U.S. SECURTIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

                                       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 No. 000-23377

                        INTERVEST BANCSHARES CORPORATION
       (Exact name of small business issuer as specified in its charter)


                                    Delaware
                      ------------------------------------

                 (State or other jurisdiction of incorporation)


                                   13-3699013
                      ------------------------------------

                      (I.R.S. employer identification no.)



                        10 Rockefeller Plaza, Suite 1015
                         New York, New York 10020-1903
                      ------------------------------------

                    (Address of principal executive offices)


                                 (212) 757-7300
                      ------------------------------------

                (Issuer's telephone number, including area code)



                      ------------------------------------

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


Check whether the issuer:  (1) filed all reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such  shorter  period  that the  registrant  was  required  to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days: YES XX NO .

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                              Title of Each Class:
                              --------------------

                Class A Common Stock, $1.00 par value per share
                -----------------------------------------------

                Class B Common Stock, $1.00 par value per share
                -----------------------------------------------


                               Shares Outstanding:
                               -------------------

                     2,157,915 Outstanding at July 17, 1998
                     --------------------------------------

                      300,000 Outstanding at July 17, 1998
                      ------------------------------------

<PAGE>


                INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

                                  FORM 10-QSB
                                 June 30, 1998

                               TABLE OF CONTENTS
                                                                            Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Condensed Consolidated Statements of Financial Condition as of
                     June 30, 1998 and December 31, 1997..................     1

        Condensed Consolidated Statements of Income for the Quarters Ended
                  June 30, 1998 and 1997..................................     2

        Condensed Consolidated Statements of Income for the Six Months Ended
                  June 30, 1998 and 1997..................................     3

        Condensed Consolidated Statements of Changes in Stockholders' 
                  Equity for the Six Months Ended June 30, 1998 and 1997..     4

        Condensed Consolidated Statements of Cash Flows for the 
                  Six Months Ended June 30, 1998 and 1997.................     5

                Notes to Condensed Consolidated Financial Statements .....     6


Item 2. Management's Discussion and Analysis or Plan of Operation.........    11


PART II. OTHER INFORMATION

Item 1. Legal Proceedings.................................................    16

Item 2. Changes in Securities.............................................    16

Item 3. Defaults Upon Senior Securities...................................    16

Item 4. Submission of Matters to a Vote of Security Holders...............    16

Item 5. Other Information.................................................    17

Item 6. Exhibits and Reports on Form 8-K .................................    17

Signatures................................................................    18



<PAGE>



PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements

                Intervest Bancshares Corporation and Subsidiary
            Condensed Consolidated Statements of Financial Condition



                                         (Unaudited)

                                           June 30,       December 31,
($ in thousands, except par value)           1998              1997      Change
--------------------------------------------------------------------------------
ASSETS
Cash and due from banks                      $  6,676       $  1,738     $4,938
Federal funds sold                              6,021            162      5,859
Short-term investments                          6,399          7,276       (877)
                                                -----          -----       ---- 
Total cash and cash equivalents                19,096          9,176      9,920
Interest-bearing deposits with banks              199             99        100
Securities held to maturity, net
  (estimated fair value of
   $60,965 and $58,836, respectively)          60,842         58,821      2,021
Federal Reserve Bank stock, at cost               233            233        -
Loans receivable (net of allowance for loan
 losses of $1,405 and $1,173, respectively)    89,556         75,652     13,904
Accrued interest receivable                     1,513          1,327        186
Premises and equipment, net                     5,028          4,877        151
Deferred income tax asset                         479            485         (6)
Other assets                                      751             85        666
--------------------------------------------------------------------------------
Total assets                                 $177,697       $150,755    $26,942
--------------------------------------------------------------------------------

LIABILITIES
Deposits:
   Demand deposits                           $  2,898       $  3,490    $  (592)
   Savings and NOW deposits                    22,504         17,119      5,385
   Money-market deposits                       21,944         17,180      4,764
   Time deposits                              101,496         93,378      8,118
                                              -------         ------      -----
Total deposits                                148,842        131,167     17,675
Convertible debentures                          7,000           -         7,000
Other liabilities                               3,314          1,947      1,367
--------------------------------------------------------------------------------
Total liabilities                             159,156        133,114     26,042
--------------------------------------------------------------------------------

Minority interest                                 23              21          2

STOCKHOLDERS' EQUITY
Preferred stock
 (300,000 shares authorized, none issued)         -              -           -
Class A common stock
 ($1.00 par value,  7,500,000 shares  
  authorized, 2,157,915 and 2,124,415 
  shares issued and outstanding, respectively)  2,158          2,124         34
Class B common stock 
 ($1.00 par value, 700,000 shares authorized,
  300,000 issued and outstanding)                 300            300         -
Additional paid-in-capital, common             13,591         13,360       231
Retained earnings                               2,469          1,836       633
--------------------------------------------------------------------------------
Total stockholders' equity                     18,518         17,620       898
--------------------------------------------------------------------------------
Total liabilities, minority interest and 
  stockholders' equity                       $177,697       $150,755   $26,942
--------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.

                                      1

<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                  Condensed Consolidated Statements of Income
                                  (Unaudited)

                                                For the Quarter Ended
                                                        June 30,
                                                ---------------------
($ in thousands, except per share data)             1998        1997      Change
--------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable                                   $1,991     $1,569     $  422
Securities                                          1,009        623        386
Other interest-earning assets                         109         27         82
--------------------------------------------------------------------------------
Total interest and dividend income                  3,109      2,219        890
--------------------------------------------------------------------------------

INTEREST EXPENSE
Deposits                                            1,958      1,378        580
Borrowed funds                                         17          1         16
--------------------------------------------------------------------------------
Total interest expense                              1,975      1,379        596
--------------------------------------------------------------------------------

Net interest and dividend income                    1,134        840        294

Provision for loan losses                             130         92         38

--------------------------------------------------------------------------------
Net interest and dividend income
 after provision for loan losses                    1,004        748        256
--------------------------------------------------------------------------------

NONINTEREST INCOME
Customer service fees                                  43         29         14
Other                                                   8          8       --
--------------------------------------------------------------------------------
Total noninterest income                               51         37         14
--------------------------------------------------------------------------------

NONINTEREST EXPENSES
Salaries and employee benefits                        270        222         48
Occupancy and equipment, net                           82        101        (19)
Advertising and promotion                               4         31        (27)
Professional fees                                      60         50         10
Other                                                 111         75         36
--------------------------------------------------------------------------------
Total noninterest expenses                            527        479         48
--------------------------------------------------------------------------------

Income before income taxes                            528        306        222

Income taxes                                          203        119         84

--------------------------------------------------------------------------------
Net income                                         $  325     $  187     $  138
--------------------------------------------------------------------------------

Basic earnings per share                           $ 0.13     $ 0.11     $ 0.02
Diluted earnings per share                         $ 0.10     $ 0.09     $ 0.01
--------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.

                                       2

<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                  Condensed Consolidated Statements of Income
                                  (Unaudited)

                                             For the Six Months Ended
                                                       June 30,
                                             ------------------------
($ in thousands, except per share data)             1998      1997      Change
--------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME

Loans receivable                                  $ 3,801    $ 3,003    $   798
Securities                                          2,038      1,232        806
Other interest-earning assets                         179         69        110
--------------------------------------------------------------------------------
Total interest and dividend income                  6,018      4,304      1,714
--------------------------------------------------------------------------------

INTEREST EXPENSE
Deposits                                            3,796      2,687      1,109
Borrowed funds                                         18          1         17
--------------------------------------------------------------------------------
Total interest expense                              3,814      2,688      1,126
--------------------------------------------------------------------------------

Net interest and dividend income                    2,204      1,616        588

Provision for loan losses                             230        184         46

--------------------------------------------------------------------------------
Net interest and dividend income
 after provision for loan losses                    1,974      1,432        542
--------------------------------------------------------------------------------

NONINTEREST INCOME

Customer service fees                                  88         56         32
Other                                                  12         12       --
--------------------------------------------------------------------------------
Total noninterest income                              100         68         32
--------------------------------------------------------------------------------

NONINTEREST EXPENSES
Salaries and employee benefits                        516        438         78
Occupancy and equipment, net                          156        191        (35)
Advertising and promotion                              11         42        (31)
Professional fees                                     103         64         39
Other                                                 250        205         45
--------------------------------------------------------------------------------
Total noninterest expenses                          1,036        940         96
--------------------------------------------------------------------------------

Income before income taxes                          1,038        560        478

Income taxes                                          405        213        192

--------------------------------------------------------------------------------
Net income                                        $   633    $   347    $   286
--------------------------------------------------------------------------------

Basic earnings per share                          $  0.26    $  0.21    $  0.05
Diluted earnings per share                        $  0.19    $  0.18    $  0.01
--------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>



                Intervest Bancshares Corporation and Subsidiary
      Condensed Consolidated Statements of Changes in Stockholders' Equity
                                  (Unaudited)



                                                       For the Six Months Ended
                                                                     June 30,
                                                       ------------------------
($ in thousands)                                                  1998      1997

ClASS A COMMON STOCK
Balance at beginning of period                                 $ 2,124   $   900
Issuance of 33,500 shares upon exercise of warrants                 34      --
--------------------------------------------------------------------------------
Balance at end of period                                         2,158       900
--------------------------------------------------------------------------------

ClASS B COMMON STOCK
--------------------------------------------------------------------------------
Balance at beginning and end of period                             300       200
--------------------------------------------------------------------------------

ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period                                  13,360     7,655
Compensation related to issuance of stock warrants                  30      --
Issuance of 33,500 shares upon exercise of stock warrants          201      --
--------------------------------------------------------------------------------
Balance at end of period                                        13,591     7,655
--------------------------------------------------------------------------------

RETAINED EARNINGS
Balance at beginning of period                                   1,836       992
Net income for the period                                          633       347
--------------------------------------------------------------------------------
Balance at end of period                                         2,469     1,339
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total stockholders' equity at end of period                    $18,518   $10,094
--------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                  (Unaudited)


                                                        For the Six Months Ended
                                                                  June 30,
                                                        ------------------------
($ in thousands)                                               1998       1997
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income                                                 $    633    $    347
Adjustments to reconcile net income
 to net cash provided  by operating activities:
Depreciation and amortization                                   125         108
Provision for loan losses                                       230         184
Provision for deferred income taxes                              18          31
Accrued interest expense on debentures                           16        --
Compensation expense related to stock warrants                   30        --
Amortization of premiums, fees and discounts, net                69          12
Increase in accrued interest receivable and other assets       (374)       (183)
Increase in other liabilities                                 1,246         579
                                                              -----         ---
Net cash provided by operating activities                     1,993       1,078
                                                              -----       -----

INVESTING ACTIVITIES
Increase to interest-earning deposits                          (100)       --
Principal repayments of securities held to maturity          21,576      11,358
Purchases of securities held to maturity                    (23,568)    (15,128)
Net increase in loans receivable                            (14,136)    (10,256)
Purchases of premises and equipment, net                       (278)     (1,135)
Sales of foreclosed real estate                                --           184
                                                            -------     ------- 
Net cash used by investing activities                       (16,506)    (14,977)
                                                            -------     ------- 

FINANCING ACTIVITIES
Net increase in demand, savings, NOW and
 money-market deposits                                        9,557      10,017
Net increase in time deposits                                 8,118       1,398
Proceeds from convertible debentures and
 other borrowed funds                                         7,683        --
Repayment of other borrowed funds                            (1,160)       --
Proceeds from issuance of common stock                          235        --
                                                             ------      ------
Net cash provided by financing activities                    24,433      11,415
                                                             ------      ------
Net increase (decrease) in cash and cash equivalents          9,920      (2,484)
Cash and cash equivalents at beginning of period              9,176       6,320
                                                             ------      ------
Cash and cash equivalents at end of period                 $ 19,096    $  3,836
                                                             ------      ------

SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
   Interest                                                $  3,798    $  2,684
   Income taxes                                                 229         397
Noncash financing activities:
   Outstanding stock warrants                                    30        --
   Interest on convertible debentures                            16        --
                                                            -------     ------- 
See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>

Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 1 - General

        The   consolidated   financial   statements   of  Intervest   Bancshares
Corporation  and Subsidiary (the "Company") in this report have not been audited
except for the information  derived from the audited  Consolidated  Statement of
Financial  Condition as of December 31, 1997. These statements should be read in
conjunction with the consolidated financial statements and related notes thereto
included in the Company's  Annual Report to  Stockholders on Form 10-KSB for the
year ended December 31, 1997.

        The consolidated  financial statements include the accounts of Intervest
Bancshares  Corporation,  a bank holding company, and its subsidiary,  Intervest
Bank. The holding  company's  primary business  activity is the ownership of the
bank.  All  intercompany  accounts  and  transactions  have been  eliminated  in
consolidation.  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 have been made.  These  adjustments  are of a normal
recurring  nature.  The results of  operations  for the interim  periods are not
necessarily  indicative  of results  that may be expected for the entire year or
any other interim period.  In preparing the consolidated  financial  statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported amounts of assets,  liabilities,  revenues and expenses. Actual results
could differ from those estimates.  Certain  reclassifications have been made to
prior period amounts to conform to the current periods' presentations.

Note 2 - Loan Impairment and Credit Losses

        No loans  were  identified  as being  impaired  during the 1998 and 1997
reporting periods.  The table below summarizes the activity in the allowance for
loan losses:

--------------------------------------------------------------------------------
                                                For the             For the
                                             Quarter Ended      Six Months Ended
                                                June 30,            June 30,
                                             -------------      ----------------
($ in thousands)                             1998      1997      1998      1997
--------------------------------------------------------------------------------
Balance at beginning of period              $1,274    $  906    $1,173    $  811
Provision for loan losses
  charged to operations                        130        92       230       184
Recoveries                                       1         1         2         4
--------------------------------------------------------------------------------
Balance at end of period                    $1,405    $  999    $1,405    $  999
--------------------------------------------------------------------------------

Note 3 - Convertible Debentures

     On June 26, 1998, the Company sold  $7,000,000 of Convertible  Subordinated
Debentures (the  "Debentures").  The proceeds from the sale, net of underwriting
discounts, commissions and other fees, amounted to approximately $6,500,000. The
proceeds are part of the Company's capital funds and are not restricted to their
usage.  The Debentures are due July 1, 2008 and are convertible at the option of
the holders at any time prior to April 1, 2008,  unless  previously  redeemed by
the Company,  into shares of Class A common stock at an initial conversion price
of $11.50 per share through December 31, 1998. The initial  conversion price was
determined  based on the  average  closing  prices of the  Class A common  stock
during the 20 trading  days prior to June 26,  1998.  The table that  follows on
page 7 shows the conversion prices beginning January 1, 1999.

                                       6

<PAGE>

Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
          Period                                 Conversion Price Per Share
          ------                                 --------------------------
From January 1, 1999 to June 30, 1999                      $12.50
From July 1, 1999 to June 30, 2000                          14.00
From July 1, 2000 to June 30, 2001                          15.50
From July 1, 2001 to June 30, 2002                          17.00
From July 1, 2002 to June 30, 2003                          18.50
From July 1, 2003 to June 30, 2004                          20.50
From July 1, 2004 to June 30, 2005                          22.50
From July 1, 2005 to June 30, 2006                          25.50
From July 1, 2006 to June 30, 2007                          28.50
From July 1, 2007 to April 1, 2008                          32.50

     The Company has the right to  establish  conversion  prices per share which
are less than the  conversion  prices  set forth  above for such  periods as the
Company may  determine.  The  conversion  prices are also subject to adjustments
based on certain conditions and circumstances.

     The Company  also has the option at any time to call all or any part of the
Debentures  for  payment  and  redeem  the  same at any time  prior to  maturity
thereof.  The redemption  price for the Debentures is (i) the face amount plus a
2% premium  if the date of  redemption  is prior to July 1, 1999,  (ii) the face
amount plus a 1% premium if redemption occurs on or after July 1, 1999 and prior
to July 1, 2000,  or (iii) the face  amount if the date of  redemption  is on or
after July 1, 2000. In all cases, the debenture holder will also receive accrued
interest to the date of redemption.

     Interest on the Debentures  will accrue and compound each calendar  quarter
at 8%, which represents the prime rate of Chase Manhattan Bank on June 26, 1998,
less one-half of one percent. All accrued interest is payable at the maturity of
the Debentures whether by acceleration,  redemption or otherwise.  Any debenture
holder may, on or before July 1 of each year commencing  July 1, 2003,  elect to
be paid all accrued  interest  and to  thereafter  receive  payments of interest
quarterly. Once made, the election to receive interest is irrevocable.

Note 4 - Earnings Per Share (EPS) and Common Stock Warrants

Basic EPS is calculated by dividing net income by the weighted-average number of
shares of common  stock  outstanding.  Diluted  EPS is  calculated  by  dividing
adjusted net income by the weighted-average number of shares of common stock and
dilutive  potential  common stock shares that may be  outstanding in the future.
Diluted EPS reflects the  potential  dilution  that could occur if the Company's
outstanding  stock  warrants  and  Convertible   Subordinated   Debentures  were
converted into common stock that then shared in the earnings of the Company.

Adjusted  net income for Diluted EPS  represents  net income plus the addback of
interest  expense,  net of taxes,  on the  Convertible  Subordinated  Debentures
outstanding.  This adjustment would arise from a hypothetical  conversion of all
the  debentures  into common  stock.  Potential  common stock shares  consist of
outstanding  dilutive  common  stock  warrants  (which  are  computed  using the
treasury  stock method) and the shares of common stock that would arise from the
conversion  of the  debentures.  Prior to the public stock  offering in November
1997, there was no public market for the Company's common stock. For purposes of
calculating  Diluted EPS for the 1997 periods,  the $10 stock  offering price is
assumed to be the market price.

                                       7
<PAGE>

Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Net income applicable to common stock and the weighted-average  number of shares
used for basic and diluted  earnings per share  computations  are  summarized as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------

                                                                    For the                    For the 
                                                                 Quarter Ended            Six Months Ended
                                                                    June 30,                  June 30,
                                                              1998          1997          1998        1997
------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>          <C>       
Basic earnings per share:
 Net income applicable to common stockholders              $  325,000   $  187,000   $  633,000   $  347,000
 Average number of common shares outstanding                2,453,140    1,650,000    2,440,595    1,650,000
         Basic earnings per share amount                   $     0.13   $     0.11   $     0.26   $     0.21
Diluted earnings per share:
Adjusted net income applicable to common stockholders      $  334,000   $  187,000   $  642,000   $  347,000
Average number of common shares outstanding:
 Common shares outstanding                                  2,453,140    1,650,000    2,440,595    1,650,000
 Potential dilutive shares from conversion of warrants        862,455      355,615      839,291      355,616
 Potential dilutive shares from conversion of debentures       67,037         --         33,518         --
                                                            ---------    ---------    ---------    ---------
Total average number of common shares outstanding used      3,382,632    2,005,615    3,313,404    2,005,615
         Diluted earnings per share amount                 $     0.10   $     0.09   $     0.19   $     0.18
------------------------------------------------------------------------------------------------------------
</TABLE>

     On March 16,  1998,  the Board of Directors  authorized  the grant of stock
warrants to directors of the Company and  officers,  directors  and employees of
Intervest Bank, its subsidiary, to purchase a total of 122,000 shares of Class A
common  stock at an initial  price of $14.00 per share,  which  represented  the
market  price of the common  stock on such date.  The grant was  approved by the
Company's shareholders on May 27, 1998. The warrants vest immediately and expire
on December 31,  2002.  The warrants  were not included in the  computations  of
Diluted  EPS for the 1998  periods  because  the  warrants'  exercise  price was
greater  than  the  average  market  price  of  the  common  shares.  Also,  the
Convertible  Subordinated Debentures were not outstanding for the entire part of
1998.  Accordingly,  if the debentures  had been  outstanding  throughout  1998,
approximately  560,000 of  additional  shares  would have been  included  in the
Diluted EPS computations for 1998.

     On April 27, 1998, the Board of Directors  also  authorized the issuance of
stock warrants to the Chairman of the Board to purchase a total of 50,000 shares
of Class B common stock,  exercisable  on or before January 31, 2008, at a price
of $10.00 per share.  The issuance of these stock  warrants was also approved by
the Company's  shareholders on May 27, 1998. The warrants vest as follows: 7,100
immediately;  7,100 on each  anniversary  of the grant date for five years;  and
7,400 on the sixth  anniversary  date. The warrants  become fully vested earlier
upon certain conditions. The exercise price of the warrants was below the market
price of the common shares at the date of grant.  Therefore,  in accordance with
APB No. 25, "Accounting for Stock Issued to Employees,"  approximately  $14,000,
net of  taxes,  was  charged  to  earnings  in the  second  quarter  of  1998 in
connection with the issuance of these warrants.

                                       8
<PAGE>

Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------

Note 5 - Regulatory Capital

        The  Company's  subsidiary,  Intervest  Bank,  is  required  to maintain
certain minimum regulatory capital  requirements.  The following is a summary at
June 30, 1998 of the regulatory capital requirements and Intervest Bank's actual
capital on a percentage basis:
<TABLE>
<CAPTION>

                                                                                          To Be 
                                                            Ratios of       Minimum   Considered Well
                                                            the Bank       Requirement  Capitalized
                                                            --------       -----------  -----------
<S>                                                          <C>              <C>         <C>   
Total capital to risk-weighted assets                        10.45%           8.00%       10.00%
Tier 1 capital to risk-weighted assets                        9.20%           4.00%        6.00%
Tier 1 capital to total average assets - leverage ratio       6.01%           4.00%        5.00%
</TABLE>

Note 6  - Proposed Bank

     On July 10, 1998, an application for a national bank charter was filed with
the Office of the Comptroller of the Currency and the FDIC by Intervest National
Bank In  organization.  The new bank will be a wholly  owned  subsidiary  of the
Company, with a principal office in the City of New York. The new bank will have
initial  capital of  approximately  $9,000,000,  which will be  provided  by the
Company.

Note 7 - Recent Accounting Pronouncements

Reporting Comprehensive Income

        On  January  1,  1998,  the  Company  adopted   Statement  of  Financial
Accounting  Standards (SFAS) No. 130,  "Reporting  Comprehensive  Income," which
establishes standards for reporting  comprehensive income.  Comprehensive income
is defined by the standard as the change in equity of an  enterprise  except for
those  changes  resulting  from  stockholder  transactions.  All  components  of
comprehensive  income are required to be reported in a new  financial  statement
that is displayed with equal prominence as existing  financial  statements.  The
Company has no items of comprehensive income,  therefore such a statement is not
presented.

Employers' Disclosures about Pensions and Other Postretirement Benefits

        In February 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 132,  "Employers'  Disclosures about Pensions and Other  Postretirement
Benefits  - an  amendment  of SFAS No. 87, 88 and 106." The  statement  revises,
deletes or adds  certain  disclosures  with  regard to such  plans.  It does not
change the measurement or recognition of those plans. The statement is effective
for fiscal years  beginning after December 15, 1997. This standard has no impact
to the Company's  financial statement  disclosures,  since the Company currently
does not provide these benefits. 

                                       9

<PAGE>

Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------

Accounting for Derivative Instruments and Hedging Activities

        In June 1998, the FASB issued SFAS No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities." The statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded  in  other  contracts,  and  for  hedging  activities.  It
requires,  among other things,  that an entity  recognizes  all  derivatives  as
either  assets or  liabilities  in the  statement  of  financial  condition  and
measures  those  instruments  at fair value.  The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1998. Since the Company
does not currently use derivative financial  instruments,  the standard will not
have any impact to the Company's financial statements when adopted.

Accounting for Start-Up Costs

        In April  1998,  the AICPA  issued  Statement  of  Position  (SOP) 98-5,
"Reporting  on the Costs of Start-Up  Activities,"  which is  effective  for all
nongovermental  entities,  except as  provided  for  therein,  for fiscal  years
beginning  after  December 15, 1998.  The SOP requires  that all start-up  costs
(except  for those that are  capitalizable  under  other  GAAP) be  expensed  as
incurred.

     At June 30, 1998, the Company had  approximately  $90,000 of deferred costs
associated  with  organizing the proposed bank. Upon adoption of this statement,
it is  anticipated  that a significant  portion of these  deferred costs will be
expensed.  In addition,  the Company  expects  additional  start-up  costs to be
incurred in the third quarter of 1998 in connection with organizing the proposed
bank.

Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use

     In March  1998,  the AICPA  issued SOP 98-1,  "Accounting  for the Costs of
Computer  Software  Developed or Obtained for Internal  Use," which is effective
for all  nongovermental  entities for fiscal years  beginning after December 15,
1998. The SOP, among other things,  provides  guidance as to when and what types
of costs should be  capitalized  as it relates to  internal-use  software.  Upon
adoption,  the  Company  expects  that this SOP will not have any  impact on its
financial statements.

                                       10
<PAGE>

ITEM 2.  Management's Discussion and Analysis or Plan of Operation

Overview of the First Half of 1998

     Intervest  Bancshares  Corporation and Subsidiary  (the  "Company")  earned
$325,000 for the second quarter of 1998, an increase of 74% from $187,000 in the
second  quarter of 1997.  On a diluted  per share  basis,  net income was $0.10,
compared to $0.09 in the second quarter of 1997. For the first half of 1998, net
income nearly doubled to $633,000 or $0.19 per diluted share, from $347,000,  or
$0.18 per diluted share,  for the same period of 1997. (The  computations of net
income per share for the 1998 periods included a higher amount of common shares,
due to the  public  offering  of Class A common  stock in  November  1997 and an
increase in common stock warrants  outstanding.)  The increase in net income for
both periods of 1998 over the corresponding periods of 1997 was primarily due to
higher  net  interest  and  dividend   income   resulting  from  growth  in  net
interest-earning assets.

        The  following  table  shows  selected  ratios  at the end of or for the
period indicated:
--------------------------------------------------------------------------------
                                                     For the          Six Months
                                                  Quarter Ended         Ended
                                                     June 30,         June 30,
                                                  1998    1997     1998    1997
--------------------------------------------------------------------------------
Stockholders' equity to total assets             10.42%   8.59%   10.42%   8.59%
Average stockholders' equity to total assets     10.28%   8.51%   10.15%   8.43%
Return on average assets                          0.77%   0.64%    0.77%   0.61%
Return on average equity                          7.12%   7.48%    7.02%   7.00%
Average interest-earning assets to
    interest-bearing liabilities                  1.11x   1.08x   1.11x    1.08x
Net interest margin                               2.83%   3.03%    2.82%   2.97%
Noninterest expense to average assets             1.25%   1.65%    1.26%   1.64%
--------------------------------------------------------------------------------

     On June 26, the Company  completed the sale of  $7,000,000  of  Convertible
Subordinated Debentures (the "Debentures").  The Debentures are due July 1, 2008
and are  convertible  at the option of the holders at any time prior to April 1,
2008  into  shares of Class A common  stock at an  initial  conversion  price of
$11.50 per share.  The conversion price per share increases Over the life of the
Debentures  as noted  in note 3 on page 7.  The  Company  can  also  redeem  the
Debentures  plus  accrued  interest  at any time  prior to  maturity  at various
redemption prices. Interest on the Debentures will accrue and compound quarterly
at 8%. All accrued interest is payable at maturity.

     In July, an application  for a national bank charter was filed with the OCC
and FDIC by Intervest  National  Bank, In  Organization.  The new bank will be a
wholly owned  subsidiary of the Company,  with a principal office in the City of
New York. The new bank will have initial  capital of  $9,000,000,  which will be
provided by the Company.

                                       11

<PAGE>

    Comparison of Financial Condition at June 30, 1998 and December 31, 1997
    ------------------------------------------------------------------------

     Overview.  Total assets at June 30, 1998  increased to  $177,697,000,  from
$150,755,000  at December 31, 1997.  The increase was  primarily due to a higher
level of loans  receivable  and cash  and cash  equivalents.  Total  liabilities
increased from  $133,135,000  at December 31, 1997, to  $159,179,000 at June 30,
1998, reflecting increases in deposit liabilities and borrowed funds.

     The Company's balance sheet was comprised of the following:
<TABLE>
<CAPTION>

                                             At June 30, 1998     At December 31, 1997
                                             ----------------     --------------------
                                                          % of                  % of
($ in thousands)                             Carrying     Total    Carrying     Total
                                               Value      Assets     Value     Assets
--------------------------------------------------------------------------------------
<S>                                          <C>           <C>    <C>            <C> 
Cash and cash equivalents                    $ 19,096      10.7   $   9,176       6.1%
Securities held to maturity, net               60,842      34.2      58,821      39.1
Loans receivable, net                          89,556      50.5      75,652      50.1
All other assets                                8,203       4.6       7,106       4.7
--------------------------------------------------------------------------------------
Total assets                                 $177,697     100.0%   $150,755     100.0%
--------------------------------------------------------------------------------------
Deposits                                     $148,842      83.8%   $131,167      87.0%
Convertible debentures                          7,000       3.9       --           --
All other liabilities                           3,337       1.9       1,968       1.3
--------------------------------------------------------------------------------------
Total liabilities                             159,179      89.6     133,135      88.3
--------------------------------------------------------------------------------------
Stockholders' equity                           18,518      10.4      17,620      11.7
--------------------------------------------------------------------------------------
Total liabilities and stockholders' equity   $177,697     100.0%   $150,755     100.0%
--------------------------------------------------------------------------------------
</TABLE>


     Cash and Cash Equivalents.  Cash and cash equivalents  increased  primarily
due to the net proceeds from the sale of the Debentures.

     Loans  Receivable.  Loans  receivable  increased due to new originations of
commercial real estate loans,  partially  offset by principal  repayments on the
portfolio.  At June 30, 1998 and December 31, 1997, the Company did not have any
loans on a nonaccrual status or classified as impaired.

     Allowance  for Loan  Losses.  The Company  monitors  its loan  portfolio to
determine  the  appropriate  level of the  allowance  for loan  losses  based on
various  factors  that are  discussed on pages 21 and 22 of the  Company's  1997
Annual  Report on Form  10-KSB.  At June 30,  1998,  the  allowance  amounted to
$1,405,000,  compared to $1,173,000 at year-end 1997. The increase reflected the
growth in the loan portfolio.

     Deposits.  Deposit  liabilities  increased  due to net deposit  inflows and
growth in deposit  accounts.  At June 30, 1998,  time deposit  accounts  totaled
$101,496,000  and demand deposits and savings and checking  accounts  aggregated
$47,346,000.   This  compared  to  deposits  of  $93,378,000  and   $37,789,000,
respectively,  at December  31, 1997.  Time  deposits  represented  68% of total
deposits at June 30, 1998, compared to 71% at year-end 1997.

                                       12

<PAGE>

     Stockholders' Equity and Regulatory Capital. Stockholders' equity increased
primarily  as a result of net income of $633,000  for the first half of 1998 and
$235,000 of proceeds  from the issuance of 33,500 of shares Class A common stock
upon the exercise of stock warrants.  Intervest  Bank's Tier 1 leverage  capital
ratio was 6.01% at June 30, 1998,  compared to 6.53% at December  31, 1997.  The
Bank's  total  risk-based  capital  ratio  amounted to 10.45% at June 30,  1998,
compared to 11.46% at year-end 1997.  The decline in these ratios  reflected the
growth in the bank's assets.

           Comparison of Results of Operations for the Quarters Ended
                             June 30, 1998 and 1997
--------------------------------------------------------------------------------

        Overview.  Net  income  for the  second  quarter  of 1998  increased  to
$325,000, or $0.10 per diluted share, from $187,000, or $0.09 per diluted share,
for the same quarter of 1997.  Higher net income was due to a $294,000  increase
in net interest and dividend income, partially offset by increases of $84,000 in
the  provision  for income  taxes,  $38,000 in the provision for loan losses and
$48,000 in noninterest expenses.

        Net Interest and Dividend  Income.  Net interest and dividend  income is
the  Company's  largest  source of earnings and is  influenced  primarily by the
amount,  distribution  and  repricing  characteristics  of its  interest-earning
assets and  interest-bearing  liabilities as well as by the relative  levels and
movements of interest rates.  The table below sets forth  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 annualized
income/expense   for   each   period   divided   by   average   interest-earning
assets/interest-bearing liabilities during each period. Certain yields and rates
shown are  adjusted  for  related fee income or expense.  Average  balances  are
derived  from daily  balances.  Net  interest  margin is  computed  by  dividing
annualized   net  interest   and  dividend   income  by  the  average  of  total
interest-earning assets during each period.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                      For the Quarter Ended
                                                                      ---------------------
                                                     June 30, 1998                        June 30, 1997
                                                     -------------                        -------------
                                             Average    Interest      Yield/    Average     Interest     Yield/
($ in thousands)                             Balance    Inc./Exp.      Rate     Balance     Inc./Exp.     Rate
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>            <C>      <C>         <C>           <C>  
Assets
Interest-earning assets:
 Loans                                       $ 86,271   $  1,991       9.23%    $ 67,986    $  1,569      9.23%
 Securities                                    65,870      1,009       6.13       40,665         623      6.12
 Other interest-earning assets                  8,241        109       5.30        2,121          27      5.07
----------------------------------------------------------------------------------------------------------------
Total interest-earning assets                 160,382   $  3,109       7.75%     110,772    $  2,219      8.01%
----------------------------------------------------------------------------------------------------------------
Noninterest-earning assets                      8,591                              5,688
----------------------------------------------------------------------------------------------------------------
Total assets                                 $168,973                           $116,460
----------------------------------------------------------------------------------------------------------------
 Liabilities and Stockholders' Equity
Interest-bearing liabilities:
  Demand, money market and NOW deposits      $ 26,778   $    310       4.63%    $ 17,929    $    203      4.53%
  Savings deposits                             15,824        192       4.85        8,783         107      4.87
  Time deposits                               101,509      1,456       5.74       75,517       1,068      5.66
                                              -------      -----       ----       ------       -----      ----
  Total deposits accounts                     144,111      1,958       5.44      102,229       1,378      5.39
                                              -------      -----       ----      -------       -----      ----
  Convertible debentures and
    other borrowed funds                          801         17       8.59            9           1      6.15
----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities            144,912   $  1,975       5.45%     102,238    $  1,379      5.39%
----------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities                 5,798                             4,224
Stockholders' equity                           18,263                             9,998
----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity   $168,973                           $116,460
----------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread                 $  1,134       2.30%                $    840      2.62%
----------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin           $ 15,470                  2.83%    $  8,534                  3.03%
----------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
 to total interest-bearing liabilities           1.11x                              1.08x
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       13

<PAGE>

        Net interest and dividend  income  increased to $1,134,000 in the second
quarter of 1998, from $840,000 in the 1997 second quarter.  The increase was due
to a higher level of net interest-earning  assets, partially offset by a decline
in the net  interest  margin.  The increase in net  interest-earning  assets was
largely due to the  investment of the proceeds from the issuance of common stock
in November  1997.  The decline in the net  interest  margin was a function of a
lower  interest  rate  spread  resulting  from a decline in the yield on earning
assets and an increase in the cost of funds.

     The yield on earning  assets  declined by 26 basis points  primarily due to
the  investment of a portion of the proceeds  from the public stock  offering in
November 1997, as well as deposit inflow,  into securities and other  short-term
investments,  which have lower  yields than loans.  The cost of funds  increased
slightly by 6 basis points due to higher rates paid on deposits.

     Provision  for Loan  Losses.  The  provision  for loan  losses  is based on
management's  ongoing  assessment  of the  adequacy  of the  allowance  for loan
losses.  The  provision  amounted  to  $130,000  in the second  quarter of 1998,
compared to $92,000 in the second quarter of 1997,  reflecting a higher level of
outstanding loans.

     Noninterest  Expenses.  Total noninterest expenses increased to $527,000 in
the second  quarter of 1998,  from $479,000 in the second  quarter of 1997.  The
increase  over last year's  period was  primarily due to an increase in salaries
and  employee  benefits,  resulting  primarily  from the  Company's  growth  and
increased staff.

     Provision  for Income Taxes.  The  provision for income taxes  increased to
$203,000 in the second  quarter of 1998,  from $119,000 in the second quarter of
1997,  due  to  higher  pre-tax  earnings.  The  Company's  effective  tax  rate
(inclusive  of state and local taxes)  amounted  38.4% in the second  quarter of
1998, compared to 38.9% in the same quarter of 1997.

          Comparison of Results of Operations for the Six Months Ended
                             June 30, 1998 and 1997
--------------------------------------------------------------------------------

        Overview. Net income for the six months ended June 30, 1998 increased to
$633,000, or $0.19 per diluted share, from $347,000, or $0.18 per diluted share,
for the same half of 1997.  Higher net income was due to a $588,000  increase in
net interest and dividend  income,  partially offset by increases of $192,000 in
the  provision  for income  taxes,  $46,000 in the provision for loan losses and
$96,000 in  noninterest  expenses.  The reasons for the changes in the provision
for loan losses and income taxes as well as noninterest expenses are essentially
the same as those discussed in the comparison of the quarters ended.

     Net  Interest  and  Dividend  Income.  The table  that  follows  sets forth
information similar to the table on page 13 for the six-month periods.

                                       14

<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                  For the Six Months Ended
                                                                  ------------------------
                                                     June 30, 1998                        June 30, 1997
                                                     -------------                        -------------
                                             Average    Interest      Yield/    Average     Interest     Yield/
($ in thousands)                             Balance    Inc./Exp.      Rate     Balance     Inc./Exp.     Rate
----------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>            <C>      <C>         <C>           <C>  
Assets
Interest-earning assets:
Loans                                        $ 82,667   $  3,801       9.19%    $ 65,507    $  3,003       9.17%
Securities                                     66,622      2,038       6.12       40,338       1,232       6.11
Other interest-earning assets                   7,238        179       4.96        2,959          69       4.70
-------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                 156,527   $  6,018       7.69%     108,804    $  4,304       7.91%
-------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets                      7,661                              5,591
-------------------------------------------------------------------------------------------------------------------
Total assets                                 $164,188                           $114,395
-------------------------------------------------------------------------------------------------------------------
  Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand, money market and NOW deposits        $ 24,814   $    569       4.59%    $ 17,202    $    379       4.41%
Savings deposits                               15,128        366       4.84        7,635         185       4.85
Time deposits                                 100,216      2,861       5.71       75,563       2,123       5.62
                                              -------      -----       ----       ------       -----       ----
Total deposits accounts                       140,158      3,796       5.42      100,400       2,687       5.35
                                              -------      -----       ----      -------       -----       ----
Convertible debentures and
 other borrowed funds                             426         18       8.44           27           1       5.76
-------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities            140,584   $  3,814       5.43%     100,427    $  2,688       5.35%
-------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities                 5,574                              4,055
Stockholders' equity                           18,030                              9,913
-------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity   $164,188                           $114,395
-------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread                 $  2,204       2.26%                $  1,616       2.56%
-------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin           $ 15,943                  2.82%    $  8,377                   2.97%
-------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities            1.11x                              1.08x
-------------------------------------------------------------------------------------------------------------------
</TABLE>

        Net interest and dividend  income  increased to  $2,204,000 in the first
half of 1998,  from $1,616,000 in the 1997 first half. The increase was due to a
higher level of net  interest-earning  assets,  partially offset by a decline in
the net interest margin.  The reasons for these changes are essentially the same
as those  discussed in the  comparison  of the quarters  ended June 30, 1998 and
1997.

                        Liquidity and Capital Resources
                        -------------------------------

     The Company's primary source of cash for the six months ended June 30, 1998
was from the maturity of securities totaling $21,576,000 and net deposit inflows
of  $17,675,000.  In  addition,  the  Company  sold  $7,000,000  of  Convertible
Subordinated  Debentures  on June 26,  1998 for  proceeds,  net of  underwriting
costs, of  approximately  $6,500,000.  Cash flow was used primarily for net loan
originations of $14,136,000 and the purchase of securities totaling $23,568,000.
At June 30, 1998, cash and cash  equivalents  totaled  $19,096,000,  compared to
$9,176,000 at December 31, 1997.

                                       15

<PAGE>

                           Interest Rate Sensitivity
                           -------------------------

     Interest rate risk arises from  differences  in the repricing of assets and
liabilities within a given time period. The Company's principal objective of its
asset/liability  management  strategy is to minimize  its exposure to changes in
interest  rates  by  matching  the  maturity  and  repricing   horizons  of  its
interest-earning assets and interest-bearing  liabilities. The Company uses "gap
analysis" to monitor its interest rate sensitivity.  For a further discussion of
interest  rate risk and gap analysis,  see the  Company's  1997 Annual Report on
Form 10-KSB,  pages 16 and 17. At June 30, 1998, the Company's one-year negative
interest-rate  sensitivity  gap was  $40,666,000,  compared  to  $42,489,000  at
December 31, 1997.


PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings

        Not Applicable

ITEM 2.  Changes in Securities

(a)     Not Applicable
(b)     Not Applicable
(c)     Not Applicable

ITEM 3.  Defaults Upon Senior Securities

        Not Applicable

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

(a)  The Annual Meeting of Stockholders was held on May 27, 1998.

(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 May 27, 1998 as a nominee
     for  Director  was elected  for one year terms  expiring on the date of the
     next annual meeting (see Item 4-C).

(c)  The table on page 17 summarizes the voting results on the matters that were
     submitted to the Bank's common stockholders:

                                       16

<PAGE>

--------------------------------------------------------------------------------
                               Against or
                         For    Withheld  Abstained
--------------------------------------------------------------------------------
Election of Directors - Class A
-------------------------------
Michael A. Callen   1,342,508      -         -
Milton F. Gidge     1,342,508      -         -
William F. Holly    1,342,508      -         -

Election of Directors  - Class B
---------------------  ---------
Lawrence G. Bergman    300,000     -         -
Jerome Dansker         300,000     -         -
Lowell S. Dansker      300,000     -         -
Edward J. Merz         300,000     -         -
David J. Willmott      300,000     -         -
Wesley T. Wood         300,000     -         -

Other Matters
-------------

To approve the
grant of common
stock warrants
to officers, 
directors and
employees of
the Company.        1,629,758   5,750   7,000
--------------------------------------------------------------------------------

(d)        Not Applicable

ITEM 5.  Other Information

        Not Applicable

ITEM 6.  Exhibits and Reports on Form 8-K

(a)     Exhibit Index  (numbered in accordance  with Item 601 of Regulation S-B)
        27- Financial Data Schedule (For SEC Purposes only)

(b)     Reports on Form  8-K
     A current  report  on Form 8-K dated  June 26,  1998 was filed  during  the
quarter ended June 30, 1998. This report announced the completion of the sale of
Convertible  Subordinated  Debentures  in  the  aggregate  principal  amount  of
$7,000,000.

                                       17

<PAGE>

                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.

                                INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY



Date:  July 22, 1998            By:    /s/ Lowell S. Dansker
                                ----------------------------
                                Lowell S. Dansker, President and Treasurer
                                (Chief Financial Officer)


Date:  July 22, 1998            By:    /s/ Lawrence G. Bergman
                                ----------------------------
                                Lawrence G. Bergman, 
                                   Vice President and Secretary

                                       18