million have a specific valuation
allowance in the aggregate amount of $2.5 million (recorded as part of the overall allowance for loan losses) in accordance with SFAS 114. The Company believes that the estimated fair value of each of the remaining properties that collateralize its
nonaccrual loans continues to exceed its net recorded investment in each related nonaccrual loan as of June 30, 2008, and as such a specific SFAS 114 valuation allowance was not maintained on those loans. Estimated loan-to-value ratios on such
loans range from 52% to 87% at June 30, 2008. The Company expects $22.2 million (outstanding principal) of nonaccrual loans to be repaid in full in the third quarter of 2008 through the scheduled sale of various collateral properties by the
bankruptcy trustee. At June 30, 2008 and December 31, 2007, there were no other loans classified as impaired.

Estimates of fair value of the
collateral properties is determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Companys
two senior lending officers (the Chairman and the President of the Bank) related to values of properties in the Companys market areas. These officers take into consideration the type, location and occupancy of the property as well as current
economic conditions in the area the property is located in assessing estimates of fair value. Determination of the need for updating appraisals, where practical, is made on a loan-by-loan basis.



22



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##### Table of Contents

Nonaccrual loans are summarized for the Bank and Intervest Mortgage Corporation (IMC) as follows:



|                 |  |                               |  |            |  |        |  |                 |  |              |         |              |   |        |  |     |  
|---------------- |  | ----------------------------- |  | ---------- |  | ------ |  | --------------- |  | ------------ | ------- | ------------ | - | ------ |  | --- | -
|($ in thousands) |  | Principal Balance Outstanding |  |            | 
|Property Type    |  | City                          |  | State      |  | Lender |  | Date Nonaccrual |  | Jun 30, 2008 |         | Dec 31, 2007 |   | Notes  | 
|Retail store     |  | Avenel                        |  | New Jersey |  | Bank   |  | March 2007      |  | $            | 3,064   |              | $ | 3,064  |  | (1  | )
|Retail stores    |  | Neptune                       |  | New Jersey |  | Bank   |  | March 2007      |  |              | 1,962   |              |   | 2,439  |  | (1  | )
|Retail stores    |  | South Amboy                   |  | New Jersey |  | Bank   |  | March 2007      |  |              | 2,220   |              |   | 2,220  |  | (1  | )
|Retail store     |  | Little Silver                 |  | New Jersey |  | Bank   |  | March 2007      |  |              | 739     |              |   | 739    |  | (1  | )
|Multifamily      |  | Long Island                   |  | New York   |  | Bank   |  | June 2007       |  |              | 11,316  |              |   | 11,316 |  | (2  | )
|Hotel            |  | St. Augustine                 |  | Florida    |  | Bank   |  | June 2007       |  |              | 9,053   |              |   | 9,053  |  | (3  | )
|Multifamily      |  | New York                      |  | New York   |  | Bank   |  | August 2007     |  |              | 3,864   |              |   | 3,864  |  | (4  | )
|Undeveloped land |  | North Fort Myers              |  | Florida    |  | Bank   |  | September 2007  |  |              |        |              |   | 3,330  |  | (6  | )
|Multifamily      |  | Lauderhill                    |  | Florida    |  | Bank   |  | November 2007   |  |              | 18,012  |              |   | 18,012 |  | (7  | )
|Multifamily      |  | Hollywood                     |  | Florida    |  | Bank   |  | September 2007  |  |              |        |              |   | 4,065  |  | (9  | )
|Office building  |  | Sunny Isles                   |  | Florida    |  | Bank   |  | September 2007  |  |              | 4,284   |              |   | 4,284  |  | (10 | )
|Undeveloped land |  | Long Island City              |  | New York   |  | Bank   |  | March 2008      |  |              | 11,001  |              |   |       |  | (8  | )
|Vacant land      |  | Hollywood                     |  | Florida    |  | Bank   |  | April 2008      |  |              | 2,724   |              |   |       |  | (8  | )
|Mobile home park |  | Perryville                    |  | Maryland   |  | Bank   |  | May 2008        |  |              | 4,024   |              |   |       |  | (8  | )
|Office building  |  | Staten Island                 |  | New York   |  | Bank   |  | May 2008        |  |              | 5,761   |              |   |       |  | (11 | )
|Motel            |  | Lakewood                      |  | New Jersey |  | Bank   |  | June 2008       |  |              | 1,390   |              |   |       |  | (8  | )
|Multifamily      |  | Melbourne                     |  | Florida    |  | Bank   |  | June 2008       |  |              | 10,906  |              |   |       |  | (12 | )
|                 |  |                               |  |            |  |        |  |                 |  |              |         |              |   |        |  |     |  
|                 |  |                               |  |            |  |        |  |                 |  | $            | 90,320  |              | $ | 62,386 |  |     |  
|Hotel            |  | St. Augustine                 |  | Florida    |  | IMC    |  | July 2007       |  |              | 6,034   |              |   | 6,034  |  | (3  | )
|Multifamily      |  | New York                      |  | New York   |  | IMC    |  | August 2007     |  |              | 4,445   |              |   | 4,445  |  | (4  | )
|Multifamily      |  | New York                      |  | New York   |  | IMC    |  | August 2007     |  |              | 4,387   |              |   | 4,387  |  | (4  | )
|Multifamily      |  | New York                      |  | New York   |  | IMC    |  | August 2007     |  |              | 4,178   |              |   | 4,178  |  | (4  | )
|Multifamily      |  | New York                      |  | New York   |  | IMC    |  | August 2007     |  |              | 4,119   |              |   | 4,119  |  | (4  | )
|Multifamily      |  | New York                      |  | New York   |  | IMC    |  | August 2007     |  |              | 1,249   |              |   | 1,249  |  | (4  | )
|Office building  |  | Brooklyn                      |  | New York   |  | IMC    |  | October 2006    |  |              | 2,299   |              |   | 2,299  |  | (5  | )
|Hotel            |  | Howell                        |  | New Jersey |  | IMC    |  | December 2007   |  |              | 1,659   |              |   | 1,659  |  | (8  | )
|Office building  |  | Staten Island                 |  | New York   |  | IMC    |  | May 2008        |  |              | 388     |              |   |       |  | (11 | )
|                 |  |                               |  |            |  |        |  |                 |  |              |         |              |   |        |  |     |  
|                 |  |                               |  |            |  |        |  |                 |  | $            | 28,758  |              | $ | 28,370 |  |     |  
|                 |  |                               |  |            |  |        |  |                 |  |              |         |              |   |        |  |     |  
|                 |  |                               |  |            |  |        |  |                 |  | $            | 119,078 |              | $ | 90,756 |  |     |  
|                 |  |                               |  |            |  |        |  |                 |  |              |         |              |   |        |  |     |  



|(1) | One principal guarantees each of the four loans totaling $8.0 million. Foreclosure proceedings are in progress but have been stayed by reason of a bankruptcy filing. The proceedings
involve multiple properties. In June 2008, one property was sold by the Bankruptcy Trustee and netted $477,000 to the Bank, which was applied as a reduction of outstanding principal. Another two properties are under a contract of sale as per the
Bankruptcy Trustee, which is expected to net approximately $1.3 million to the Bank, which would also be applied to the reduction of principal. It expected that the Bank will eventually take title to any unsold properties and market them for sale
overtime.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Foreclosure proceedings are in progress. A receiver has been appointed and has taken control of the property and the rents. Currently, the rents are not sufficient to cover the
operating costs of the property and the Bank is funding the shortfall as necessary, including paying real estate taxes directly, in order to protect its interest in the property.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Both amounts represent one loan ($15.1 million) originated by the Bank. Intervest Mortgage Corporation owns a participation in this loan. The loan is secured by a waterfront hotel,
restaurant and marina resort. Foreclosure proceedings are in progress but remain stayed by reason of a bankruptcy filing. This loan has a specific valuation allowance under SFAS 114 of $0.5 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | All six loans totaling $22.2 million are to borrowers with common principals. The principals are experiencing legal difficulties in connection with activities alleged by independent
third parties to be fraudulent with respect to the placing of unauthorized and unrecorded mortgages on these and other properties. In July 2007, independent third parties filed an involuntary bankruptcy proceeding against the borrowers and the
principals. A Trustee has been appointed and has taken control of the properties and the rents. In April 2008, the Trustee advised the Company that a contract of sale has been entered into which is scheduled to close in the third quarter of 2008 and
will net full recovery of the outstanding principal.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | A foreclosure sale has been temporarily stayed by reason of a bankruptcy filing.
|--- | --------------------------------------------------------------------------------

|(6) | Title to the collateral property was acquired in May 2008 and the property is being marketed for sale.
|--- | ------------------------------------------------------------------------------------------------------

|(7) | Foreclosure proceedings are in progress. A court appointed receiver has taken over the management of the property, which is currently vacant. A portion of the insurance proceeds for
storm damage suffered at this property has not been accounted for and the Bank is pursuing its collection. The Bank is funding any operating costs as necessary, including paying real estate taxes directly, in order to protect its interest in the
property. This loan has a specific valuation allowance under SFAS 114 of $2.0 million.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Foreclosure proceedings are in progress.
|--- | ----------------------------------------

|(9) | Title to the collateral property was acquired in February 2008 and the property is being marketed for sale.
|--- | -----------------------------------------------------------------------------------------------------------

|(10) | Foreclosure proceedings are in progress but have been temporarily stayed by reason of a bankruptcy filing.
|---- | ----------------------------------------------------------------------------------------------------------

|(11) | Borrower has requested and the Bank has agreed to the deferral of contractual loan payments through November 30, 2008 to give the borrower time to lease vacant space at the
property. The borrower will continue to make monthly escrow payments as required under the Banks first mortgage loan. IMC holds a second mortgage on this property.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Pursuant to a court order, the borrower is required to pay all rents to the Bank and the Bank controls all disbursements. Excess cash from the operations of the property is being
applied to interest owed on a cash basis.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



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##### Table of Contents

Allowance For Loan Losses

The allowance for loan losses increased to $26.6 million at June 30, 2008, from $21.6 million at December 31, 2007. The allowance represented 1.54% of total loans (net of deferred fees) outstanding at
June 30, 2008 compared to 1.34% at December 31, 2007. The increase in the allowance was due to provisions totaling $5.0 million, of which $3.9 million was attributable to credit downgrades on nonaccrual loans and lower estimated values of
certain collateral properties, and $1.1 million was due to net loan growth of $108 million from December 31, 2007. At June 30, 2008, the allowance for loan losses included a specific valuation allowance in the aggregate amount of $2.5
million in accordance with SFAS 114 for two nonaccrual loans totaling $32.9 million.

The following table summarizes the activity in the allowance for loan
losses by entity:



|                                             |  |                       |        |                              |   |                |  |              |    |  |   |       
|-------------------------------------------- |  | --------------------- | ------ | ---------------------------- | - | -------------- |  | ------------ | -- |  | - | ------
|($ in thousands)                             |  | IntervestNationalBank |        | IntervestMortgageCorporation |   | HoldingCompany |  | Consolidated
|Balance at December 31, 2007                 |  | $                     | 20,268 |                              | $ | 1,295          |  | $            | 30 |  | $ | 21,593
|Chargeoffs                                   |  |                       |       |                              |   |               |  |              |   |  |   |      
|Provision for loan losses charged to expense |  |                       | 4,913  |                              |   | 103            |  |              |   |  |   | 5,016 
|                                             |  |                       |        |                              |   |                |  |              |    |  |   |       
|Balance at June 30, 2008                     |  | $                     | 25,181 |                              | $ | 1,398          |  | $            | 30 |  | $ | 26,609
|                                             |  |                       |        |                              |   |                |  |              |    |  |   |       

The following table sets forth information concerning nonperforming assets by entity at June 30, 2008:



|                                              |  |                       |        |   |                              |   |        |                |  |              |  |   |         |  
|--------------------------------------------- |  | --------------------- | ------ | - | ---------------------------- | - | ------ | -------------- |  | ------------ |  | - | ------- | -
|($ in thousands)                              |  | IntervestNationalBank |        |   | IntervestMortgageCorporation |   |        | HoldingCompany |  | Consolidated | 
|Nonaccrual (impaired) loans                   |  | $                     | 90,320 |   |                              | $ | 28,758 |                |  |             |  | $ | 119,078 |  
|Real estate acquired through foreclosure      |  |                       | 7,272  |   |                              |   |       |                |  |             |  |   | 7,272   |  
|                                              |  |                       |        |   |                              |   |        |                |  |              |  |   |         |  
|Total nonperforming assets                    |  | $                     | 97,592 |   |                              | $ | 28,758 |                |  |             |  | $ | 126,350 |  
|                                              |  |                       |        |   |                              |   |        |                |  |              |  |   |         |  
|Nonperforming assets to total assets          |  |                       | 4.64   | % |                              |   | 27.70  | %              |  |             |  |   | 5.72    | %
|Nonaccrual loans to total gross loans         |  |                       | 5.50   | % |                              |   | 33.11  | %              |  |             |  |   | 6.87    | %
|Allowance for loan losses to total net loans  |  |                       | 1.54   | % |                              |   | 1.62   | %              |  |             |  |   | 1.54    | %
|Allowance for loan losses to nonaccrual loans |  |                       | 27.88  | % |                              |   | 4.86   | %              |  |             |  |   | 22.35   | %
|                                              |  |                       |        |   |                              |   |        |                |  |              |  |   |         |  

There can be no assurance that the Company will not incur additional loan loss provisions, loan chargeoffs or
significant expenses in connection with the ultimate collection of its nonaccrual loans, which collection is anticipated to be through the eventual sale of the collateral property in most cases. The Company may also incur significant expenses in
carrying and disposing of properties acquired through foreclosure.

All Other Assets

All other assets increased to $54 million at June 30, 2008, from $45 million at December 31, 2007. The increase was largely due to the addition of $7 million of
real estate acquired through foreclosure as detailed on page 23. Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold. Upon foreclosure of the property, the related loan is transferred from the loan portfolio to
foreclosed real estate at the lower of the loans carrying value at the date of transfer, or estimated fair value of the property less estimated selling costs. Such amount becomes the new cost basis of the property. Adjustments made to the
carrying value at the time of transfer are charged to the allowance for loan losses. After foreclosure, management periodically performs market valuations and the real estate is carried at the lower of cost or estimated fair value less estimated
selling costs. Revenue and expenses from operations and changes in the valuation allowance of the property are included in the caption Real Estate Expenses in the consolidated statements of earnings.

Deposits

Deposits increased to $1.81 billion at June 30,
2008, from $1.66 billion at December 31, 2007, reflecting an increase in certificate of deposit accounts of $61 million and an increase in money market accounts of $90 million.

At June 30, 2008, certificate of deposit accounts totaled $1.47 billion, and checking, savings and money market accounts aggregated $344 million. The same categories of deposit accounts totaled $1.41 billion and
$254 million, respectively, at December 31, 2007. Certificate of deposit accounts represented 81% of total consolidated deposits at June 30, 2008, compared to 85% at December 31, 2007. At June 30, 2008 and December 31, 2007,
certificate of deposit accounts included $165 million and $166 million of brokered deposits, respectively.



24



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##### Table of Contents

Borrowed Funds and Related Interest Payable

Borrowed funds and related interest payable increased to $168 million at June 30, 2008, from $136 million at December 31, 2007, due to a $40 million increase in short-term FHLB advances by the Bank,
partially offset by the early repayment of $8.3 million of debentures by Intervest Mortgage Corporation, as detailed in note 7 to the condensed consolidated financial statements in this report.

All Other Liabilities

All other liabilities remained
unchanged at $46 million at June 30, 2008, compared to December 31, 2007.

Stockholders Equity

Stockholders equity increased to $184 million at June 30, 2008 as follows:



|                                               |  |        |         |   |               |           |               |         |             |           |                 |   |       |  
|---------------------------------------------- |  | ------ | ------- | - | ------------- | --------- | ------------- | ------- | ----------- | --------- | --------------- | - | ----- | -
|($ in thousands)                               |  | Amount |         |   | Class AShares |           | Class BShares |         | TotalShares |           | AmountPer Share |  
|Stockholders equity at December 31, 2007      |  | $      | 179,561 |   |               | 7,690,812 |               | 385,000 |             | 8,075,812 |                 | $ | 22.23 |  
|Net earnings for the period                    |  |        | 4,142   |   |               |          |               |        |             |          |                 |   | 0.50  |  
|Cash dividends paid to common stockholders (1) |  |        | (2,068  | ) |               |          |               |        |             |          |                 |   | (0.25 | )
|Compensation from stock options                |  |        | 111     |   |               |          |               |        |             |          |                 |   | 0.01  |  
|Exercise of Class B common stock warrants (2)  |  |        | 1,803   |   |               |          |               | 195,000 |             | 195,000   |                 |   | 9.25  |  
|                                               |  |        |         |   |               |           |               |         |             |           |                 |   |       |  
|Stockholders equity at June 30, 2008          |  | $      | 183,549 |   |               | 7,690,812 |               | 580,000 |             | 8,270,812 |                 | $ | 22.19 |  
|                                               |  |        |         |   |               |           |               |         |             |           |                 |   |       |  



|(1) | On April 23, 2008, the Holding Companys board of directors approved the payment of a cash dividend of $0.25 per share on the Holding Companys outstanding
Class A and Class B common stock. The dividend was paid on June 16, 2008 to shareholders of record on the close of business June 2, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | A total of 195,000 Class B common stock warrants were exercised in January 2008 at an average exercise price of $7.52 per share for total cash proceeds of $1.5 million. A $0.3
million income tax benefit in connection with the exercise was recorded in paid-in capital for a total increase to stockholders equity of $1.8 million from the exercise of Class B common stock warrants.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25



---

##### Table of Contents

Comparison of Results of Operations for the Quarters Ended June 30, 2008 and 2007

Overview

Consolidated net earnings for
the second quarter of 2008 (Q2-08) decreased by $3.6 million, or 67%, to $1.8 million, or $0.22 per diluted share, from $5.4 million, or $0.63 per diluted share, in the second quarter of 2007 (Q2-07). The decrease in
consolidated net earnings was due to the following: a $2.5 million decrease in net interest and dividend income; a $2.0 million increase in the provision for loan losses; a $1.1 million increase in noninterest expenses; and a $0.7 million decrease
in noninterest income; partially offset by a $2.8 million decrease in the provision for income tax expense. Return on average assets and equity also decreased to 0.34% and 4.04% in Q2-08, from 1.05% and 12.09% in Q2-07, respectively. The
Companys book value per common share was $22.19 at June 30, 2008.

Selected information regarding results of operations by entity follows:



|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|--------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------------------------- | - | ----- | -------------- |  | - | ------------------------ | - |  | ----------------- | ---- | ----------------- |  | - | ------ |  | - | ------
|($ in thousands)                                                      |  | IntervestNationalBank |        |   | IntervestMortgageCorporation |   |       | HoldingCompany |  |   | Inter-CompanyAmounts (2) |   |  | ConsolidatedQ2-08 |      | ConsolidatedQ2-07
|Interest and dividend income                                          |  | $                     | 30,343 |   |                              | $ | 1,430 |                |  | $ | 68                       |   |  | $                 | (65  | )                 |  | $ | 31,776 |  | $ | 34,082
|Interest expense                                                      |  |                       | 20,511 |   |                              |   | 1,380 |                |  |   | 886                      |   |  |                   | (65  | )                 |  |   | 22,712 |  |   | 22,489
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net interest and dividend income (expense)                            |  |                       | 9,832  |   |                              |   | 50    |                |  |   | (818                     | ) |  |                   |     |                   |  |   | 9,064  |  |   | 11,593
|Provision for loan losses                                             |  |                       | 2,654  |   |                              |   | 99    |                |  |   |                         |   |  |                   |     |                   |  |   | 2,753  |  |   | 715   
|Noninterest income                                                    |  |                       | 936    |   |                              |   | 855   |                |  |   | 112                      |   |  |                   | (764 | )                 |  |   | 1,139  |  |   | 1,842 
|Noninterest expenses                                                  |  |                       | 3,923  |   |                              |   | 879   |                |  |   | 159                      |   |  |                   | (764 | )                 |  |   | 4,197  |  |   | 3,117 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Earnings (loss) before taxes                                          |  |                       | 4,191  |   |                              |   | (73   | )              |  |   | (865                     | ) |  |                   |     |                   |  |   | 3,253  |  |   | 9,603 
|Provision (benefit) for income taxes                                  |  |                       | 1,824  |   |                              |   | (34   | )              |  |   | (398                     | ) |  |                   |     |                   |  |   | 1,392  |  |   | 4,236 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net earnings (loss)                                                   |  | $                     | 2,367  |   |                              | $ | (39   | )              |  | $ | (467                     | ) |  | $                 |     |                   |  | $ | 1,861  |  | $ | 5,367 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Intercompany dividends (1)                                            |  |                       | (885   | ) |                              |   |      |                |  |   | 885                      |   |  |                   |     |                   |  |   |       |  |   |      
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net earnings after intercompany dividends                             |  | $                     | 1,482  |   |                              | $ | (39   | )              |  | $ | 418                      |   |  | $                 |     |                   |  | $ | 1,861  |  | $ | 5,367 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net earnings after intercompany dividends for the same period of 2007 |  | $                     | 4,220  |   |                              | $ | 682   |                |  | $ | 465                      |   |  | $                 |     |                   |  | $ | 5,367  |  |   |       
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       



|(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 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 is the difference between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing liabilities,
such as deposits and borrowings.

Net interest and dividend income decreased by $2.5 million to $9.1 million in Q2-08, from $11.6 million in Q2-07 largely
due to a $101 million increase in average nonaccrual loans. Interest income that was not recorded on nonaccrual loans amounted to $2.6 million in Q2-08, compared to a $0.4 million in Q2-07.

Total average interest-earning assets increased $132 million in Q2-08 from Q2-07, due to growth of $101 million in loans and $31 million in security and other short-term
investments. This growth was funded by a $139 million increase in interest-bearing deposits, partially offset by a $8 million decrease in borrowed funds.

The Companys net interest margin (excluding income from loan prepayments) decreased to 1.69% in Q2-08, from 2.29% in Q2-07. The margin was negatively affected by the increase in nonaccrual loans, repayments of higher yielding loans
coupled with lower competitive pricing for new loans, lower market yields earned on investment securities and short-term investments and strong competition for deposits. These factors caused the yield on the Companys interest-earnings assets
to decrease at a faster pace than the Companys cost of funds.

The Companys yield on interest-earning assets decreased 83 basis points to 5.92%
in Q2-08 due to the factors noted above. The Companys cost of funds decreased by only 27 basis points to 4.70% in Q2-08 despite rate reductions in the federal funds rate totaling 325 basis points since September 2007 by the Federal Open Market
Committee. In order to remain competitive with larger banks for deposits, the Bank was not able to lower its deposit rates in step with the Federal Open Market Committees rate reductions.



26



---

##### Table of Contents

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. The interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is greater than the interest rate
spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, primarily demand deposits and stockholders equity.



|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|---------------------------------------------------------------------------- |  | -------------- | --------- | - | ----------------- | - | -------------- |  | ---- | -------------- |  | - | ----------------- | - | -------------- | - | ------ |  | ---- | -
|                                                                             |  | Quarter Ended  |          
|                                                                             |  | June 30, 2008  |           |   | June 30, 2007     |  
|($ in thousands)                                                             |  | AverageBalance |           |   | InterestInc./Exp. |   | Yield/Rate (2) |  |      | AverageBalance |  |   | InterestInc./Exp. |   | Yield/Rate (2) |  
|Assets                                                                       |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-earning assets:                                                     |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Loans (1)                                                                    |  | $              | 1,701,949 |   |                   | $ | 27,002         |  | 6.38 | %              |  | $ | 1,600,360         |   |                | $ | 28,652 |  | 7.18 | %
|Securities                                                                   |  |                | 428,601   |   |                   |   | 4,629          |  | 4.34 |                |  |   | 407,788           |   |                |   | 5,193  |  | 5.11 |  
|Other interest-earning assets                                                |  |                | 28,201    |   |                   |   | 145            |  | 2.07 |                |  |   | 18,235            |   |                |   | 237    |  | 5.21 |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-earning assets                                                |  |                | 2,158,751 |   |                   | $ | 31,776         |  | 5.92 | %              |  |   | 2,026,383         |   |                | $ | 34,082 |  | 6.75 | %
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-earning assets                                                   |  |                | 20,580    |   |                   |   |                |  |      |                |  |   | 17,700            |   |                |   |        |  |      |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total assets                                                                 |  | $              | 2,179,331 |   |                   |   |                |  |      |                |  | $ | 2,044,083         |   |                |   |        |  |      |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Liabilities and Stockholders Equity                                         |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-bearing liabilities:                                                |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest checking deposits                                                   |  | $              | 5,945     |   |                   | $ | 27             |  | 1.83 | %              |  | $ | 6,304             |   |                | $ | 28     |  | 1.78 | %
|Savings deposits                                                             |  |                | 8,185     |   |                   |   | 60             |  | 2.95 |                |  |   | 9,483             |   |                |   | 70     |  | 2.96 |  
|Money market deposits                                                        |  |                | 311,826   |   |                   |   | 2,643          |  | 3.41 |                |  |   | 230,197           |   |                |   | 2,496  |  | 4.35 |  
|Certificates of deposit                                                      |  |                | 1,476,499 |   |                   |   | 17,631         |  | 4.80 |                |  |   | 1,417,773         |   |                |   | 17,205 |  | 4.87 |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total deposit accounts                                                       |  |                | 1,802,455 |   |                   |   | 20,361         |  | 4.54 |                |  |   | 1,663,757         |   |                |   | 19,799 |  | 4.77 |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|FHLB advances and Fed funds purchased                                        |  |                | 14,237    |   |                   |   | 81             |  | 2.29 |                |  |   | 7,838             |   |                |   | 107    |  | 5.48 |  
|Debentures and related interest payable                                      |  |                | 70,249    |   |                   |   | 1,380          |  | 7.90 |                |  |   | 84,925            |   |                |   | 1,693  |  | 8.00 |  
|Debentures - capital securities                                              |  |                | 56,702    |   |                   |   | 886            |  | 6.28 |                |  |   | 56,702            |   |                |   | 886    |  | 6.27 |  
|Mortgage note payable                                                        |  |                | 195       |   |                   |   | 4              |  | 8.25 |                |  |   | 210               |   |                |   | 4      |  | 7.64 |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total borrowed funds                                                         |  |                | 141,383   |   |                   |   | 2,351          |  | 6.69 |                |  |   | 149,675           |   |                |   | 2,690  |  | 7.21 |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-bearing liabilities                                           |  |                | 1,943,838 |   |                   | $ | 22,712         |  | 4.70 | %              |  |   | 1,813,432         |   |                | $ | 22,489 |  | 4.97 | %
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-bearing deposits                                                 |  |                | 4,128     |   |                   |   |                |  |      |                |  |   | 4,180             |   |                |   |        |  |      |  
|Noninterest-bearing liabilities                                              |  |                | 47,180    |   |                   |   |                |  |      |                |  |   | 48,902            |   |                |   |        |  |      |  
|Stockholders equity                                                         |  |                | 184,185   |   |                   |   |                |  |      |                |  |   | 177,569           |   |                |   |        |  |      |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total liabilities and stockholders equity                                   |  | $              | 2,179,331 |   |                   |   |                |  |      |                |  | $ | 2,044,083         |   |                |   |        |  |      |  
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest and dividend income/spread                                      |  |                |           |   |                   | $ | 9,064          |  | 1.22 | %              |  |   |                   |   |                | $ | 11,593 |  | 1.78 | %
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest-earning assets/margin (3)                                       |  | $              | 214,913   |   |                   |   |                |  | 1.69 | %              |  | $ | 212,951           |   |                |   |        |  | 2.29 | %
|                                                                             |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Ratio of total interest-earning assets to total interest-bearing liabilities |  |                | 1.11      |   |                   |   |                |  |      |                |  |   | 1.12              |   |                |   |        |  |      |  
|Other Ratios:                                                                |  |                |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Return on average assets (2)                                                 |  |                | 0.34      | % |                   |   |                |  |      |                |  |   | 1.05              | % |                |   |        |  |      |  
|Return on average equity (2)                                                 |  |                | 4.04      | % |                   |   |                |  |      |                |  |   | 12.09             | % |                |   |        |  |      |  
|Noninterest expense to average assets (2)                                    |  |                | 0.77      | % |                   |   |                |  |      |                |  |   | 0.61              | % |                |   |        |  |      |  
|Efficiency ratio (4)                                                         |  |                | 41        | % |                   |   |                |  |      |                |  |   | 23                | % |                |   |        |  |      |  
|Average stockholders equity to average assets                               |  |                | 8.45      | % |                   |   |                |  |      |                |  |   | 8.69              | % |                |   |        |  |      |  



|(1) | Includes average nonaccrual loans of $123.1 million in the 2008 period and $22.2 million in the 2007 period. Interest not accrued on such loans and excluded from the table above
totaled $2.6 million in the 2008 period and $0.4 million in the 2007 period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Annualized.
|--- | -----------

|(3) | Net interest margin is reported exclusive of income from loan prepayments, which is included as a component of noninterest income. Inclusive of income from loan prepayments, the
margin would compute to 1.79% and 2.57% for the 2008 period and 2007 period, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Defined as noninterest expenses (excluding the provision for loan losses) as a percentage of net interest and dividend income plus noninterest income.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



27



---

##### Table of Contents

The following table provides information regarding changes in interest and dividend income and interest expense. For each
category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by
prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume).



|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|------------------------------------------ |  | -------------------------------------------- | ------ | - | ------ | - | ----- | ----------- |  | - | ----- | - |  | - | ------ | -
|                                           |  | For the Quarter Ended June 30, 2008 vs. 2007 |       
|                                           |  | Increase (Decrease) Due To Change In:        |       
|($ in thousands)                           |  | Rate                                         |        |   | Volume |   |       | Rate/Volume |  |   | Total |  
|Interest-earning assets:                   |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Loans                                      |  | $                                            | (3,201 | ) |        | $ | 1,824 |             |  | $ | (273  | ) |  | $ | (1,650 | )
|Securities                                 |  |                                              | (785   | ) |        |   | 266   |             |  |   | (45   | ) |  |   | (564   | )
|Other interest-earning assets              |  |                                              | (143   | ) |        |   | 130   |             |  |   | (79   | ) |  |   | (92    | )
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total interest-earning assets              |  |                                              | (4,129 | ) |        |   | 2,220 |             |  |   | (397  | ) |  |   | (2,306 | )
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Interest-bearing liabilities:              |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Interest checking deposits                 |  |                                              | 1      |   |        |   | (2    | )           |  |   |      |   |  |   | (1     | )
|Savings deposits                           |  |                                              |       |   |        |   | (10   | )           |  |   |      |   |  |   | (10    | )
|Money market deposits                      |  |                                              | (541   | ) |        |   | 888   |             |  |   | (200  | ) |  |   | 147    |  
|Certificates of deposit                    |  |                                              | (248   | ) |        |   | 715   |             |  |   | (41   | ) |  |   | 426    |  
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total deposit accounts                     |  |                                              | (788   | ) |        |   | 1,591 |             |  |   | (241  | ) |  |   | 562    |  
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|FHLB advances and Fed funds purchased      |  |                                              | (63    | ) |        |   | 88    |             |  |   | (51   | ) |  |   | (26    | )
|Debentures and accrued interest payable    |  |                                              | (21    | ) |        |   | (294  | )           |  |   | 2     |   |  |   | (313   | )
|Debenturescapital securities              |  |                                              | 1      |   |        |   |      |             |  |   | (1    | ) |  |   |       |  
|Mortgage note payable                      |  |                                              |       |   |        |   |      |             |  |   |      |   |  |   |       |  
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total borrowed funds                       |  |                                              | (83    | ) |        |   | (206  | )           |  |   | (50   | ) |  |   | (339   | )
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total interest-bearing liabilities         |  |                                              | (871   | ) |        |   | 1,385 |             |  |   | (291  | ) |  |   | 223    |  
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Net change in interest and dividend income |  | $                                            | (3,258 | ) |        | $ | 835   |             |  | $ | (106  | ) |  | $ | (2,529 | )
|                                           |  |                                              |        |   |        |   |       |             |  |   |       |   |  |   |        |  

Provision for Loan Losses

The provision for loan losses increased by $2.0 million to $2.7 million in Q2-08, from $0.7 million in Q2-07. The increase was due to $2.5 million associated with a higher level of nonaccrual loans and lower estimated
real estate values, partially offset by a reduction of $0.5 million resulting from a decrease in the rate of net loan growth over the prior year period. Total loans outstanding grew by $46 million in Q2-08, compared to $68 million in Q2-07.

Noninterest Income

Noninterest income
decreased by $0.7 million to $1.1 million in Q2-08, from $1.8 million in Q2-07. The decrease was due to a lower level of income from loan prepayments. The Company believes that the volume of loan prepayments and prepayment income derived therefrom
has decreased due to longer-term, fixed-rate loans that have been originated by the Company since the beginning of 2007, as well as the effects of the crisis in the credit markets in general experienced in the first half of 2008 as widely reported
by the media. The credit crisis severely reduced funds available in the general marketplace for real estate lending.

Noninterest Expenses

Noninterest expenses increased by $1.1 million to $4.2 million in Q2-08, from $3.1 million in Q2-07. The increase was nearly all due to a $0.9 million
increase in expenses associated with nonaccrual loans/foreclosed real estate. These expenses are comprised of real estate taxes, insurance, utilities and other charges required to protect the Companys interest in real estate acquired through
foreclosure and/or various properties collateralizing the Companys nonaccrual loans (all of which are categorized as real estate expenses in the consolidated statements of earnings), as well as certain professional fees (legal
costs) incurred in the Companys collection efforts with such assets (which are included as part of the line item professional fees and services).

The Companys efficiency ratio, which is a measure of its ability to control expenses as a percentage of its revenues, was 41% in Q2-08, compared to 23% in Q2-07. The efficiency ratio was negatively affected by the impact of nonaccrual
loans. The Company had 71 employees at June 30, 2008, compared to 72 at June 30, 2007.

Provision for Income Taxes

The provision for income taxes decreased by $2.8 million to $1.4 million in Q2-08, from $4.2 million in Q2-07 due to a decrease in pre-tax income. The Companys
effective tax rate (inclusive of state and local taxes) amounted to 42.8% in Q2-08 and 44.1% in Q2-07.



28



---

##### Table of Contents

Comparison of Results of Operations for the Six-Months Ended June 30, 2008 and 2007

Overview

Consolidated net earnings for the
six-months ended June 30, 2008 (6mths-08) decreased by $6.6 million, or 61%, to $4.1 million, or $0.50 per diluted share, from $10.7 million, or $1.25 per diluted share, for the six-months ended June 30, 2007
(6mths-07). The decrease in consolidated net earnings was due to the following: a $5.2 million decrease in net interest and dividend income, a $3.5 million increase in the provision for loan losses, a $1.8 million increase in noninterest
expenses and $1.4 million decrease in noninterest income, partially offset by a $5.3 million decrease in the provision for income taxes.

Return on average
assets and equity decreased to 0.39% and 4.52% respectively, in 6mths-08, from 1.06% and 12.27%, respectively, in 6mths-07.

Selected information regarding
results of operations by entity follows:



|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|--------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------------------------- | - | ----- | -------------- |  | - | ------------------------ | - |  | -------------------- | ------ | -------------------- |  | - | ------ |  | - | ------
|($ in thousands)                                                      |  | IntervestNationalBank |        |   | IntervestMortgageCorporation |   |       | HoldingCompany |  |   | Inter-CompanyAmounts (2) |   |  | Consolidated6mths-08 |        | Consolidated6mths-07
|Interest and dividend income                                          |  | $                     | 60,589 |   |                              | $ | 3,008 |                |  | $ | 132                      |   |  | $                    | (165   | )                    |  | $ | 63,564 |  | $ | 67,347
|Interest expense                                                      |  |                       | 41,091 |   |                              |   | 2,947 |                |  |   | 1,772                    |   |  |                      | (165   | )                    |  |   | 45,645 |  |   | 44,184
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net interest and dividend income (expense)                            |  |                       | 19,498 |   |                              |   | 61    |                |  |   | (1,640                   | ) |  |                      |       |                      |  |   | 17,919 |  |   | 23,163
|Provision for loan losses                                             |  |                       | 4,913  |   |                              |   | 103   |                |  |   |                         |   |  |                      |       |                      |  |   | 5,016  |  |   | 1,569 
|Noninterest income                                                    |  |                       | 1,785  |   |                              |   | 1,660 |                |  |   | 225                      |   |  |                      | (1,588 | )                    |  |   | 2,082  |  |   | 3,444 
|Noninterest expenses                                                  |  |                       | 7,330  |   |                              |   | 1,675 |                |  |   | 298                      |   |  |                      | (1,588 | )                    |  |   | 7,715  |  |   | 5,886 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Earnings (loss) before taxes                                          |  |                       | 9,040  |   |                              |   | (57   | )              |  |   | (1,713                   | ) |  |                      |       |                      |  |   | 7,270  |  |   | 19,152
|Provision (benefit) for income taxes                                  |  |                       | 3,941  |   |                              |   | (26   | )              |  |   | (787                     | ) |  |                      |       |                      |  |   | 3,128  |  |   | 8,432 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net earnings (loss)                                                   |  | $                     | 5,099  |   |                              | $ | (31   | )              |  | $ | (926                     | ) |  | $                    |       |                      |  | $ | 4,142  |  | $ | 10,720
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Intercompany dividends (1)                                            |  |                       | (1,770 | ) |                              |   |      |                |  |   | 1,770                    |   |  |                      |       |                      |  |   |       |  |   |      
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net earnings after intercompany dividends                             |  | $                     | 3,329  |   |                              | $ | (31   | )              |  | $ | 844                      |   |  | $                    |       |                      |  | $ | 4,142  |  | $ | 10,720
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net earnings after intercompany dividends for the same period of 2007 |  | $                     | 8,517  |   |                              | $ | 1,300 |                |  | $ | 903                      |   |  | $                    |       |                      |  | $ | 10,720 |  |   |       
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       



|(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 decreased by $5.2 million to $18.0 million in 6mths-08, from $23.2 million in 6mths-07 largely due to a $94.4 million increase in average nonaccrual loans. Interest income that was not recorded on nonaccrual
loans amounted to $4.8 million in 6mths-08, compared to a $0.6 million in 6mths-07.

The Companys net interest margin (excluding income from loan
prepayments) decreased to 1.70% in 6mths-08, from 2.34% in 6mths-07. The Companys yield on interest-earning assets decreased 76 basis points to 6.04% in 6mths-08, while its cost of funds decreased by 15 basis points to 4.82% in 6mths-08. The
factors that affected these ratios are the same as those discussed for the quarterly period on page 26.

Total average interest-earning assets increased
$119 million in 6mths-08 from 6mths-07 due to growth of $104 million in loans and $15 million in security and other short-term investments. This growth was funded largely by a $126 million increase in interest-bearing deposits, partially offset by a
$15 million decrease in borrowed funds.



29



---

##### Table of Contents

The following table provides information for the periods indicated, the contents of which are described above a similar
table on page 27 in the section entitled Comparison of Results of Operations for the Quarters Ended June 30, 2008 and 2007 under the caption Net Interest and Dividend Income.



|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|---------------------------------------------------------------------------- |  | ---------------- | --------- | - | ----------------- | - | -------------- |  | ---- | -------------- |  | - | ----------------- | - | -------------- | - | ------ |  | ---- | -
|                                                                             |  | Six-Months Ended |          
|                                                                             |  | June 30, 2008    |           |   | June 30, 2007     |  
|($ in thousands)                                                             |  | AverageBalance   |           |   | InterestInc./Exp. |   | Yield/Rate (2) |  |      | AverageBalance |  |   | InterestInc./Exp. |   | Yield/Rate (2) |  
|Assets                                                                       |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-earning assets:                                                     |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Loans (1)                                                                    |  | $                | 1,674,302 |   |                   | $ | 53,864         |  | 6.47 | %              |  | $ | 1,570,330         |   |                | $ | 56,640 |  | 7.27 | %
|Securities                                                                   |  |                  | 414,872   |   |                   |   | 9,332          |  | 4.52 |                |  |   | 407,775           |   |                |   | 10,180 |  | 5.03 |  
|Other interest-earning assets                                                |  |                  | 28,704    |   |                   |   | 368            |  | 2.58 |                |  |   | 20,442            |   |                |   | 527    |  | 5.20 |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-earning assets                                                |  |                  | 2,117,878 |   |                   | $ | 63,564         |  | 6.04 | %              |  |   | 1,998,547         |   |                | $ | 67,347 |  | 6.80 | %
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-earning assets                                                   |  |                  | 19,613    |   |                   |   |                |  |      |                |  |   | 19,044            |   |                |   |        |  |      |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total assets                                                                 |  | $                | 2,137,491 |   |                   |   |                |  |      |                |  | $ | 2,017,591         |   |                |   |        |  |      |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Liabilities and Stockholders Equity                                         |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-bearing liabilities:                                                |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest checking deposits                                                   |  | $                | 5,768     |   |                   | $ | 51             |  | 1.78 | %              |  | $ | 9,027             |   |                | $ | 86     |  | 1.92 | %
|Savings deposits                                                             |  |                  | 8,288     |   |                   |   | 122            |  | 2.96 |                |  |   | 9,849             |   |                |   | 144    |  | 2.95 |  
|Money market deposits                                                        |  |                  | 282,417   |   |                   |   | 5,190          |  | 3.70 |                |  |   | 225,977           |   |                |   | 4,873  |  | 4.35 |  
|Certificates of deposit                                                      |  |                  | 1,466,070 |   |                   |   | 35,400         |  | 4.86 |                |  |   | 1,391,205         |   |                |   | 33,433 |  | 4.85 |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total deposit accounts                                                       |  |                  | 1,762,543 |   |                   |   | 40,763         |  | 4.65 |                |  |   | 1,636,058         |   |                |   | 38,536 |  | 4.75 |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|FHLB advances and Fed funds purchased                                        |  |                  | 11,545    |   |                   |   | 156            |  | 2.72 |                |  |   | 14,844            |   |                |   | 404    |  | 5.49 |  
|Debentures and related interest payable                                      |  |                  | 74,481    |   |                   |   | 2,947          |  | 7.96 |                |  |   | 86,583            |   |                |   | 3,464  |  | 8.07 |  
|Debentures - capital securities                                              |  |                  | 56,702    |   |                   |   | 1,772          |  | 6.28 |                |  |   | 56,702            |   |                |   | 1,772  |  | 6.30 |  
|Mortgage note payable                                                        |  |                  | 197       |   |                   |   | 7              |  | 7.15 |                |  |   | 212               |   |                |   | 8      |  | 7.61 |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total borrowed funds                                                         |  |                  | 142,925   |   |                   |   | 4,882          |  | 6.87 |                |  |   | 158,341           |   |                |   | 5,648  |  | 7.19 |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-bearing liabilities                                           |  |                  | 1,905,468 |   |                   | $ | 45,645         |  | 4.82 | %              |  |   | 1,794,399         |   |                | $ | 44,184 |  | 4.97 | %
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-bearing deposits                                                 |  |                  | 4,240     |   |                   |   |                |  |      |                |  |   | 4,268             |   |                |   |        |  |      |  
|Noninterest-bearing liabilities                                              |  |                  | 44,695    |   |                   |   |                |  |      |                |  |   | 44,148            |   |                |   |        |  |      |  
|Stockholders equity                                                         |  |                  | 183,088   |   |                   |   |                |  |      |                |  |   | 174,776           |   |                |   |        |  |      |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total liabilities and stockholders equity                                   |  | $                | 2,137,491 |   |                   |   |                |  |      |                |  | $ | 2,017,591         |   |                |   |        |  |      |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest and dividend income/spread                                      |  |                  |           |   |                   | $ | 17,919         |  | 1.22 | %              |  |   |                   |   |                | $ | 23,163 |  | 1.83 | %
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest-earning assets/margin (3)                                       |  | $                | 212,410   |   |                   |   |                |  | 1.70 | %              |  | $ | 204,148           |   |                |   |        |  | 2.34 | %
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Ratio of total interest-earning assets to total interest-bearing liabilities |  |                  | 1.11      |   |                   |   |                |  |      |                |  |   | 1.11              |   |                |   |        |  |      |  
|                                                                             |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Other Ratios:                                                                |  |                  |           |   |                   |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Return on average assets (2)                                                 |  |                  | 0.39      | % |                   |   |                |  |      |                |  |   | 1.06              | % |                |   |        |  |      |  
|Return on average equity (2)                                                 |  |                  | 4.52      | % |                   |   |                |  |      |                |  |   | 12.27             | % |                |   |        |  |      |  
|Noninterest expense to average assets (2)                                    |  |                  | 0.72      | % |                   |   |                |  |      |                |  |   | 0.58              | % |                |   |        |  |      |  
|Efficiency ratio (4)                                                         |  |                  | 39        | % |                   |   |                |  |      |                |  |   | 22                | % |                |   |        |  |      |  
|Average stockholders equity to average assets                               |  |                  | 8.57      | % |                   |   |                |  |      |                |  |   | 8.66              | % |                |   |        |  |      |  



|(1) | Includes average nonaccrual loans of $109.5 million in the 2008 period and $15.1 million in the 2007 period. Interest not accrued on such loans and excluded from the table above
totaled $4.8 million in the 2008 period and $0.6 million in the 2007 period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Annualized.
|--- | -----------

|(3) | Net interest margin is reported exclusive of income from loan prepayments, which is included as a component of noninterest income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

Inclusive of income from loan prepayments, the margin would compute to 1.77% and 2.60% for the 2008 period and 2007 period, respectively.

|(4) | Defined as noninterest expenses (excluding the provision for loan losses) as a percentage of net interest and dividend income plus noninterest income.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

The following table provides information regarding changes in interest and dividend income and interest expense. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in
rate-volume (change in rate multiplied by change in volume).



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|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|------------------------------------------ |  | ----------------------------------------------- | ------ | - | ------ | - | ----- | ----------- |  | - | ----- | - |  | - | ------ | -
|                                           |  | For the Six-Months Ended June 30, 2008 vs. 2007 |       
|                                           |  | Increase (Decrease) Due To Change In:           |       
|($ in thousands)                           |  | Rate                                            |        |   | Volume |   |       | Rate/Volume |  |   | Total |  
|Interest-earning assets:                   |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Loans                                      |  | $                                               | (6,281 | ) |        | $ | 3,779 |             |  | $ | (274  | ) |  | $ | (2,776 | )
|Securities                                 |  |                                                 | (1,040 | ) |        |   | 178   |             |  |   | 14    |   |  |   | (848   | )
|Other interest-earning assets              |  |                                                 | (268   | ) |        |   | 215   |             |  |   | (106  | ) |  |   | (159   | )
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total interest-earning assets              |  |                                                 | (7,589 | ) |        |   | 4,172 |             |  |   | (366  | ) |  |   | (3,783 | )
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Interest-bearing liabilities:              |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Interest checking deposits                 |  |                                                 | (6     | ) |        |   | (31   | )           |  |   | 2     |   |  |   | (35    | )
|Savings deposits                           |  |                                                 |       |   |        |   | (23   | )           |  |   | 1     |   |  |   | (22    | )
|Money market deposits                      |  |                                                 | (734   | ) |        |   | 1,228 |             |  |   | (177  | ) |  |   | 317    |  
|Certificates of deposit                    |  |                                                 | 70     |   |        |   | 1,815 |             |  |   | 82    |   |  |   | 1,967  |  
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total deposit accounts                     |  |                                                 | (670   | ) |        |   | 2,989 |             |  |   | (92   | ) |  |   | 2,227  |  
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|FHLB advances and Fed funds purchased      |  |                                                 | (206   | ) |        |   | (91   | )           |  |   | 49    |   |  |   | (248   | )
|Debentures and accrued interest payable    |  |                                                 | (48    | ) |        |   | (488  | )           |  |   | 19    |   |  |   | (517   | )
|Debentures - capital securities            |  |                                                 | (6     | ) |        |   |      |             |  |   | 6     |   |  |   |       |  
|Mortgage note payable                      |  |                                                 |       |   |        |   | (1    | )           |  |   |      |   |  |   | (1     | )
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total borrowed funds                       |  |                                                 | (260   | ) |        |   | (580  | )           |  |   | 74    |   |  |   | (766   | )
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total interest-bearing liabilities         |  |                                                 | (930   | ) |        |   | 2,409 |             |  |   | (18   | ) |  |   | 1,461  |  
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Net change in interest and dividend income |  | $                                               | (6,659 | ) |        | $ | 1,763 |             |  | $ | (348  | ) |  | $ | (5,244 | )
|                                           |  |                                                 |        |   |        |   |       |             |  |   |       |   |  |   |        |  

Provision for Loan Losses

The provision for loan losses increased by $3.5 million to $5.0 million in 6mths-08, from $1.5 million in 6mths-07. The increase was due to $4.0 million associated with a higher level of nonaccrual loans and lower
estimated real estate values, partially offset by a reduction of $0.5 million resulting from a decrease in the rate of net loan growth over the prior year period. Total loans outstanding grew by $108 million in 6mths-08, compared to $127 million in
6mths-07.

Noninterest Income

Noninterest
income decreased by $1.4 million to $2.1 million in 6mths-08, from $3.5 million in 6mths-07. The decrease was primarily due to a $1.9 million decrease in income from loan prepayments, partially offset by a $0.4 million increase in gains (which
consists of the recognition of any unamortized premium or discount at time of call) from the early call of investment securities.

The sharp decline in
market interest rates in the first quarter of 2008 resulted in a higher level of securities being called by the issuers. The Company believes that the volume of loan prepayments and prepayment income derived therefrom has decreased due to
longer-term, fixed-rate loans that have been originated by the Company since the beginning of 2007, as well as the effects of the crisis in the credit markets in general experienced in the first half of 2008 as widely reported by the media. The
credit crisis severely reduced funds available in the general marketplace for real estate lending.

Noninterest Expenses

Noninterest expenses increased by $1.8 million to $7.7 million in 6mths-08, from $5.9 million in 6mths-07. The increase was due to a $1.2 million increase in expenses
associated with nonaccrual loans/foreclosed real estate, a $0.3 million increase in FDIC insurance premiums and $0.2 million increase in salaries and employee benefits.

The Companys efficiency ratio, which is a measure of its ability to control expenses as a percentage of its revenues, was 39% in 6mths-08, compared to 22% in 6mths-07. The efficiency ratio was negatively
affected by the impact of nonaccrual loans and higher FDIC insurance premiums. The Company had 71 employees at June 30, 2008, compared to 72 at June 30, 2007.

Provision for Income Taxes

The provision for income taxes decreased by $5.3 million to $3.1 million in
6mths-08, from $8.4 million in 6mths-07 due to a decrease in pre-tax income. The Companys effective tax rate (inclusive of state and local taxes) amounted to 43% in 6mths-08 and 44% in 6mths-07.



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Off-Balance Sheet and Other Financing Arrangements

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. For a further
discussion of these financial instruments, see note 11 to the condensed consolidated financial statements included in this report.

Liquidity and Capital Resources

General. The Company manages its liquidity position on a daily basis to assure that
funds are available to meet its operating requirements, loan and investment commitments, deposit withdrawals and debt service obligations. Primary sources of funds consist of the following: retail deposits obtained through the Banks branch
offices and the mail; principal repayments of loans; maturities and calls of securities; issuance of debentures; borrowings from the federal funds market and through FHLB advances; and cash flow provided by operating activities. For additional
detail concerning the Companys cash flows, see the condensed consolidated statements of cash flows included in this report.

Intervest National
Bank.The Banks lending business is dependent on its ability to generate a positive interest rate spread between the yields earned on its loans and the rates offered on its deposits. The Bank needs to pay competitive interest rates to
attract and retain deposits to fund its loan originations. The Bank continues to experience competitive market conditions and lower pricing in originating its loans, which encompass both interest rates and fees charged on new loans. The Bank has
also experienced a significant increase in nonaccrual loans in the past four quarters and at June 30, 2008, 5.50% of its mortgage loan portfolio ($90 million) was on nonaccrual status. Additionally, despite rate reductions in the federal funds
rate by the Federal Open Market Committee (FOMC) totaling 325 basis points since September 2007, the Bank was not able to lower its deposit rates in step with the FOMC in order to remain competitive with larger banks for deposits. All of these
factors have adversely affected the Banks net interest margin.

The Bank relies heavily on certificates of deposit (time deposits) as its main source
of funds for lending. Consolidated deposits amounted to $1.81 billion at June 30, 2008 and time deposits represented 81% or $1.47 billion of those deposits, down from 85% at December 31, 2007. Additionally, time deposits of $100,000 or
more at June 30, 2008 totaled $620 million, compared to $586 million at December 31, 2007, and included $165 million and $166 million of brokered deposits at each date, respectively. The brokered deposits had a weighted average remaining
term of 4.3 years at June 30, 2008. The Banks brokered deposits are sold by investment firms, which are paid a fee by the Bank for placing the deposit. The Bank must maintain its status as a well-capitalized insured depository institution
in order to solicit and accept, renew or roll over any brokered deposit without restriction. Time deposits are the only deposit accounts offered by the Bank that have stated maturity dates. These deposits are generally considered to be rate
sensitive and have a higher cost than deposits with no stated maturities, such as checking, savings and money market accounts. At June 30, 2008, $577 million, or 39%, of total time deposits mature by June 30, 2009. Based on past
experience, the Bank expects that a substantial portion of these deposits will be renewed and remain with the Bank.

The Bank borrows funds on an overnight
or short-term basis to manage its liquidity needs. At June 30, 2008, the Bank had agreements with correspondent banks whereby it could borrow up to $28 million on an unsecured basis. As a member of the FHLB of New York and FRB of New York, the
Bank can also borrow from these institutions on a secured basis. The Banks average outstanding short-term borrowings totaled $12 million in the first half of 2008. At June 30, 2008, there were $40 million of borrowings outstanding,
compared to none at December 31, 2007. At June 30, 2008, the Bank had available collateral consisting of investment securities to support additional total borrowings of $369 million from the FHLB and FRB.

The Bank invests in U.S. government agency debt obligations to emphasize safety and liquidity. All of the Banks security investments are classified as held to
maturity, and nearly all of the securities have fixed rates of interest or have predetermined scheduled rate increases, and many have call features that allow the issuer to call the security at par before its stated maturity without penalty. At
June 30, 2008, the entire portfolio had a weighted-average remaining maturity of 4.7 years, and $24 million, or 6%, of the securities portfolio matures by June 30, 2009. The Bank expects to reinvest the proceeds from these maturities into
new securities. The Banks loan-to-deposit ratio was 87% at June 30, 2008, compared to 88% at December 31, 2007. The Banks goal is to target its loan-to-deposit ratio at approximately 85%.



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The Bank had cash and short-term investments of $8.5 million at June 30, 2008 and $308 million of its loan portfolio
(excluding nonaccrual loans) matures by June 30, 2009. The Bank expects to extend or refinance a portion of these maturing loans. At June 30, 2008, the Bank had commitments to lend of $112 million, most of which are anticipated to be
funded over the next 12 months from the sources of funds described above. The Bank has from time to time received capital contributions from the Holding Company to increase its capital to support its asset growth. No contributions have been made to
the Bank since 2005. At June 30, 2008, the Bank had excess regulatory capital to support an additional $475 million of asset growth and still maintain a well-capitalized designation.

Intervest Mortgage Corporation.Intervest Mortgage Corporations lending business is dependent on its ability to generate a positive interest rate
spread between the yields earned on its mortgage loans and the rates paid on its debentures. Intervest Mortgage Corporation relies on the issuance of its subordinated debentures in registered, best efforts offerings to the public as its primary
source of funds to support its loan originations. Intervest Mortgage Corporation needs to pay competitive interest rates to sell its debentures and also incurs underwriting commissions and other fees when debentures are sold, which reduce the net
proceeds realized. In addition to funds from sales of debentures, service fee income received by Intervest Mortgage Corporation from the Bank has comprised a larger and increasing percentage of Intervest Mortgage Corporations earnings and
resulting cash inflows. The Bank has a servicing agreement with Intervest Mortgage Corporation that is described on page 9 under the caption Loan Solicitation and Processing in the Companys Annual Report on Form 10-K for the year
ended December 31, 2007. The Bank paid $1.5 million in the first half of 2008 to Intervest Mortgage Corporation pursuant to the agreement. From time to time, Intervest Mortgage Corporation has also received cash capital contributions from the
Holding Company. No contributions have been made since 2002.

Intervest Mortgage Corporation, at June 30, 2008, had $68 million of debentures
outstanding with fixed interest rates that range from 6.25% to 7.25% and maturities that range from October 1, 2008 to July 1, 2014. In the first half of 2008, Intervest Mortgage Corporation did not issue any new debentures, but repaid
from cash on hand $8.3 million of its debentures prior to their stated maturity and $0.5 million of related accrued interest. At June 30, 2008, $9.5 million of debentures and $1.3 million of accrued interest payable was scheduled to mature by
June 30, 2009. In the third quarter of 2008, Intervest Mortgage Corporation will repay $12.5 million of debentures and $0.4 million of related accrued interest, prior to their contractual maturities from cash on hand.

Intervest Mortgage Corporation, as of June 30, 2008, had $14 million in cash and short-term investments, compared to approximately $1.0 million of commitments to
lend. In addition, $32 million of its mortgage loans (excluding nonaccrual loans) are scheduled to mature by June 30, 2009, although some portion is expected to be extended or refinanced by Intervest Mortgage Corporation. Additionally,
nonaccrual loans of $18.3 million are expected to be repaid in full in the third quarter of 2008 through the scheduled sale of various collateral properties by the bankruptcy trustee. As a result, cash and short-term investments as well as the
proceeds from the repayment of maturing mortgages and nonaccrual loans will be available for investment in new mortgage loans. Competitive market conditions and lower pricing for new loans has also made it difficult for Intervest Mortgage
Corporation to identify suitable mortgage investment opportunities. Its loan originations have decreased significantly from historical levels as quantified in the table on page 22. One loan origination was made in the first half of 2008.

Intervest Mortgage Corporation experienced a significant increase in nonaccrual loans in the third quarter of 2007. At June 30, 2008, 33% of its mortgage loan
portfolio ($28.8 million) was on nonaccrual status, which has adversely affected its net interest income and cash flows derived therefrom, and has placed an even greater reliance on fee income and cash flows generated from Intervest Mortgage
Corporations intercompany services provided to the Bank. If this level of nonaccrual loans were to increase or continue for an extended period, Intervest Mortgage Corporations ability to issue new debentures to the public, originate new
loans and meet its debt service and operating cash flow requirements could be adversely affected. In the first half of 2008, Intervest Mortgage Corporations total interest income from its accruing loan portfolio and other interest-earning
assets exceeded the interest expense from its outstanding debentures by $61,000. As noted above, Intervest Mortgage Corporation has repaid various debentures prior to contractual maturity in order to reduce its interest expense and may continue to
do so in the near future given current market conditions. The collection of both Intervest Mortgage Corporations and the Banks nonaccrual loans is being aggressively pursued through foreclosure actions. There can be no assurance that the
Company will not incur additional loan loss provisions, loan chargeoffs or significant expenses in connection with the ultimate collection of its nonaccrual loans, which collection is anticipated to be through the eventual sale of the collateral
property in most cases, or incur significant expenses in carrying and disposing of properties acquired through foreclosure.



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Holding Company. The Holding Companys sources of funds and capital have been derived from the
following: interest income from a limited portfolio of mortgage loans (including purchased participations in loans originated by the Bank) and short-term investments; monthly dividends from the Bank to service interest expense on trust preferred
securities; monthly management fees from Intervest Mortgage Corporation and the Bank for providing these subsidiaries with certain administrative services; the issuance of its common stock through public offerings, exercise of common stock warrants
and conversion of debentures; the issuance of trust preferred securities through its wholly owned business trusts; and the direct issuance of other subordinated debentures to the public. At June 30, 2008, the Holding Company had no debentures
outstanding and $1.9 million in cash and short-term investments.

The Holding Company, through its wholly owned business trusts, has $56.7 million of trust
preferred securities outstanding at June 30, 2008 and $55.0 million of the trust preferred securities (representing outstanding debentures net of the Holding Companys common stock investments in the trusts) qualified for and was included
as consolidated regulatory Tier 1 capital. The securities have fixed rates of interest for a five-year period and thereafter variable rates and contractually mature at various time through 2036. The resulting proceeds have been invested in the Bank
at various times through capital contributions. The Holding Company is required to make interest payments that currently total $3.5 million annually, or an average cost of 6.28% inclusive of amortized offering expenses, on the outstanding trust
preferred securities. On September 18, 2008 and March 18, 2009, $15.4 million of these securities on each date will convert from a fixed rate of 6.75% and 5.88%, respectively, to a variable rate and reprice quarterly based on 3-month libor
plus 2.95% and 3-month libor plus 2.79%, respectively. The Bank provides the funds for the debt service on the trust preferred securities in the form of dividends to the Holding Company. If the Bank is unable to pay dividends to the Holding Company,
the Holding Company may not be able to service this debt, pay its other obligations, or pay dividends on its common stock.

On April 23, 2008, the
Holding Companys board of directors approved the payment of a cash dividend of $0.25 per share on the Holding Companys outstanding Class A and Class B common stock. The dividend was paid June 16, 2008 to shareholders of record
on the close of business June 2, 2008 using cash on hand from the Holding Company.

Other. Additional information concerning securities
held to maturity, short-term borrowings, outstanding time deposits and debentures, including interest rates and maturity dates, can be found in notes 3, 6, 7 and 8 of the notes to the condensed consolidated financial statements included in this
report. Additional information regarding trust preferred securities can be found in note 9 to the consolidated financial statements included in the Companys annual report on Form 10-K for the year ended December 31, 2007. The Holding
Company, the Bank and Intervest Mortgage Corporation each consider their current liquidity and sources of funds sufficient to satisfy their outstanding lending commitments and maturing liabilities. Management is not aware of any trends, known
demand, commitments or uncertainties other than those discussed above that are expected to have a material impact on future operating results, liquidity or capital resources of each entity. However, there can be no assurances that adverse conditions
may not arise in credit markets that would adversely impact the Companys liquidity and ability to raise funds (either through attracting deposits, from borrowings or sales of assets) to meet its operations and satisfy its outstanding lending
commitments and maturing liabilities.

Regulatory Capital

The Bank is subject to various regulatory capital requirements. As discussed on page 20 of the Companys annual report on Form 10-K for the year ended December 31, 2007, the Federal Deposit Insurance
Corporation (FDIC) and other bank regulatory agencies use five capital categories ranging from well capitalized to critically undercapitalized to determine various matters, including prompt corrective action and each institutions FDIC deposit
insurance premiums. These categories involve quantitative measures of a banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can result in certain mandatory and discretionary actions by the regulators that, if undertaken,
could have a direct material effect on the Banks and the Companys financial statements.

The Bank is required to maintain regulatory defined
minimum Tier 1 leverage and Tier 1 and total risk-based capital ratio levels of at least 4%, 4% and 8%, respectively. At June 30, 2008 and December 31, 2007, management believes the Bank met its capital adequacy requirements and is a
well-capitalized institution as defined in the regulations, which require minimum Tier 1 leverage and Tier 1 and total risk-based ratios of 5%, 6% and 10%, respectively. Management is not aware of any conditions or events that would change the
Banks designation as a well-capitalized institution.



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Information regarding the Banks regulatory capital and related ratios is summarized as follows:



|                                       |  |                 |           |   |                     |   |           |  
|-------------------------------------- |  | --------------- | --------- | - | ------------------- | - | --------- | -
|($ in thousands)                       |  | At June 30,2008 |           |   | At December 31,2007 |  
|Tier 1 Capital                         |  | $               | 201,819   |   |                     | $ | 198,090   |  
|Tier 2 Capital                         |  |                 | 22,092    |   |                     |   | 20,268    |  
|                                       |  |                 |           |   |                     |   |           |  
|Total risk-based capital               |  | $               | 223,911   |   |                     | $ | 218,358   |  
|                                       |  |                 |           |   |                     |   |           |  
|Net risk-weighted assets               |  | $               | 1,764,275 |   |                     | $ | 1,627,053 |  
|Average assets for regulatory purposes |  | $               | 2,075,567 |   |                     | $ | 1,914,469 |  
|                                       |  |                 |           |   |                     |   |           |  
|Tier 1 capital to average assets       |  |                 | 9.72      | % |                     |   | 10.35     | %
|Tier 1 capital to risk-weighted assets |  |                 | 11.44     | % |                     |   | 12.17     | %
|Total capital to risk-weighted assets  |  |                 | 12.69     | % |                     |   | 13.42     | %
|                                       |  |                 |           |   |                     |   |           |  

The Company on a consolidated basis is subject to minimum regulatory capital requirements administered by the FRB.
These guidelines require a ratio of Tier 1 or Core Capital, as defined in the guidelines, to total risk-weighted assets of at least 4% and a ratio of total capital to risk-weighted assets of at least 8%. The guidelines also require a ratio of Tier 1
capital to adjusted total average assets of not less than 3%. At June 30, 2008 and December 31, 2007 management believes that the Company met its capital adequacy requirements.

Information regarding consolidated regulatory capital and related ratios is summarized below:



|                                       |  |                 |           |   |                     |   |           |  
|-------------------------------------- |  | --------------- | --------- | - | ------------------- | - | --------- | -
|($ in thousands)                       |  | At June 30,2008 |           |   | At December 31,2007 |  
|Tier 1 Capital (1)                     |  | $               | 238,549   |   |                     | $ | 234,561   |  
|Tier 2 Capital (1)                     |  |                 | 23,306    |   |                     |   | 21,593    |  
|                                       |  |                 |           |   |                     |   |           |  
|Total risk-based capital               |  | $               | 261,855   |   |                     | $ | 256,154   |  
|                                       |  |                 |           |   |                     |   |           |  
|Net risk-weighted assets               |  | $               | 1,861,169 |   |                     | $ | 1,733,124 |  
|Average assets for regulatory purposes |  | $               | 2,179,331 |   |                     | $ | 2,023,606 |  
|                                       |  |                 |           |   |                     |   |           |  
|Tier 1 capital to average assets       |  |                 | 10.95     | % |                     |   | 11.59     | %
|Tier 1 capital to risk-weighted assets |  |                 | 12,82     | % |                     |   | 13.53     | %
|Total capital to risk-weighted assets  |  |                 | 14.07     | % |                     |   | 14.78     | %
|                                       |  |                 |           |   |                     |   |           |  



|(1) | At June 30, 2008 and December 31, 2007, there were $55 million of qualifying capital securities outstanding representing the total outstanding debentures issued to
Statutory Trust II, III, IV and V by the Holding Company, net of the Holding Companys investments in those trusts. The entire $55 million is included in Tier I capital. The inclusion of these securities in Tier 1 capital is currently limited
to 25% of core capital elements, as defined in the FDIC regulations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Beginning March 31, 2009, the use of trust preferred securities in
the Tier 1 capital of bank holding companies will become subject to stricter limitations. For a further discussion of these restrictions, see pages 54 and 55 of the Companys annual report on Form 10-K for the year ended December 31, 2007.
As of June 30, 2008 and December 31, 2007, assuming the Holding Company had excluded all of its eligible trust preferred securities from Tier 1 Capital and included such amount in Tier 2 capital, the Company would still have exceeded its
minimum capital requirement threshold under the regulatory framework for prompt corrective action.

Asset and Liability Management

Interest rate risk arises from differences in the repricing of assets and liabilities within a given time period. The primary objective of the
Companys asset/liability management strategy is to limit, within established guidelines, the adverse effect of changes in interest rates on its net interest income and capital. 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 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, including the factors that affect its computation
and results, see pages 55 to 57 of the Companys annual report on Form 10-K for the year ended December 31, 2007.

The Companys one-year
interest rate sensitivity gap amounted to a negative $431 million, or (19.5)% of total assets, at June 30, 2008, compared to a negative gap of $99 million, or (4.9)% of total assets at December 31, 2007. The change in the gap is a function
of the following: an increase in nonaccrual loans (which are excluded from the analysis), the continued runoff of accruing loans with a repricing or remaining maturity of less than one year being replaced with new fixed rate loans with maturities of
greater than one year; purchases of security investments with longer-term maturities; an increase in money market accounts and time deposit accounts with maturities of one year or less; and an increase in short-term borrowings. The Company is
currently liability-sensitive, indicating that its interest-bearing liabilities would generally reprice more rapidly with changes in interest rates than its interest earning assets.



35



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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. Depositors may not necessarily immediately withdraw 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 negative 8% at June 30, 2008, compared to a positive 4% at December 31, 2007.

The table that follows summarizes interest-earning assets and interest-bearing liabilities as of June 30, 2008, that are scheduled to mature or
reprice within the periods shown.



|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|------------------------------------------ |  | --------- | -------- | -- | ---------- | - | -------- | ------------- |  | - | ----------- | -- |  | ----- | ------- | - |  | - | --------- | -
|($ in thousands)                           |  | 0-3Months |          |    | 4-12Months |   |          | Over 1-4Years |  |   | Over 4Years |    |  | Total |        
|Loans (1)                                  |  | $         | 224,122  |    |            | $ | 287,863  |               |  | $ | 720,838     |    |  | $     | 380,982 |   |  | $ | 1,613,805 |  
|Securities held to maturity (2)            |  |           | 19,404   |    |            |   | 24,949   |               |  |   | 206,121     |    |  |       | 180,460 |   |  |   | 430,934   |  
|Short-term investments                     |  |           | 10,324   |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 10,324    |  
|FRB and FHLB stock                         |  |           | 4,786    |    |            |   |         |               |  |   |            |    |  |       | 3,642   |   |  |   | 8,428     |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total rate-sensitive assets                |  | $         | 258,636  |    |            | $ | 312,812  |               |  | $ | 926,959     |    |  | $     | 565,084 |   |  | $ | 2,063,491 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Deposit accounts (3):                      |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Interest checking deposits                 |  | $         | 6,237    |    |            | $ |         |               |  | $ |            |    |  | $     |        |   |  | $ | 6,237     |  
|Savings deposits                           |  |           | 8,603    |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 8,603     |  
|Money market deposits                      |  |           | 325,677  |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 325,677   |  
|Certificates of deposit                    |  |           | 153,389  |    |            |   | 423,591  |               |  |   | 664,963     |    |  |       | 223,738 |   |  |   | 1,465,681 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total deposits                             |  |           | 493,906  |    |            |   | 423,591  |               |  |   | 664,963     |    |  |       | 223,738 |   |  |   | 1,806,198 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|FHLB advances                              |  |           | 40,000   |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 40,000    |  
|Debentures and mortgage note payable (1)   |  |           | 27,964   |    |            |   | 15,464   |               |  |   | 54,774      |    |  |       | 26,692  |   |  |   | 124,894   |  
|Accrued interest on all borrowed funds (1) |  |           | 1,420    |    |            |   |         |               |  |   | 1,104       |    |  |       | 645     |   |  |   | 3,169     |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total borrowed funds                       |  |           | 69,384   |    |            |   | 15,464   |               |  |   | 55,878      |    |  |       | 27,337  |   |  |   | 168,063   |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total rate-sensitive liabilities           |  | $         | 563,290  |    |            | $ | 439,055  |               |  | $ | 720,841     |    |  | $     | 251,075 |   |  | $ | 1,974,261 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|GAP (repricing differences)                |  | $         | (304,654 | )  |            | $ | (126,243 | )             |  | $ | 206,118     |    |  | $     | 314,009 |   |  | $ | 89,230    |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Cumulative GAP                             |  | $         | (304,654 | )  |            | $ | (430,897 | )             |  | $ | (224,779    | )  |  | $     | 89,230  |   |  | $ | 89,230    |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Cumulative GAP to total assets             |  |           | (13.8    | )% |            |   | (19.5    | )%            |  |   | (10.2       | )% |  |       | 4.0     | % |  |   | 4.0       | %
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  

Significant assumptions used in preparing the gap table above 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. Certain debentures that have been identified to be repaid prior to maturity are scheduled according to the repayment date.
Deferred loan fees and the effect of possible loan prepayments are excluded from the analysis. Nonaccrual loans of $119.1 million are also excluded from the table although some portion is expected to return to an accrual status in the near term.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 according to their
contractual maturity dates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Accounting Pronouncements

See note 14 to the condensed consolidated financial statements included in this report for a discussion of this topic.



|ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Market
risk is the risk of loss from adverse changes in market prices and interest rates. The Companys market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities, and the issuance of its debentures. The
Company has not engaged in and accordingly has no risk related to trading accounts, commodities, interest rate hedges or foreign exchange.

The measurement
of market risk associated with financial instruments is meaningful only when all related and offsetting on-and off-balance sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of
financial instruments as of December 31, 2007, which reflect changes in market prices and rates, can be found in note 21 to the consolidated financial statements included in the Companys annual report on Form 10-K for the year ended
December 31, 2007. Management believes that there have been no significant changes in the Companys market risk exposure since December 31, 2007.



36



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##### Table of Contents

Management actively monitors and manages the Companys interest rate risk exposure. The primary objective in
managing interest rate risk is to limit, within established guidelines, the adverse impact of changes in interest rates on the Companys net interest income and capital. In this regard, the Bank does internal analyses by preparing interest rate
shock scenarios (representing the effects of specific assumed interest rate changes on net interest income) to its basic one-year gap model as a quantitative tool to measure the amount of interest rate risk associated with changing market interest
rates.

The Bank also engages an outside consultant to prepare quarterly reports using an earnings simulation model to quantify the effects of various
interest rate scenarios on projected net interest income and net income over projected periods. These computations rely on various assumptions regarding balance sheet growth and composition, and the pricing and repricing and maturity characteristics
of the Companys balance sheet. For a further discussion of GAP analysis, see the section entitled Asset and Liability Management of this report.



|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.

There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

Not Applicable



|ITEM 1A. | Risk Factors
|-------- | ------------

This Item 1A requires disclosure of any material
changes from risk factors previously disclosed in the Companys most recent annual report on Form 10-K. There have been no material changes to the Companys risk factors disclosed in the Risk Factors section of the
Companys annual report on Form 10-K for the year ended December 31, 2007, where such factors are discussed on pages 24 through 29.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Not Applicable



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not Applicable



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



|(a) | An Annual Meeting of Stockholders was held on May 21, 2008.
|--- | -----------------------------------------------------------



|(b) | Pursuant to the Companys charter and bylaws, one-third of the directors are elected by the holders of Class A common stock and two-thirds are elected by holders of Class
B common stock. On all other matters, Class A and Class B common stockholders vote together as a single class. Each of the persons named in the Proxy Statement dated April 8, 2008 as a nominee for director was elected for a one-year term
expiring on the date of the next annual meeting (see Item 4-c). Additionally, the Companys stockholders ratified the appointment of Hacker, Johnson & Smith, P.A., P.C., as the Companys independent registered public
accounting firm for 2008 (see Item 4-c).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | The table that follows summarizes voting results on the matters submitted to the Companys common stockholders:
|--- | ---------------------------------------------------------------------------------------------------------------



37



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##### Table of Contents

|                                                                                                                                          |  |           |  |                   |  |          
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ----------------- |  | ---------
|                                                                                                                                          |  | For       |  | WithheldAuthority |  |          
|Election of Directors - Class A                                                                                                           |  |           |  |                   |  |          
|Michael A. Callen                                                                                                                         |  | 6,400,249 |  | 424,442           |  |          
|Wayne F. Holly                                                                                                                            |  | 5,454,724 |  | 1,369,967         |  |          
|Lawton Swan, III                                                                                                                          |  | 6,400,249 |  | 424,442           |  |          
|Election of Directors - Class B                                                                                                           |  |           |  |                   |  |          
|Lowell S. Dansker                                                                                                                         |  | 580,000   |  |                  |  |          
|Paul DeRosa                                                                                                                               |  | 580,000   |  |                  |  |          
|Stephen A. Helman                                                                                                                         |  | 580,000   |  |                  |  |          
|Thomas E. Willett                                                                                                                         |  | 580,000   |  |                  |  |          
|David J. Willmott                                                                                                                         |  | 580,000   |  |                  |  |          
|Wesley T. Wood                                                                                                                            |  | 580,000   |  |                  |  |          
|                                                                                                                                          |  |           | 
|                                                                                                                                          |  | For       |  | Against           |  | Abstained
|To ratify the appointment of Hacker, Johnson & Smith, P.A., P.C., as the Companys independent registered public accounting firm for 2007 |  |           |  |                   |  |          
|Class A shareholders (1)                                                                                                                  |  | 6,808,284 |  | 2,451             |  | 13,956   
|Class B shareholders                                                                                                                      |  | 580,000   |  |                  |  |         



|(1) | Broker nonvotes were 866,121
|--- | ----------------------------

|(d) | Not Applicable
|--- | --------------



|ITEM 5. | Other Information
|------- | -----------------

Not Applicable



|ITEM 6. | Exhibits
|------- | --------

The following exhibits are filed as part of this report.



|     |  |                                                                                                                           
|---- |  | --------------------------------------------------------------------------------------------------------------------------
|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.

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                        
|                    |  | (Registrant)                                            
|                    |  |                                                         
|Date: July 25, 2008 |  | By:                                                      |  | /s/ Lowell S. Dansker
|                    |  | Lowell S. Dansker, Chairman and Executive Vice President
|                    |  | (Principal Executive Officer)                           
|                    |  |                                                         
|Date: July 25, 2008 |  | By:                                                      |  | /s/ John J. Arvonio  
|                    |  | John J. Arvonio, Chief Financial and Accounting Officer 
|                    |  | (Principal Financial Officer)                           



38