##### 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 September 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 October 24, 2008
|                                                | 
|Class B Common Stock, $1.00 par value per share |  | 580,000 outstanding as of October 24, 2008  









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##### Table of Contents

INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES

FORM 10-Q

September 30, 2008

TABLE OF CONTENTS



|                                                                                                                                        |  |      
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                                        |  | Page 
|PART I. FINANCIAL INFORMATION                                                                                                           |  |      
|Item 1. Financial Statements                                                                                                            |  |      
|Condensed Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007                                        |  | 3    
|                                                                                                                                        | 
|Condensed Consolidated Statements of Earnings (Unaudited) for the Quarters and Nine-Months Ended September 
30, 2008 and 2007           |  | 4    
|                                                                                                                                        | 
|Condensed Consolidated Statements of Changes in Stockholders Equity (Unaudited) for the Nine-Months Ended September 30,
 2008 and 2007 |  | 5    
|                                                                                                                                        | 
|Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine-Months Ended September 30, 2008 and
2007                       |  | 6    
|                                                                                                                                        | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                        |  | 7    
|                                                                                                                                        | 
|Review by Independent Registered Public Accounting Firm                                                                                 |  | 19   
|                                                                                                                                        | 
|Report of Independent Registered Public Accounting Firm                                                                                 |  | 20   
|                                                                                                                                        | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                           |  | 21   
|                                                                                                                                        | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                      |  | 39   
|                                                                                                                                        | 
|Item 4. Controls and Procedures                                                                                                         |  | 39   
|                                                                                                                                        | 
|PART II. OTHER INFORMATION                                                                                                              |  |      
|                                                                                                                                        | 
|Item 1. Legal Proceedings                                                                                                               |  | 39   
|                                                                                                                                        | 
|Item 1A. Risk Factors                                                                                                                   |  | 39   
|                                                                                                                                        | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                     |  | 40   
|                                                                                                                                        | 
|Item 3. Defaults Upon Senior Securities                                                                                                 |  | 40   
|                                                                                                                                        | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                                             |  | 40   
|                                                                                                                                        | 
|Item 5. Other Information                                                                                                               |  | 40   
|                                                                                                                                        | 
|Item 6. Exhibits                                                                                                                        |  | 40   
|                                                                                                                                        | 
|Signatures                                                                                                                              |  | 40   
|                                                                                                                                        | 
|Certifications                                                                                                                          |  | 41-43

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, and in Item 1A of this report on Form 10-Q.



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 September 30,2008 |           |   | At December 31,2007 |  
|                                                                                                                                       |  | (Unaudited)          |           |   | (Audited)           |  
|ASSETS                                                                                                                                 |  |                      |           |   |                     |   |           |  
|Cash and due from banks                                                                                                                |  | $                    | 3,083     |   |                     | $ | 5,371     |  
|Federal funds sold                                                                                                                     |  |                      | 12,847    |   |                     |   | 24,178    |  
|Commercial paper and other short-term investments                                                                                      |  |                      | 6,039     |   |                     |   | 3,537     |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total cash and cash equivalents                                                                                                        |  |                      | 21,969    |   |                     |   | 33,086    |  
|Securities held to maturity, net (estimated fair value of $405,144 and $345,536, respectively)                                         |  |                      | 410,844   |   |                     |   | 344,105   |  
|Federal Reserve Bank and Federal Home Loan Bank stock, at cost                                                                         |  |                      | 10,912    |   |                     |   | 6,351     |  
|Loans receivable (net of allowance for loan losses of $25,828 and $21,593, respectively)                                               |  |                      | 1,666,023 |   |                     |   | 1,592,439 |  
|Accrued interest receivable                                                                                                            |  |                      | 11,170    |   |                     |   | 10,981    |  
|Loan fees receivable                                                                                                                   |  |                      | 8,872     |   |                     |   | 9,781     |  
|Premises and equipment, net                                                                                                            |  |                      | 5,539     |   |                     |   | 5,897     |  
|Foreclosed real estate                                                                                                                 |  |                      | 25,099    |   |                     |   |          |  
|Deferred income tax asset                                                                                                              |  |                      | 12,029    |   |                     |   | 10,387    |  
|Deferred debenture offering costs, net                                                                                                 |  |                      | 3,216     |   |                     |   | 4,098     |  
|Other assets                                                                                                                           |  |                      | 5,073     |   |                     |   | 4,267     |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total assets                                                                                                                           |  | $                    | 2,180,746 |   |                     | $ | 2,021,392 |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|LIABILITIES                                                                                                                            |  |                      |           |   |                     |   |           |  
|Deposits:                                                                                                                              |  |                      |           |   |                     |   |           |  
|Noninterest-bearing demand deposit accounts                                                                                            |  | $                    | 3,797     |   |                     | $ | 4,303     |  
|Interest-bearing deposit accounts:                                                                                                     |  |                      |           |   |                     |   |           |  
|Checking (NOW) accounts                                                                                                                |  |                      | 4,552     |   |                     |   | 5,668     |  
|Savings accounts                                                                                                                       |  |                      | 8,792     |   |                     |   | 8,399     |  
|Money market accounts                                                                                                                  |  |                      | 311,329   |   |                     |   | 235,804   |  
|Certificate of deposit accounts                                                                                                        |  |                      | 1,406,350 |   |                     |   | 1,405,000 |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total deposit accounts                                                                                                                 |  |                      | 1,734,820 |   |                     |   | 1,659,174 |  
|Borrowed Funds:                                                                                                                        |  |                      |           |   |                     |   |           |  
|Federal Home Loan Bank advances                                                                                                        |  |                      | 95,200    |   |                     |   |          |  
|Subordinated debentures                                                                                                                |  |                      | 55,500    |   |                     |   | 76,250    |  
|Subordinated debentures - capital securities                                                                                           |  |                      | 56,702    |   |                     |   | 56,702    |  
|Accrued interest payable on all borrowed funds                                                                                         |  |                      | 2,961     |   |                     |   | 3,282     |  
|Mortgage note payable                                                                                                                  |  |                      | 188       |   |                     |   | 200       |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total borrowed funds                                                                                                                   |  |                      | 210,551   |   |                     |   | 136,434   |  
|Accrued interest payable on deposits                                                                                                   |  |                      | 4,572     |   |                     |   | 6,706     |  
|Mortgage escrow funds payable                                                                                                          |  |                      | 33,551    |   |                     |   | 24,079    |  
|Official checks outstanding                                                                                                            |  |                      | 6,662     |   |                     |   | 12,417    |  
|Other liabilities                                                                                                                      |  |                      | 4,360     |   |                     |   | 3,021     |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total liabilities                                                                                                                      |  |                      | 1,994,516 |   |                     |   | 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                                                                                                     |  |                      | 78,950    |   |                     |   | 77,176    |  
|Retained earnings                                                                                                                      |  |                      | 108,605   |   |                     |   | 103,905   |  
|Treasury stock (404,339 shares, at cost)                                                                                               |  |                      | (10,000   | ) |                     |   | (10,000   | )
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total stockholders equity                                                                                                             |  |                      | 186,230   |   |                     |   | 179,561   |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  
|Total liabilities and stockholders equity                                                                                             |  | $                    | 2,180,746 |   |                     | $ | 2,021,392 |  
|                                                                                                                                       |  |                      |           |   |                     |   |           |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)



|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|---------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------------ | ---- | - | ------ |  | ---- | ------ |  | - | ------
|                                                                 |  | Quarter EndedSeptember 30, |        | Nine-Months EndedSeptember 30,
|($ in thousands, except per share data)                          |  | 2008                       |        |                                | 2007 |   | 2008   |  | 2007
|INTEREST AND DIVIDEND INCOME                                     |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Loans receivable                                                 |  | $                          | 28,840 |                                |      | $ | 27,275 |  | $    | 82,704 |  | $ | 83,915
|Securities                                                       |  |                            | 4,642  |                                |      |   | 4,954  |  |      | 13,974 |  |   | 15,134
|Other interest-earning assets                                    |  |                            | 26     |                                |      |   | 155    |  |      | 394    |  |   | 682   
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Total interest and dividend income                               |  |                            | 33,508 |                                |      |   | 32,384 |  |      | 97,072 |  |   | 99,731
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|INTEREST EXPENSE                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Deposits                                                         |  |                            | 19,896 |                                |      |   | 19,844 |  |      | 60,659 |  |   | 58,380
|Subordinated debentures                                          |  |                            | 1,279  |                                |      |   | 1,603  |  |      | 4,226  |  |   | 5,067 
|Subordinated debentures - capital securities                     |  |                            | 881    |                                |      |   | 886    |  |      | 2,653  |  |   | 2,658 
|Other borrowed funds                                             |  |                            | 368    |                                |      |   | 501    |  |      | 531    |  |   | 913   
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Total interest expense                                           |  |                            | 22,424 |                                |      |   | 22,834 |  |      | 68,069 |  |   | 67,018
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Net interest and dividend income                                 |  |                            | 11,084 |                                |      |   | 9,550  |  |      | 29,003 |  |   | 32,713
|Provision for loan losses                                        |  |                            | 3,446  |                                |      |   | 1,523  |  |      | 8,462  |  |   | 3,092 
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Net interest and dividend income after provision for loan losses |  |                            | 7,638  |                                |      |   | 8,027  |  |      | 20,541 |  |   | 29,621
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|NONINTEREST INCOME                                               |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Income from the early repayment of mortgage loans                |  |                            | 1,501  |                                |      |   | 3,231  |  |      | 2,192  |  |   | 5,857 
|Income from mortgage lending activities                          |  |                            | 582    |                                |      |   | 284    |  |      | 1,316  |  |   | 943   
|Customer service fees                                            |  |                            | 309    |                                |      |   | 148    |  |      | 535    |  |   | 304   
|Gain (loss) from early call of investment securities             |  |                            | (74    | )                              |      |   | 14     |  |      | 357    |  |   | 17    
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Total noninterest income                                         |  |                            | 2,318  |                                |      |   | 3,677  |  |      | 4,400  |  |   | 7,121 
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|NONINTEREST EXPENSES                                             |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Salaries and employee benefits                                   |  |                            | 1,455  |                                |      |   | 1,397  |  |      | 4,331  |  |   | 4,063 
|Occupancy and equipment, net                                     |  |                            | 446    |                                |      |   | 458    |  |      | 1,315  |  |   | 1,416 
|FDIC and general insurance                                       |  |                            | 434    |                                |      |   | 376    |  |      | 1,297  |  |   | 910   
|Professional fees and services                                   |  |                            | 322    |                                |      |   | 371    |  |      | 1,161  |  |   | 846   
|Data processing                                                  |  |                            | 257    |                                |      |   | 227    |  |      | 758    |  |   | 642   
|Director and committee fees                                      |  |                            | 80     |                                |      |   | 93     |  |      | 248    |  |   | 266   
|Stationery, printing and supplies                                |  |                            | 34     |                                |      |   | 39     |  |      | 139    |  |   | 154   
|Advertising and promotion                                        |  |                            | 71     |                                |      |   | 71     |  |      | 185    |  |   | 180   
|Postage and delivery                                             |  |                            | 24     |                                |      |   | 23     |  |      | 82     |  |   | 93    
|Real estate activities expense                                   |  |                            | 1,901  |                                |      |   | 11     |  |      | 2,828  |  |   | 64    
|Loss on the early extinguishment of debentures                   |  |                            | 125    |                                |      |   | 25     |  |      | 243    |  |   | 44    
|All other                                                        |  |                            | 127    |                                |      |   | 125    |  |      | 404    |  |   | 424   
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Total noninterest expenses                                       |  |                            | 5,276  |                                |      |   | 3,216  |  |      | 12,991 |  |   | 9,102 
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Earnings before income taxes                                     |  |                            | 4,680  |                                |      |   | 8,488  |  |      | 11,950 |  |   | 27,640
|Provision for income taxes                                       |  |                            | 2,054  |                                |      |   | 3,647  |  |      | 5,182  |  |   | 12,079
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Net earnings                                                     |  | $                          | 2,626  |                                |      | $ | 4,841  |  | $    | 6,768  |  | $ | 15,561
|                                                                 |  |                            |        |                                |      |   |        |  |      |        |  |   |       
|Basic earnings per share                                         |  | $                          | 0.32   |                                |      | $ | 0.59   |  | $    | 0.82   |  | $ | 1.87  
|Diluted earnings per share                                       |  | $                          | 0.32   |                                |      | $ | 0.58   |  | $    | 0.82   |  | $ | 1.83  
|Cash dividends per share                                         |  | $                          |       |                                |      | $ |       |  | $    | 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)



|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------ | - |  | ------ | ------- | - | ------ | --------- | - | ------ | - | ------- | -
|                                                                                                 |  | Nine-Months EndedSeptember 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                                             |  |                                |   |  |        | 166     |   |        |           |   |        |   |        |  
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  |                                |   |  |        | 78,950  |   |        |           |   |        |   | 76,931  |  
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|RETAINED EARNINGS                                                                                |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  |                                |   |  |        | 103,905 |   |        |           |   |        |   | 86,577  |  
|Net earnings for the period                                                                      |  |                                |   |  |        | 6,768   |   |        |           |   |        |   | 15,561  |  
|Dividends on common stock                                                                        |  |                                |   |  |        | (2,068  | ) |        |           |   |        |   | (2,112  | )
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  |                                |   |  |        | 108,605 |   |        |           |   |        |   | 100,026 |  
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|TREASURY STOCK                                                                                   |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at beginning of period                                                                   |  | (404,339                       | ) |  |        | (10,000 | ) |        |          |   |        |   |        |  
|Class A common stock repurchased                                                                 |  |                               |   |  |        |        |   |        | (332,000  | ) |        |   | (8,255  | )
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|Balance at end of period                                                                         |  | (404,339                       | ) |  |        | (10,000 | ) |        | (332,000  | ) |        |   | (8,255  | )
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  
|Total stockholders equity at end of period                                                      |  | 8,270,812                      |   |  | $      | 186,230 |   |        | 8,148,151 |   |        | $ | 177,182 |  
|                                                                                                 |  |                                |   |  |        |         |   |        |           |   |        |   |         |  

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)



|                                                                                                                         |  |                                |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                         |  | Nine-Months EndedSeptember 30, |         
|($ in thousands)                                                                                                         |  | 2008                           |          |   | 2007 |  
|OPERATING ACTIVITIES                                                                                                     |  |                                |          |   |      |   |          |  
|Net earnings                                                                                                             |  | $                              | 6,768    |   |      | $ | 15,561   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:                                      |  |                                |          |   |      |   |          |  
|Depreciation and amortization                                                                                            |  |                                | 418      |   |      |   | 465      |  
|Provision for loan losses                                                                                                |  |                                | 8,462    |   |      |   | 3,092    |  
|Deferred income tax benefit                                                                                              |  |                                | (1,642   | ) |      |   | (1,312   | )
|Amortization of deferred debenture offering costs                                                                        |  |                                | 639      |   |      |   | 766      |  
|Loss on early extinguishments of debentures                                                                              |  |                                | 243      |   |      |   | 44       |  
|Compensation expense related to common stock options                                                                     |  |                                | 166      |   |      |   |         |  
|Amortization of premiums (accretion) of discounts and deferred loan fees, net                                            |  |                                | (4,459   | ) |      |   | (5,697   | )
|Net decrease in accrued interest payable on debentures                                                                   |  |                                | (431     | ) |      |   | (354     | )
|Net decrease in official checks outstanding                                                                              |  |                                | (5,755   | ) |      |   | (6,273   | )
|Net decrease in loan fees receivable                                                                                     |  |                                | 909      |   |      |   | 318      |  
|Net change in all other assets and liabilities                                                                           |  |                                | 957      |   |      |   | 4,624    |  
|                                                                                                                         |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities                                                                                |  |                                | 6,275    |   |      |   | 11,234   |  
|                                                                                                                         |  |                                |          |   |      |   |          |  
|INVESTING ACTIVITIES                                                                                                     |  |                                |          |   |      |   |          |  
|Maturities and calls of securities held to maturity                                                                      |  |                                | 286,903  |   |      |   | 131,788  |  
|Purchases of securities held to maturity                                                                                 |  |                                | (353,255 | ) |      |   | (74,284  | )
|Net increase in loans receivable                                                                                         |  |                                | (105,710 | ) |      |   | (137,406 | )
|Net (purchases) redemptions of FRB and FHLB stock                                                                        |  |                                | (4,561   | ) |      |   | 587      |  
|Net purchases of premises and equipment                                                                                  |  |                                | (60      | ) |      |   | (71      | )
|                                                                                                                         |  |                                |          |   |      |   |          |  
|Net cash used in investing activities                                                                                    |  |                                | (176,683 | ) |      |   | (79,386  | )
|                                                                                                                         |  |                                |          |   |      |   |          |  
|FINANCING ACTIVITIES                                                                                                     |  |                                |          |   |      |   |          |  
|Net increase in deposits                                                                                                 |  |                                | 75,646   |   |      |   | 84,909   |  
|Net increase in mortgage escrow funds payable                                                                            |  |                                | 9,472    |   |      |   | 11,837   |  
|Net increase (decrease) in FHLB advances                                                                                 |  |                                | 95,200   |   |      |   | (25,000  | )
|Principal repayments of debentures and mortgage note payable                                                             |  |                                | (20,762  | ) |      |   | (9,341   | )
|Class A common stock repurchased                                                                                         |  |                                |         |   |      |   | (8,255   | )
|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                                                                                |  |                                | 159,291  |   |      |   | 52,038   |  
|                                                                                                                         |  |                                |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                                                                |  |                                | (11,117  | ) |      |   | (16,114  | )
|Cash and cash equivalents at beginning of period                                                                         |  |                                | 33,086   |   |      |   | 40,195   |  
|                                                                                                                         |  |                                |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                                               |  | $                              | 21,969   |   |      | $ | 24,081   |  
|                                                                                                                         |  |                                |          |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES                                                                                                 |  |                                |          |   |      |   |          |  
|Cash paid during the period for:                                                                                         |  |                                |          |   |      |   |          |  
|Interest                                                                                                                 |  | $                              | 69,885   |   |      | $ | 66,217   |  
|Income taxes                                                                                                             |  |                                | 6,827    |   |      |   | 11,758   |  
|Noncash activities:                                                                                                      |  |                                |          |   |      |   |          |  
|Loans transferred to foreclosed real estate                                                                              |  |                                | 25,099   |   |      |   | 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 incorporated in 1993 under the laws of the State of Delaware and is 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 There is
no public trading market for the Holding Companys Class B common stock. 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 and, from time to time, it also engages in a limited amount of real estate mortgage lending, including the purchase of participations in loans originated by the Bank. The Holding Company
also issues debt and equity securities to raise funds for working capital purposes as needed. 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 herein 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 has focused on the origination of first and
junior mortgage loans secured by commercial and multifamily real estate, and it also provides loan origination services to the Bank, its affiliate, through and intercompany service agreement. Intervest Mortgage Corporation has funded its loans
through the issuance of subordinated debentures in public offerings. Since early 2007, competitive market conditions and lower pricing for new loans have decreased Intervest Mortgage Corporations loan originations significantly from its
historical levels, and only one loan has been originated during 2008. As a result, Intervest Mortgage Corporation has been applying the proceeds from loan repayments to redeem its outstanding debentures, in many cases prior to contractual maturity.
To the extent that current market conditions continue to exist, it is likely that the level of Intervest Mortgage Corporations loan originations will continue to be relatively modest and it likely will continue to apply the proceeds received
from maturing loans to the repayment of outstanding debentures. Intervest Mortgage Corporation has sources of funds from its maturing loans sufficient to satisfy its maturing liabilities. Management will continue to closely monitor market trends to
determine if additional loan originations or other real estate activities, consistent with Intervest Mortgage Corporations overall goals and objectives, are appropriate for pursuit. At September 30, 2008, Intervest Mortgage Corporation
had total assets of $92.3 million, cash and short-term investments of $32.0 million, loans, net of deferred fees of $55.2 million, debentures and related interest payable of $58.2 million, and stockholders equity of $31.7 million. An
additional $15.5 principal amount of debentures have been called for redemption on November 1, 2008. Intervest Mortgage Corporation has traditionally provided loan origination services to the Bank and has received fee income in connection with
those services, which is eliminated in the consolidated financial statements. In light of the significant reduction in Intervest Mortgage Corporations lending business, effective January 1, 2009, the employees of Intervest Mortgage
Corporation will become employees of the Bank and will continue to perform loan origination services consistent with past practice. Certain personnel of the Bank will perform the ongoing operations of Intervest Mortgage Corporation, including any
origination services that it may require, and Intervest Mortgage Corporation will reimburse the Bank for the cost of such services on a monthly basis. Effective January 1, 2009, the intercompany service agreement, which 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, will be terminated.

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 September 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.



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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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.

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 September 30, 2008 amounted to $107.9 million, or 4.95% of total assets, compared to $126.4
million, or 5.72%, at June 30, 2008 and $90.8 million, or 4.49%, at December 31, 2007. At September 30, 2008, nonperforming assets were comprised of $82.8 million of nonaccrual loans, or 19 loans, and $25.1 million of real estate
acquired through foreclosure, or 4 properties. During the third quarter of 2008, a total of $24.6 million (outstanding principal) of nonaccrual loans were satisfied through sales of collateral properties and a $10.9 million loan was restored to
accrual status. In the third quarter of 2008, loan charge offs amounted to $4.3 million and new nonaccrual loans totaled $21.4 million. At September 30, 2008 and in accordance with SFAS No. 114, a specific valuation allowance in the
aggregate amount of $5.4 million (included as part of the overall allowance for loan losses) was maintained on nonaccrual loans, which are considered impaired.

Bankruptcy filings by borrowers continue to delay the Companys ability to complete foreclosure or other proceedings to acquire and sell the collateral properties. Timing of the resolution/disposition of nonperforming assets cannot be
predicted with certainty. There can be no assurance that the Company will not incur additional loan loss provisions, additional loan charge offs or additional significant expenses in connection with the ultimate collection of nonaccrual loans or in
carrying and disposing of properties acquired through foreclosure. Collection is anticipated to be through the eventual sale of the collateral property in most cases. Although the Company has never originated or acquired subprime loans nor invested
in securities collateralized by subprime loans, the current world financial crisis 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 does not own or originate construction/development loans. 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 September 30, 2008        |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|U.S. government agencies (1) |  | 259                 |  | $             | 402,813 |                      | $ | 408                   |  | $                  | 2,233 |              | $ | 400,988 |                          | 4.20 | % |  | 4.2 Years 
|Corporate                    |  | 8                   |  |               | 8,031   |                      |   |                      |  |                    | 3,875 |              |   | 4,156   |                          | 4.67 | % |  | 24.9 Years
|                             |  |                     |  |               |         |                      |   |                       |  |                    |       |              |   |         |                          |      |   |  |           
|                             |  | 267                 |  | $             | 410,844 |                      | $ | 408                   |  | $                  | 6,108 |              | $ | 405,144 |                          | 4.21 | % |  | 4.6 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:



|                         |  |                     |  |                         |         |                         |   |                    |  |                       |        |                    |   |                       |  |   |         |  |   |      
|------------------------ |  | ------------------- |  | ----------------------- | ------- | ----------------------- | - | ------------------ |  | --------------------- | ------ | ------------------ | - | --------------------- |  | - | ------- |  | - | -----
|                         |  |                     |  | Less Than Twelve Months |         | Twelve Months or Longer |   | Total             
|($ in thousands)         |  | Number ofSecurities |  | EstimatedFairValue      |         | GrossUnrealizedLosses   |   | EstimatedFairValue |  | GrossUnrealizedLosses |        | EstimatedFairValue |   | GrossUnrealizedLosses
|At September 30, 2008    |  |                     |  |                         |         |                         |   |                    |  |                       |        |                    |   |                       |  |   |         |  |   |      
|U.S. government agencies |  | 165                 |  | $                       | 260,550 |                         | $ | 2,233              |  | $                     |       |                    | $ |                      |  | $ | 260,550 |  | $ | 2,233
|Corporate                |  | 8                   |  |                         | 696     |                         |   | 304                |  |                       | 3,460  |                    |   | 3,571                 |  |   | 4,156   |  |   | 3,875
|                         |  |                     |  |                         |         |                         |   |                    |  |                       |        |                    |   |                       |  |   |         |  |   |      
|                         |  | 173                 |  | $                       | 261,246 |                         | $ | 2,537              |  | $                     | 3,460  |                    | $ | 3,571                 |  | $ | 264,706 |  | $ | 6,108
|                         |  |                     |  |                         |         |                         |   |                    |  |                       |        |                    |   |                       |  |   |         |  |   |      
|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 losses on U.S. government agency securities 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. With respect to the
corporate securities (trust-preferred notes), management believes that, in addition to the impact of interest rates, their estimated values are currently depressed due to the temporary crisis in the credit markets, which has reduced demand for these
securities. All these securities continue to pay contractual interest and are rated investment grade at September 30, 2008. The estimated fair values on 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 in the portfolio to be
temporary for the reasons noted above. 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 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 September 30, 2008 is as follows:



|                                       |  |                |         |                      |   |               |  |      |  
|-------------------------------------- |  | -------------- | ------- | -------------------- | - | ------------- |  | ---- | -
|($ in thousands)                       |  | Amortized Cost |         | Estimated Fair Value |   | Average Yield | 
|Due in one year or less                |  | $              | 13,492  |                      | $ | 13,545        |  | 4.66 | %
|Due after one year through five years  |  |                | 292,800 |                      |   | 292,035       |  | 3.96 |  
|Due after five years through ten years |  |                | 83,539  |                      |   | 82,835        |  | 4.87 |  
|Due after ten years                    |  |                | 21,013  |                      |   | 16,729        |  | 4.88 |  
|                                       |  |                |         |                      |   |               |  |      |  
|                                       |  | $              | 410,844 |                      | $ | 405,144       |  | 4.21 | %
|                                       |  |                |         |                      |   |               |  |      |  



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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 September 30, 2008 |  |        | At December 31, 2007 |  
|($ in thousands)                       |  | # of Loans            |  | Amount |                      |   | # of Loans |     | Amount |  
|Commercial real estate loans           |  | 368                   |  | $      | 1,057,429            |   |            | 322 |        | $ | 932,351   |  
|Residential multifamily loans          |  | 231                   |  |        | 610,424              |   |            | 244 |        |   | 657,387   |  
|Land development and other land loans  |  | 15                    |  |        | 31,517               |   |            | 17  |        |   | 33,318    |  
|Residential 1-4 family loans           |  | 2                     |  |        | 470                  |   |            | 2   |        |   | 486       |  
|Commercial business loans              |  | 17                    |  |        | 545                  |   |            | 19  |        |   | 575       |  
|Consumer loans                         |  | 19                    |  |        | 431                  |   |            | 15  |        |   | 315       |  
|                                       |  |                       |  |        |                      |   |            |     |        |   |           |  
|Loans receivable                       |  | 652                   |  |        | 1,700,816            |   |            | 619 |        |   | 1,624,432 |  
|                                       |  |                       |  |        |                      |   |            |     |        |   |           |  
|Deferred loan fees                     |  |                       |  |        | (8,965               | ) |            |     |        |   | (10,400   | )
|                                       |  |                       |  |        |                      |   |            |     |        |   |           |  
|Loans receivable, net of deferred fees |  |                       |  |        | 1,691,851            |   |            |     |        |   | 1,614,032 |  
|                                       |  |                       |  |        |                      |   |            |     |        |   |           |  
|Allowance for loan losses              |  |                       |  |        | (25,828              | ) |            |     |        |   | (21,593   | )
|                                       |  |                       |  |        |                      |   |            |     |        |   |           |  
|Loans receivable, net                  |  |                       |  | $      | 1,666,023            |   |            |     |        | $ | 1,592,439 |  
|                                       |  |                       |  |        |                      |   |            |     |        |   |           |  

At September 30, 2008 and December 31, 2007, there were $82.8 million and $90.8 million of loans on a
nonaccrual status, respectively, and considered impaired under the criteria of SFAS 114. At September 30, 2008, in accordance with SFAS 114, a specific valuation allowance in the aggregate amount of $5.4 million (included as part of the overall
allowance for loan losses) was maintained on these loans. At December 31, 2007, there was no valuation allowance necessary. No other loans were classified as impaired at either date. At September 30, 2008, no loans 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 $1.1 million for the quarter ended September 30, 2008 and $5.9 million for the nine-months ended September 30, 2008, compared to $2.0 million and $2.6 million,
respectively, for the same periods of 2007. The average principal balance of nonaccrual loans (same as impaired loans) for the quarter and nine-months ended September 30, 2008 was $105.9 million and $108.3 million, respectively, and $86.2
million and $38.8 million for the quarter and nine-months ended September 30, 2007, respectively.

Note 5Allowance for Loan Losses

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



|                                             |  |                            |        |                                |      |   |        |  |   |        |   |  |   |       
|-------------------------------------------- |  | -------------------------- | ------ | ------------------------------ | ---- | - | ------ |  | - | ------ | - |  | - | ------
|                                             |  | Quarter EndedSeptember 30, |        | Nine-Months EndedSeptember 30,
|($ in thousands)                             |  | 2008                       |        |                                | 2007 |   | 2008   |  |   | 2007  
|Balance at beginning of period               |  | $                          | 26,609 |                                |      | $ | 19,402 |  | $ | 21,593 |   |  | $ | 17,833
|Provision for loan losses charged to expense |  |                            | 3,446  |                                |      |   | 1,523  |  |   | 8,462  |   |  |   | 3,092 
|Loan chargeoffs                              |  |                            | (4,227 | )                              |      |   |       |  |   | (4,227 | ) |  |   |      
|                                             |  |                            |        |                                |      |   |        |  |   |        |   |  |   |       
|Balance at end of period                     |  | $                          | 25,828 |                                |      | $ | 20,925 |  | $ | 25,828 |   |  | $ | 20,925
|                                             |  |                            |        |                                |      |   |        |  |   |        |   |  |   |       

Note 6Deposits

Scheduled maturities of certificates of deposit accounts are as follows:



|                         |  |                       |           |                    |                      |   |        |   |                    |  |      |  
|------------------------ |  | --------------------- | --------- | ------------------ | -------------------- | - | ------ | - | ------------------ |  | ---- | -
|                         |  | At September 30, 2008 |           |                    | At December 31, 2007 |  
|($ in thousands)         |  | Amount                |           | Wtd-AvgStated Rate |                      |   | Amount |   | Wtd-AvgStated Rate | 
|Within one year          |  | $                     | 599,822   |                    | 4.33                 | % |        | $ | 495,002            |  | 4.82 | %
|Over one to two years    |  |                       | 311,744   |                    | 4.65                 |   |        |   | 296,318            |  | 4.74 |  
|Over two to three years  |  |                       | 169,162   |                    | 5.09                 |   |        |   | 233,248            |  | 4.81 |  
|Over three to four years |  |                       | 149,329   |                    | 5.13                 |   |        |   | 129,949            |  | 5.27 |  
|Over four years          |  |                       | 176,293   |                    | 5.02                 |   |        |   | 250,483            |  | 5.16 |  
|                         |  |                       |           |                    |                      |   |        |   |                    |  |      |  
|                         |  | $                     | 1,406,350 |                    | 4.66                 | % |        | $ | 1,405,000          |  | 4.90 | %
|                         |  |                       |           |                    |                      |   |        |   |                    |  |      |  

Certificate of deposit accounts (CDs) of $100,000 or more totaled $599 million and $586 million at
September 30, 2008 and December 31, 2007, respectively, and included brokered CDs of $169 million and $166 million at each date, respectively. At September 30, 2008, CDs of $100,000 or more by remaining maturity were as follows: $208
million due within one year; $108 million due over one to two years; $80 million due over two to three years; $84 million due over three to four years; and $119 million due over four years.



11



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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 September 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 (1)     |  |                      |       |                     |   | 3,000 
|Series 11/28/03 - interest at 6.50% fixed - due April 1, 2009 (1)       |  |                      |       |                     |   | 3,500 
|Series 03/21/05 - interest at 6.25% fixed - due April 1, 2009 (1)       |  |                      |       |                     |   | 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 (1)        |  |                      |       |                     |   | 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
|                                                                        |  |                      |        |                     |   |       
|                                                                        |  |                      | 55,500 |                     |   | 76,250
|INTERVEST NATIONAL BANK:                                                |  |                      |        |                     |   |       
|Mortgage note payable (2)  interest at 7% fixed - due February 1, 2017 |  |                      | 188    |                     |   | 200   
|                                                                        |  |                      |        |                     |   |       
|                                                                        |  | $                    | 55,688 |                     | $ | 76,450
|                                                                        |  |                      |        |                     |   |       



|(1) | These debentures were repaid at various times during the nine-months ended September 30, 2008 with cash on hand prior to their stated maturity for an aggregate of $20.8 million
of principal and $892,000 of related accrued interest payable. A loss aggregating $243,000 from the early extinguishment of debentures was recorded, 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: $0.8 million of Series 11/28/03; $1.4 million of Series 6/7/04; $1.5 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 7/25/03 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 of 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
September 30, 2008 were as follows:



|                                                    |  |           |        |                  |   |      
|--------------------------------------------------- |  | --------- | ------ | ---------------- | - | -----
|($ in thousands)                                    |  | Principal |        | Accrued Interest
|For the period October 1, 2008 to December 31, 2008 |  | $         | 4      |                  | $ | 809  
|For the year ended December 31, 2009 (1)            |  |           | 2,017  |                  |   | 61   
|For the year ended December 31, 2010 (2)            |  |           | 9,019  |                  |   | 290  
|For the year ended December 31, 2011 (3)            |  |           | 13,020 |                  |   | 620  
|For the year ended December 31, 2012                |  |           | 9,021  |                  |   | 308  
|Thereafter                                          |  |           | 22,607 |                  |   | 632  
|                                                    |  |           |        |                  |   |      
|                                                    |  | $         | 55,688 |                  | $ | 2,720
|                                                    |  |           |        |                  |   |      



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

Series 8/12/05 for $2.0 million in principal and $61,000 of related accrued interest payable.

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

Series 7/25/03, 6/7/04 and 6/12/06 for aggregate principal of $9.0 million and $290,000 of related accrued interest payable.

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

Series 11/28/03 for $4.5 million of principal and $304,000 of related accrued interest payable.

|(4) | A loss totaling approximately $328,000 from the early extinguishments of debentures (denoted in notes 1 to 3) will be recorded in the fourth 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FHLB Advances and Lines of Credit

At September 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 September 30, 2008, the Bank had available collateral consisting of investment securities to support additional total
borrowings of approximately $294 million from the FHLB and FRB.

The following is a summary of certain information regarding FHLB advances in the
aggregate:



|                                                   |  |                                          |        |   |                                              |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ---------------------------------------- | ------ | - | -------------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | At or for the Quarter EndedSeptember 30, |        |   | At or for the Nine-Months EndedSeptember 30, |  
|($ in thousands)                                   |  | 2008                                     |        |   | 2007                                         |   |        | 2008 |  |   | 2007   |  
|Balance at period end                              |  | $                                        | 95,200 |   |                                              | $ |       |      |  | $ | 95,200 |   |  | $ |       |  
|Maximum amount outstanding at any month end        |  | $                                        | 95,200 |   |                                              | $ | 49,000 |      |  | $ | 95,200 |   |  | $ | 49,000 |  
|Average outstanding balance for the period         |  | $                                        | 55,182 |   |                                              | $ | 36,471 |      |  | $ | 26,196 |   |  | $ | 22,132 |  
|Weighted-average interest rate paid for the period |  |                                          | 2.63   | % |                                              |   | 5.41   | %    |  |   | 2.66   | % |  |   | 5.45   | %
|Weighted-average interest rate at period end       |  |                                          | 3.20   | % |                                              |   |       | %    |  |   | 3.20   | % |  |   |       | %
|                                                   |  |                                          |        |   |                                              |   |        |      |  |   |        |   |  |   |        |  

Scheduled contractual maturities of FHLB advances as of September 30, 2008 were as follows:



|                                                        |  |        |        |                |      |  
|------------------------------------------------------- |  | ------ | ------ | -------------- | ---- | -
|($ in thousands)                                        |  | Amount |        | Wtd. Avg. Rate |     
|For the period October 1, 2008 to December 31, 2008 (1) |  | $      | 44,700 |                | 2.51 | %
|For the year ended December 31, 2009                    |  |        |       |                |     | %
|For the year ended December 31, 2010                    |  |        | 25,000 |                | 3.59 | %
|For the year ended December 31, 2011                    |  |        | 8,000  |                | 3.83 | %
|For the year ended December 31, 2012                    |  |        | 10,500 |                | 4.02 | %
|Thereafter                                              |  |        | 7,000  |                | 4.22 | %
|                                                        |  |        |        |                |      |  
|                                                        |  | $      | 95,200 |                | 3.20 | %
|                                                        |  |        |        |                |      |  



|(1) | Comprised of borrowings due within thirty days.
|--- | -----------------------------------------------

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
September 30, 2008, 617,960 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 nine-months ended September 30, 2008 follows:



|                                                         |  |                           |           |   |                         |   |      
|-------------------------------------------------------- |  | ------------------------- | --------- | - | ----------------------- | - | -----
|                                                         |  | Exercise Price Per 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)                                              |  |                           | (800      | ) |                         | $ | 17.10
|                                                         |  |                           |           |   |                         |   |      
|Outstanding at September 30, 2008                        |  |                           | 132,040   |   |                         | $ | 17.10
|                                                         |  |                           |           |   |                         |   |      
|Remaining contractual term at September 30, 2008 (2) (3) |  |                           | 9.2 years |   |                         |   |      
|                                                         |  |                           |           |   |                         |   |      



|                                  |  |                            |          |   |               |   |         |                         |  |          |   |  |   |     
|--------------------------------- |  | -------------------------- | -------- | - | ------------- | - | ------- | ----------------------- |  | -------- | - |  | - | ----
|                                  |  | Exercise Price Per 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 September 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 September 30, 2008 of $7.63 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)



Note 9Common Stock Options and Warrants

In the first nine-months of 2008, $166,000 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 September 30, 2008, there was $269,000 of unrecognized compensation cost related to outstanding stock options granted in 2007, of which approximately $56,000 is expected to be recognized over the remainder of 2008
and $213,000 in 2009.

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 EndedSeptember 30, |           | Nine-Months EndedSeptember 30,
|($ in thousands, except share and per share amounts)                       |  | 2008                       |           | 2007                           |   | 2008      |  | 2007
|Basic Earnings Per Share:                                                  |  |                            |           |                                |   |           |  |      |           |  |   |          
|Net earnings applicable to common stockholders                             |  | $                          | 2,626     |                                | $ | 4,841     |  | $    | 6,768     |  | $ | 15,561   
|Weighted-Average number of common shares outstanding                       |  |                            | 8,270,812 |                                |   | 8,232,899 |  |      | 8,255,155 |  |   | 8,340,234
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          
|Basic Earnings Per Share                                                   |  | $                          | 0.32      |                                | $ | 0.59      |  | $    | 0.82      |  | $ | 1.87     
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          
|Diluted Earnings Per Share:                                                |  |                            |           |                                |   |           |  |      |           |  |   |          
|Net earnings applicable to common stockholders                             |  | $                          | 2,626     |                                | $ | 4,841     |  | $    | 6,768     |  | $ | 15,561   
|Adjustment to net earnings from assumed conversion of debentures (1)       |  |                            |          |                                |   |          |  |      |          |  |   | 44       
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          
|Adjusted net earnings for diluted earnings per share computation           |  | $                          | 2,626     |                                | $ | 4,841     |  | $    | 6,768     |  | $ | 15,605   
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          
|Weighted-Average number of common shares outstanding:                      |  |                            |           |                                |   |           |  |      |           |  |   |          
|Common shares outstanding                                                  |  |                            | 8,270,812 |                                |   | 8,232,899 |  |      | 8,255,155 |  |   | 8,340,234
|Potential dilutive shares resulting from exercise of warrants /options (2) |  |                            |          |                                |   | 81,200    |  |      | 2,049     |  |   | 83,001   
|Potential dilutive shares resulting from conversion of debentures (3)      |  |                            |          |                                |   |          |  |      |          |  |   | 88,146   
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          
|Total average number of common shares outstanding used for dilution        |  |                            | 8,270,812 |                                |   | 8,314,099 |  |      | 8,257,204 |  |   | 8,511,381
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          
|Diluted Earnings Per Share                                                 |  | $                          | 0.32      |                                | $ | 0.58      |  | $    | 0.82      |  | $ | 1.83     
|                                                                           |  |                            |           |                                |   |           |  |      |           |  |   |          



|(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 132,040 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.



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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



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.

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



|                          |  |                      |        |                     |   |       
|------------------------- |  | -------------------- | ------ | ------------------- | - | ------
|($ in thousands)          |  | At September 30,2008 |        | At December 31,2007
|Unfunded loan commitments |  | $                    | 55,747 |                     | $ | 82,545
|Available lines of credit |  |                      | 987    |                     |   | 654   
|Standby letters of credit |  |                      |       |                     |   | 300   
|                          |  |                      |        |                     |   |       
|                          |  | $                    | 56,734 |                     | $ | 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
September 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 September 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. As of the date of filing of this report
on Form 10-Q, management is not aware of any conditions or events that would have changed the Banks designation 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 12Regulatory Capital, Continued



At September 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                                                       |  | 14.33        | % |  | 8.00               | % |  | NA                               |  
|Tier 1 capital to risk-weighted assets                                                      |  | 13.08        | % |  | 4.00               | % |  | NA                               |  
|Tier 1 capital to total average assets  leverage ratio                                     |  | 11.02        | % |  | 4.00               | % |  | NA                               |  
|                                                                                           
|At September 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                                                       |  | 12.67        | % |  | 8.00               | % |  | 10.00                            | %
|Tier 1 capital to risk-weighted assets                                                      |  | 11.42        | % |  | 4.00               | % |  | 6.00                             | %
|Tier 1 capital to total average assets  leverage ratio                                     |  | 9.67         | % |  | 4.00               | % |  | 5.00                             | %

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
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)



Note 14Recent Accounting PronouncementsContinued



| |  |  | 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.

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 September 30, 2008.



|                       |  |                                          |        |                  |   |         |   |         |   |                                 |  |                                     |       |  |   |      
|---------------------- |  | ---------------------------------------- | ------ | ---------------- | - | ------- | - | ------- | - | ------------------------------- |  | ----------------------------------- | ----- |  | - | -----
|                       |  | Net carrying value at September 30, 2008 |        | Total Losses (1)
|($ in thousands)       |  | Total                                    |        | Level 1          |   | Level 2 |   | Level 3 |   | Quarter EndedSeptember 30, 2008 |  | Nine-Months EndedSeptember 30,
2008
|Impaired loans         |  | $                                        | 82,759 |                  |  |         |  |         | $ | 82,759                          |  | $                                   | 7,361 |  | $ | 9,584
|Foreclosed real estate |  | $                                        | 25,099 |                  |  |         |  |         | $ | 25,099                          |  |                                     |      |  |   |     
|                       |  |                                          |        |                  |   |         |   |         |   |                                 |  |                                     |       |  |   |      



|(1) | Represents a specific valuation allowance (included as part of the overall allowance for loan losses) for nonaccrual loans in accordance with SFAS 114, plus loan chargeoffs during
the period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.



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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



SFAS 160Noncontrolling Interest in Consolidated Financial Statements.In
December 2007, the FASB issued SFAS 160 and will be 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 September 30, 2008 and for the three and
nine-month periods ended September 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.



19



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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 September 30, 2008 and the related condensed consolidated statements of earnings for the three- and nine-month periods
ended September 30, 2008 and 2007, and the related condensed consolidated statements of changes in stockholders equity and cash flows for the nine-month periods ended September 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                         
|October 24, 2008                       



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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 September 30, 2008 and December 31, 2007

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



|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|------------------------------------------- |  | -------------- | ------- | - | --------------------- | - | --------- | ---------------------------- |  | - | ------------------------ | - |  | ------------ | -------- | - |  | - | --------- | -
|($ in thousands)                            |  | HoldingCompany |         |   | IntervestNationalBank |   |           | IntervestMortgageCorporation |  |   | Inter-CompanyAmounts (1) |   |  | Consolidated |         
|Cash and cash equivalents                   |  | $              | 2,422   |   |                       | $ | 15,058    |                              |  | $ | 31,990                   |   |  | $            | (27,501  | ) |  | $ | 21,969    |  
|Security investments                        |  |                |        |   |                       |   | 421,756   |                              |  |   |                         |   |  |              |         |   |  |   | 421,756   |  
|Loans receivable, net of deferred fees      |  |                | 2,598   |   |                       |   | 1,634,090 |                              |  |   | 55,163                   |   |  |              |         |   |  |   | 1,691,851 |  
|Allowance for loan losses                   |  |                | (30     | ) |                       |   | (24,810   | )                            |  |   | (988                     | ) |  |              |         |   |  |   | (25,828   | )
|Investment in consolidated subsidiaries     |  |                | 234,815 |   |                       |   |          |                              |  |   |                         |   |  |              | (234,815 | ) |  |   |          |  
|All other assets                            |  |                | 3,406   |   |                       |   | 62,139    |                              |  |   | 6,132                    |   |  |              | (679     | ) |  |   | 70,998    |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Total assets                                |  | $              | 243,211 |   |                       | $ | 2,108,233 |                              |  | $ | 92,297                   |   |  | $            | (262,995 | ) |  | $ | 2,180,746 |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Deposits                                    |  | $              |        |   |                       | $ | 1,762,326 |                              |  | $ |                         |   |  | $            | (27,506  | ) |  | $ | 1,734,820 |  
|Borrowed funds and related interest payable |  |                | 56,833  |   |                       |   | 95,498    |                              |  |   | 58,220                   |   |  |              |         |   |  |   | 210,551   |  
|All other liabilities                       |  |                | 148     |   |                       |   | 47,335    |                              |  |   | 2,336                    |   |  |              | (674     | ) |  |   | 49,145    |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Total liabilities                           |  |                | 56,981  |   |                       |   | 1,905,159 |                              |  |   | 60,556                   |   |  |              | (28,180  | ) |  |   | 1,994,516 |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Stockholders equity                        |  |                | 186,230 |   |                       |   | 203,074   |                              |  |   | 31,741                   |   |  |              | (234,815 | ) |  |   | 186,230   |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  
|Total liabilities and stockholders equity  |  | $              | 243,211 |   |                       | $ | 2,108,233 |                              |  | $ | 92,297                   |   |  | $            | (262,995 | ) |  | $ | 2,180,746 |  
|                                            |  |                |         |   |                       |   |           |                              |  |   |                          |   |  |              |          |   |  |   |           |  



|(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 September 30, 2008 |           |                  | At December 31, 2007 |  
|($ in thousands)                                               |  | CarryingValue         |           | % ofTotal Assets |                      |   | CarryingValue |   | % ofTotal Assets | 
|Cash and cash equivalents                                      |  | $                     | 21,969    |                  | 1.0                  | % |               | $ | 33,086           |  | 1.6   | %
|Security investments                                           |  |                       | 421,756   |                  | 19.3                 |   |               |   | 350,456          |  | 17.3  |  
|Loans receivable, net of deferred fees and loan loss allowance |  |                       | 1,666,023 |                  | 76.4                 |   |               |   | 1,592,439        |  | 78.8  |  
|All other assets                                               |  |                       | 70,998    |                  | 3.3                  |   |               |   | 45,411           |  | 2.3   |  
|                                                               |  |                       |           |                  |                      |   |               |   |                  |  |       |  
|Total assets                                                   |  | $                     | 2,180,746 |                  | 100.0                | % |               | $ | 2,021,392        |  | 100.0 | %
|                                                               |  |                       |           |                  |                      |   |               |   |                  |  |       |  
|Deposits                                                       |  | $                     | 1,734,820 |                  | 79.6                 | % |               | $ | 1,659,174        |  | 82.1  | %
|Borrowed funds and related interest payable                    |  |                       | 210,551   |                  | 9.7                  |   |               |   | 136,434          |  | 6.7   |  
|All other liabilities                                          |  |                       | 49,145    |                  | 2.2                  |   |               |   | 46,223           |  | 2.3   |  
|                                                               |  |                       |           |                  |                      |   |               |   |                  |  |       |  
|Total liabilities                                              |  |                       | 1,994,516 |                  | 91.5                 |   |               |   | 1,841,831        |  | 91.1  |  
|                                                               |  |                       |           |                  |                      |   |               |   |                  |  |       |  
|Stockholders equity                                           |  |                       | 186,230   |                  | 8.5                  |   |               |   | 179,561          |  | 8.9   |  
|                                                               |  |                       |           |                  |                      |   |               |   |                  |  |       |  
|Total liabilities and stockholders equity                     |  | $                     | 2,180,746 |                  | 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 $22 million at September 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 $411 million at September 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 any collateralized debt obligations, collateralized mortgage obligations, or any preferred or common stock of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation.

At September 30, 2008, securities held to maturity consisted of investment grade rated debt
obligations of the Federal Home Loan Bank, Federal Farm Credit Bank, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation totaling $403 million and corporate securities (trust preferred notes) of $8 million. At
September 30, 2008, the entire portfolio had a weighted-average yield of 4.21% and a weighted-average remaining maturity of 4.6 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 September 30, 2008 and December 31, 2007, the
held-to-maturity portfolios estimated fair value was $405 million and $346 million, respectively. At September 30, 2008, the held-to-maturity portfolio had a net unrealized loss of $5.7 million, compared to a net unrealized gain of $1.4
million at December 31, 2007. See note 3 to the condensed consolidated financial statements in this report for a discussion regarding unrealized losses in the held to maturity securities portfolio, which management deems to be temporary.

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 $7.3 million, respectively, at September 30, 2008. The FRB stock has historically paid a dividend of 6%, while the FHLB stock dividend fluctuates quarterly and most
recently was 6.5%. The total investment, which amounted to $10.9 million at September 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 $1.69 billion at September 30, 2008, from $1.61 billion at December 31, 2007. The growth reflected $327
million of new mortgage loan originations secured by commercial and multifamily real estate exceeding the aggregate of: $221 million of principal repayments; $25 million of loans transferred to foreclosed real estate; and $4.3 million of loan charge
offs. The new loans are predominantly fixed-rate with a weighted-average yield and term of 6.34% 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 72% of the loan portfolio at September 30, 2008, compared to approximately 40% at December 31,
2006. Loans in the portfolio had an average life of approximately 4 years at September 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)         |  | Sep 30,2008 |         | Jun 30,2008 |   | Mar 31,2008 |  | Dec 31,2007 |        | Sep 30,2007 |   | Jun 30,2007 |  | Mar 31,2007 |         | Dec 31,2006
|Originations:            |  |             |         |             |   |             |  |             |        |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|Intervest National Bank  |  | $           | 100,788 |             | $ | 129,013     |  | $           | 95,990 |             | $ | 80,919      |  | $           | 140,137 |             | $ | 146,499 |  | $ | 138,687 |  | $ | 105,941
|Intervest Mortgage Corp  |  |             |        |             |   |            |  |             | 1,200  |             |   | 6,933       |  |             | 16,650  |             |   | 18,355  |  |   | 6,450   |  |   | 5,033  
|                         |  |             |         |             |   |             |  |             |        |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|                         |  | $           | 100,788 |             | $ | 129,013     |  | $           | 97,190 |             | $ | 87,852      |  | $           | 156,787 |             | $ | 164,854 |  | $ | 145,137 |  | $ | 110,974
|                         |  |             |         |             |   |             |  |             |        |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|Principal Repayments:    |  |             |         |             |   |             |  |             |        |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|Intervest National Bank  |  |             | 81,610  |             | $ | 73,948      |  | $           | 26,129 |             | $ | 99,316      |  | $           | 140,155 |             | $ | 82,040  |  | $ | 78,302  |  | $ | 96,373 
|Intervest Mortgage Corp. |  |             | 29,207  |             |   | 5,927       |  |             | 4,452  |             |   | 3,252       |  |             | 6,759   |             |   | 12,459  |  |   | 7,714   |  |   | 16,391 
|Holding Company (1)      |  |             | 13      |             |   | 12          |  |             | 12     |             |   | 14          |  |             | 41      |             |   | 1,830   |  |   | 72      |  |   | 70     
|                         |  |             |         |             |   |             |  |             |        |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        
|                         |  | $           | 110,830 |             | $ | 79,887      |  | $           | 30,593 |             | $ | 102,582     |  | $           | 146,955 |             | $ | 96,329  |  | $ | 86,088  |  | $ | 112,834
|                         |  |             |         |             |   |             |  |             |        |             |   |             |  |             |         |             |   |         |  |   |         |  |   |        



|(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 September 30, 2008, such loans
consisted of 614 loans with an aggregate principal balance of $1.70 billion and an average loan size of $2.8 million. Loans with principal balances of more than $10 million consisted of 19 loans or $262 million, with the largest loan being $20.6
million. Loans with principal balances of $5 million to $10 million consisted of 81 loans and aggregated to $541 million.

Nonaccrual (Impaired)
Loans

Nonaccrual loans decreased to $82.8 million (19 loans) at September 30, 2008, from $90.8 million (18 loans) at December 31, 2007.
At September 30, 2008, there were no loans 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 September 30, 2008, nonaccrual loans had a specific valuation allowance in the aggregate amount of $5.4
million (included as part of the overall allowance for loan losses) in accordance with SFAS 114. Estimated loan-to-value ratios, net of specific valuation allowances, on nonaccrual (impaired) loans ranged from 35% to 98% at September 30, 2008.
At September 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.



23



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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 |  | Sept 30, 2008                 |        | Dec 31, 2007 |   | Notes 
|Retail store     |  | Avenel           |  | New Jersey |  | Bank   |  | Mar 2007        |  | $                             | 3,064  |              | $ | 3,064  |  | (1) 
|Retail stores    |  | Neptune          |  | New Jersey |  | Bank   |  | Mar 2007        |  |                               | 512    |              |   | 2,439  |  | (1) 
|Retail stores    |  | South Amboy      |  | New Jersey |  | Bank   |  | Mar 2007        |  |                               | 1,339  |              |   | 2,220  |  | (1) 
|Retail store     |  | Little Silver    |  | New Jersey |  | Bank   |  | Mar 2007        |  |                               | 739    |              |   | 739    |  | (1) 
|Multifamily      |  | Long Island      |  | New York   |  | Bank   |  | Jun 2007        |  |                               | 11,316 |              |   | 11,316 |  | (2) 
|Hotel            |  | St. Augustine    |  | Florida    |  | Bank   |  | Jun 2007        |  |                               | 9,053  |              |   | 9,053  |  | (3) 
|Multifamily      |  | New York         |  | New York   |  | Bank   |  | Aug 2007        |  |                               |       |              |   | 3,864  |  | (4) 
|Undeveloped land |  | North Fort Myers |  | Florida    |  | Bank   |  | Sept 2007       |  |                               |       |              |   | 3,330  |  | (6) 
|Multifamily      |  | Lauderhill       |  | Florida    |  | Bank   |  | Nov 2007        |  |                               |       |              |   | 18,012 |  | (7) 
|Multifamily      |  | Hollywood        |  | Florida    |  | Bank   |  | Sept 2007       |  |                               |       |              |   | 4,065  |  | (8) 
|Office building  |  | Sunny Isles      |  | Florida    |  | Bank   |  | Sept 2007       |  |                               | 4,284  |              |   | 4,284  |  | (11)
|Undeveloped land |  | Long Island City |  | New York   |  | Bank   |  | Mar 2008        |  |                               | 11,001 |              |   |       |  | (9) 
|Undeveloped land |  | Hollywood        |  | Florida    |  | Bank   |  | Apr 2008        |  |                               | 830    |              |   |       |  | (9) 
|Mobile home park |  | Perryville       |  | Maryland   |  | Bank   |  | May 2008        |  |                               | 4,024  |              |   |       |  | (9) 
|Office building  |  | Staten Island    |  | New York   |  | Bank   |  | May 2008        |  |                               | 5,762  |              |   |       |  | (10)
|Motel            |  | Lakewood         |  | New Jersey |  | Bank   |  | Jun 2008        |  |                               | 1,390  |              |   |       |  | (9) 
|Retail Stores    |  | Flushing         |  | New York   |  | Bank   |  | Aug 2008        |  |                               | 13,060 |              |   |       |  | (9) 
|Multifamily      |  | Brooklyn         |  | New York   |  | Bank   |  | Aug 2008        |  |                               | 786    |              |   |       |  | (9) 
|Hotel            |  | Orlando          |  | Florida    |  | Bank   |  | Aug 2008        |  |                               | 5,939  |              |   |       |  | (9) 
|Undeveloped land |  | Carabelle        |  | Florida    |  | Bank   |  | Aug 2008        |  |                               | 1,569  |              |   |       |  | (9) 
|Multifamily      |  | Tampa            |  | Florida    |  | Bank   |  | Sept 2008       |  |                               | 10     |              |   |       |  | (9) 
|                 |  |                  |  |            |  |        |  |                 |  |                               |        |              |   |        |  |     
|                 |  |                  |  |            |  |        |  |                 |  | $                             | 74,678 |              | $ | 62,386 |  |     
|Hotel            |  | St. Augustine    |  | Florida    |  | IMC    |  | Jul 2007        |  |                               | 6,034  |              |   | 6,034  |  | (3) 
|Multifamily      |  | New York         |  | New York   |  | IMC    |  | Aug 2007        |  |                               |       |              |   | 4,445  |  | (4) 
|Multifamily      |  | New York         |  | New York   |  | IMC    |  | Aug 2007        |  |                               |       |              |   | 4,387  |  | (4) 
|Multifamily      |  | New York         |  | New York   |  | IMC    |  | Aug 2007        |  |                               |       |              |   | 4,178  |  | (4) 
|Multifamily      |  | New York         |  | New York   |  | IMC    |  | Aug 2007        |  |                               |       |              |   | 4,119  |  | (4) 
|Multifamily      |  | New York         |  | New York   |  | IMC    |  | Aug 2007        |  |                               |       |              |   | 1,249  |  | (4) 
|Office building  |  | Brooklyn         |  | New York   |  | IMC    |  | Oct 2006        |  |                               |       |              |   | 2,299  |  | (5) 
|Hotel            |  | Howell           |  | New Jersey |  | IMC    |  | Dec 2007        |  |                               | 1,659  |              |   | 1,659  |  | (9) 
|Office building  |  | Staten Island    |  | New York   |  | IMC    |  | May 2008        |  |                               | 388    |              |   |       |  | (10)
|                 |  |                  |  |            |  |        |  |                 |  |                               |        |              |   |        |  |     
|                 |  |                  |  |            |  |        |  |                 |  | $                             | 8,081  |              | $ | 28,370 |  |     
|                 |  |                  |  |            |  |        |  |                 |  |                               |        |              |   |        |  |     
|                 |  |                  |  |            |  |        |  |                 |  | $                             | 82,759 |              | $ | 90,756 |  |     
|                 |  |                  |  |            |  |        |  |                 |  |                               |        |              |   |        |  |     



|(1) | One principal guarantees each of the four loans. The completion of foreclosure proceedings has been delayed by reason of a bankruptcy filing. The proceedings involve multiple
properties. A number of collateral properties have been sold as of September 2008 and the net proceeds received by the Bank have been applied as a reduction of outstanding principal.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. An adversary proceeding has been instituted by the borrower challenging the Banks claim and the priority of its lien. The
market for this type of property at this location has been volatile, and both the defense of the foreclosure and the current market conditions were taken into account in classifying this loan for purposes of calculating loan loss reserves.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | All six loans were repaid in September 2008 for $23.5 million, which included the receipt of approximately $1.4 million of past due interest.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Title to the collateral property was acquired in September 2008.
|--- | ----------------------------------------------------------------

|(6) | Title to the collateral property was acquired in May 2008.
|--- | ----------------------------------------------------------

|(7) | Title to the collateral property was acquired in September 2008 and a $2.4 million loan charge off was recorded based on the estimated net sales price of this property. The Bank has
entered into a contract to sell its interest in its wholly owned entity which owns this property to a third party for net proceeds of approximately $15.5 million, which is expected to close in November 2008. The property was damaged in a hurricane
and the Bank expects to advance funds towards the restoration of the property for which it will be reimbursed at closing.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Title to the collateral property was acquired in February 2008.
|--- | ---------------------------------------------------------------

|(9) | Foreclosure proceedings are in progress. A $1.9 million charge off was recorded in September 2008 on the land located in Hollywood, Florida based on a current appraisal.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | 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.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | The borrower sold the collateral property to a third party for $4.6 million in October 2008 and paid the Bank $0.4 million in cash, of which $84,000 was applied to principal and the
remainder was applied to past due interest. The Bank provided new financing on the purchase and the new loan of $4.2 million is an accruing loan.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

Allowance For Loan Losses

The allowance for loan losses increased to $25.8 million at September 30, 2008, from $21.6 million at December 31, 2007. The allowance represented 1.53% of total loans (net of deferred fees) outstanding at
September 30, 2008 compared to 1.34% at December 31, 2007. The increase in the allowance was due to provisions totaling $8.5 million, of which $7.5 million was attributable to credit downgrades on various loans and lower estimated values
of certain collateral properties and $1.0 million was due to net loan growth of $76 million from December 31, 2007. At September 30, 2008, in accordance with SFAS 114, the allowance for loan losses included a specific valuation allowance
in the aggregate amount of $5.4 million for nonaccrual loans.

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                                                                                                  |  |                       | (4,227 | ) |                              |   |       |                |  |              |   |  |   | (4,227  | )
|Provision (credit) for loan losses charged to expense                                                       |  |                       | 8,769  |   |                              |   | (307   | )              |  |              |   |  |   | 8,462   |  
|                                                                                                            |  |                       |        |   |                              |   |        |                |  |              |    |  |   |         |  
|Balance at September 30, 2008                                                                               |  | $                     | 24,810 |   |                              | $ | 988    |                |  | $            | 30 |  | $ | 25,828  |  
|                                                                                                            |  |                       |        |   |                              |   |        |                |  |              |    |  |   |         |  
|                                                                                                           
|The following table sets forth information concerning nonperforming assets by entity at September 30, 2008: | 
|                                                                                                            |  |                       |        |  
|($ in thousands)                                                                                            |  | IntervestNationalBank |        |   | IntervestMortgageCorporation |   |        | HoldingCompany |  | Consolidated |   
|Nonaccrual (impaired) loans                                                                                 |  | $                     | 74,678 |   |                              | $ | 8,081  |                |  |              |   |  | $ | 82,759  |  
|Real estate acquired through foreclosure                                                                    |  |                       | 22,772 |   |                              |   | 2,327  |                |  |              |   |  |   | 25,099  |  
|                                                                                                            |  |                       |        |   |                              |   |        |                |  |              |    |  |   |         |  
|Total nonperforming assets                                                                                  |  | $                     | 97,450 |   |                              | $ | 10,408 |                |  |              |   |  | $ | 107,858 |  
|                                                                                                            |  |                       |        |   |                              |   |        |                |  |              |    |  |   |         |  
|Nonperforming assets to total assets                                                                        |  |                       | 4.62   | % |                              |   | 11.28  | %              |  |              |   |  |   | 4.95    | %
|Nonaccrual loans to total gross loans                                                                       |  |                       | 4.55   | % |                              |   | 14.60  | %              |  |              |   |  |   | 4.87    | %
|Allowance for loan losses to total net loans                                                                |  |                       | 1.52   | % |                              |   | 1.79   | %              |  |              |   |  |   | 1.53    | %
|Allowance for loan losses to nonaccrual loans                                                               |  |                       | 33.22  | % |                              |   | 12.23  | %              |  |              |   |  |   | 31.21   | %
|                                                                                                            |  |                       |        |   |                              |   |        |                |  |              |    |  |   |         |  

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 $71 million at September 30, 2008, from $45 million at December 31, 2007. The increase was nearly all due to the addition of $25
million of real estate acquired through foreclosure as detailed in the notes to the table on page 24. 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 Activities Expenses in the consolidated statements of
earnings.

Deposits

Deposits increased to $1.73
billion at September 30, 2008, from $1.66 billion at December 31, 2007, reflecting an increase in money market accounts of $76 million.

At
September 30, 2008, certificate of deposit accounts totaled $1.41 billion, and checking, savings and money market accounts aggregated $328 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 September 30, 2008, compared to 85% at December 31, 2007. At September 30, 2008 and December 31, 2007, certificate of
deposit accounts included $169 million and $166 million of brokered deposits, respectively.



25



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##### Table of Contents

Borrowed Funds and Related Interest Payable

Borrowed funds and related interest payable increased to $211 million at September 30, 2008, from $136 million at December 31, 2007, due to a $95 million increase in short-term FHLB advances by the Bank,
partially offset by the early repayment of $20.8 million of debentures by Intervest Mortgage Corporation, as detailed in notes 7 and 8 to the condensed consolidated financial statements in this report.

All Other Liabilities

All other liabilities increased to $49
million at September 30, 2008 from $46 million at December 31, 2007, primarily due to a higher level of mortgage escrow funds payable.

Stockholders Equity

Stockholders equity increased to $186 million at September 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                    |  |        | 6,768   |   |               |          |               |        |             |          |                 |   | 0.82  |  
|Cash dividends paid to common stockholders (1) |  |        | (2,068  | ) |               |          |               |        |             |          |                 |   | (0.25 | )
|Compensation from stock options                |  |        | 166     |   |               |          |               |        |             |          |                 |   | 0.02  |  
|Exercise of Class B common stock warrants (2)  |  |        | 1,803   |   |               |          |               | 195,000 |             | 195,000   |                 |   | 9.25  |  
|                                               |  |        |         |   |               |           |               |         |             |           |                 |   |       |  
|Stockholders equity at September 30, 2008     |  | $      | 186,230 |   |               | 7,690,812 |               | 580,000 |             | 8,270,812 |                 | $ | 22.52 |  
|                                               |  |        |         |   |               |           |               |         |             |           |                 |   |       |  



|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



26



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##### Table of Contents

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

Overview

Consolidated net earnings for the
third quarter of 2008 (Q3-08) decreased by $2.2 million, or 46%, to $2.6 million, or $0.32 per diluted share, from $4.8 million, or $0.58 per diluted share, in the third quarter of 2007 (Q3-07). The decrease in consolidated
net earnings was due to a $2.1 million increase in noninterest expenses, a $1.9 million increase in the provision for loan losses and a $1.3 million decrease in noninterest income. These items were partially offset by a $1.5 million increase in net
interest and dividend income and a $1.6 million decrease in the provision for income tax expense. Return on average assets and equity decreased to 0.48% and 5.69% in Q3-08, from 0.95% and 10.96% in Q3-07, respectively.

Selected information regarding results of operations by entity follows:



|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|--------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------------------------- | - | ----- | -------------- |  | - | ------------------------ | - |  | ----------------- | ---- | ----------------- |  | - | ------ |  | - | ------
|($ in thousands)                                                      |  | IntervestNationalBank |        |   | IntervestMortgageCorporation |   |       | HoldingCompany |  |   | Inter-CompanyAmounts (2) |   |  | ConsolidatedQ3-08 |      | ConsolidatedQ3-07
|Interest and dividend income                                          |  | $                     | 31,155 |   |                              | $ | 2,425 |                |  | $ | 62                       |   |  | $                 | (134 | )                 |  | $ | 33,508 |  | $ | 32,384
|Interest expense                                                      |  |                       | 20,398 |   |                              |   | 1,279 |                |  |   | 881                      |   |  |                   | (134 | )                 |  |   | 22,424 |  |   | 22,834
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net interest and dividend income (expense)                            |  |                       | 10,757 |   |                              |   | 1,146 |                |  |   | (819                     | ) |  |                   |     |                   |  |   | 11,084 |  |   | 9,550 
|Provision (credit) for loan losses                                    |  |                       | 3,856  |   |                              |   | (410  | )              |  |   |                         |   |  |                   |     |                   |  |   | 3,446  |  |   | 1,523 
|Noninterest income                                                    |  |                       | 1,545  |   |                              |   | 1,331 |                |  |   | 113                      |   |  |                   | (671 | )                 |  |   | 2,318  |  |   | 3,677 
|Noninterest expenses                                                  |  |                       | 4,726  |   |                              |   | 1,086 |                |  |   | 135                      |   |  |                   | (671 | )                 |  |   | 5,276  |  |   | 3,216 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Earnings (loss) before taxes                                          |  |                       | 3,720  |   |                              |   | 1,801 |                |  |   | (841                     | ) |  |                   |     |                   |  |   | 4,680  |  |   | 8,488 
|Provision (benefit) for income taxes                                  |  |                       | 1,611  |   |                              |   | 829   |                |  |   | (386                     | ) |  |                   |     |                   |  |   | 2,054  |  |   | 3,647 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net earnings (loss)                                                   |  | $                     | 2,109  |   |                              | $ | 972   |                |  | $ | (455                     | ) |  | $                 |     |                   |  | $ | 2,626  |  | $ | 4,841 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Intercompany dividends (1)                                            |  |                       | (885   | ) |                              |   |      |                |  |   | 885                      |   |  |                   |     |                   |  |   |       |  |   |      
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net earnings after intercompany dividends                             |  | $                     | 1,224  |   |                              | $ | 972   |                |  | $ | 430                      |   |  | $                 |     |                   |  | $ | 2,626  |  | $ | 4,841 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       
|Net earnings after intercompany dividends for the same period of 2007 |  | $                     | 4,853  |   |                              | $ | (451  | )              |  | $ | 439                      |   |  | $                 |     |                   |  | $ | 4,841  |  |   |       
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                   |      |                   |  |   |        |  |   |       



|(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 increased by $1.5 million to $11.1 million in Q3-08, from $9.6 million in Q3-07,
reflecting the receipt of approximately $1.4 million of past due interest from the payoff of $22.2 million of nonaccrual loans.

Total average
interest-earning assets increased $144 million in Q3-08 from Q3-07, due to growth of $92 million in loans and $52 million in security and other short-term investments. This growth was funded primarily by a $138 million increase in interest-bearing
deposits and an $8 million increase in stockholders equity.

The Companys net interest margin (excluding prepayment income from loans)
increased to 2.04% in Q3-08, from 1.88% in Q3-07. The margin benefited from a lower level of interest income not recorded on nonaccrual loans ($1.1 million in Q3-08, compared to a $2.0 million in Q3-07) and decreases in deposit and borrowing costs,
partially offset by repayments of higher yielding loans, lower competitive pricing for new loans and lower yields earned on investment securities and short-term investments.

The Companys yield on interest-earning assets decreased 20 basis points to 6.16% in Q3-08 due to the factors noted above. The Companys cost of funds decreased to 4.57% in Q3-08 from 5.00% in Q3-07
reflecting lower deposit costs as well as early repayment of higher cost borrowings. In order to remain competitive in attracting deposits, the Bank was not able to fully lower its deposit rates at the same pace with the Federal Reserves rate
reductions, which have totaled 275 basis points since September 19, 2007.



27



---

##### 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      |          
|                                                                             |  | September 30, 2008 |           |   | September 30, 2007 |  
|($ in thousands)                                                             |  | AverageBalance     |           |   | InterestInc./Exp.  |   | Yield/Rate (2) |  |      | AverageBalance |  |   | InterestInc./Exp. |   | Yield/Rate (2) |  
|Assets                                                                       |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-earning assets:                                                     |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Loans (1)                                                                    |  | $                  | 1,720,596 |   |                    | $ | 28,840         |  | 6.67 | %              |  | $ | 1,629,037         |   |                | $ | 27,275 |  | 6.64 | %
|Securities                                                                   |  |                    | 437,463   |   |                    |   | 4,642          |  | 4.22 |                |  |   | 378,495           |   |                |   | 4,954  |  | 5.19 |  
|Other interest-earning assets                                                |  |                    | 5,642     |   |                    |   | 26             |  | 1.83 |                |  |   | 12,408            |   |                |   | 155    |  | 4.96 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-earning assets                                                |  |                    | 2,163,701 |   |                    | $ | 33,508         |  | 6.16 | %              |  |   | 2,019,940         |   |                | $ | 32,384 |  | 6.36 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-earning assets                                                   |  |                    | 24,893    |   |                    |   |                |  |      |                |  |   | 19,444            |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total assets                                                                 |  | $                  | 2,188,594 |   |                    |   |                |  |      |                |  | $ | 2,039,384         |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Liabilities and Stockholders Equity                                         |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-bearing liabilities:                                                |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest checking deposits                                                   |  | $                  | 5,695     |   |                    | $ | 26             |  | 1.82 | %              |  | $ | 5,681             |   |                | $ | 25     |  | 1.75 | %
|Savings deposits                                                             |  |                    | 8,716     |   |                    |   | 64             |  | 2.92 |                |  |   | 9,080             |   |                |   | 67     |  | 2.93 |  
|Money market deposits                                                        |  |                    | 326,202   |   |                    |   | 2,738          |  | 3.34 |                |  |   | 229,912           |   |                |   | 2,527  |  | 4.36 |  
|Certificates of deposit                                                      |  |                    | 1,434,694 |   |                    |   | 17,068         |  | 4.73 |                |  |   | 1,392,938         |   |                |   | 17,225 |  | 4.91 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total deposit accounts                                                       |  |                    | 1,775,307 |   |                    |   | 19,896         |  | 4.46 |                |  |   | 1,637,611         |   |                |   | 19,844 |  | 4.81 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|FHLB advances and Fed funds purchased                                        |  |                    | 55,182    |   |                    |   | 365            |  | 2.63 |                |  |   | 36,471            |   |                |   | 498    |  | 5.42 |  
|Debentures and related interest payable                                      |  |                    | 65,195    |   |                    |   | 1,279          |  | 7.80 |                |  |   | 80,293            |   |                |   | 1,603  |  | 7.92 |  
|Debentures - capital securities                                              |  |                    | 56,702    |   |                    |   | 881            |  | 6.18 |                |  |   | 56,702            |   |                |   | 886    |  | 6.20 |  
|Mortgage note payable                                                        |  |                    | 191       |   |                    |   | 3              |  | 6.25 |                |  |   | 207               |   |                |   | 3      |  | 5.75 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total borrowed funds                                                         |  |                    | 177,270   |   |                    |   | 2,528          |  | 5.67 |                |  |   | 173,673           |   |                |   | 2,990  |  | 6.83 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-bearing liabilities                                           |  |                    | 1,952,577 |   |                    | $ | 22,424         |  | 4.57 | %              |  |   | 1,811,284         |   |                | $ | 22,834 |  | 5.00 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-bearing deposits                                                 |  |                    | 3,496     |   |                    |   |                |  |      |                |  |   | 4,330             |   |                |   |        |  |      |  
|Noninterest-bearing liabilities                                              |  |                    | 48,025    |   |                    |   |                |  |      |                |  |   | 47,038            |   |                |   |        |  |      |  
|Stockholders equity                                                         |  |                    | 184,496   |   |                    |   |                |  |      |                |  |   | 176,732           |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total liabilities and stockholders equity                                   |  | $                  | 2,188,594 |   |                    |   |                |  |      |                |  | $ | 2,039,384         |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest and dividend income/spread                                      |  |                    |           |   |                    | $ | 11,084         |  | 1.59 | %              |  |   |                   |   |                | $ | 9,550  |  | 1.36 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest-earning assets/margin (3)                                       |  | $                  | 211,124   |   |                    |   |                |  | 2.04 | %              |  | $ | 208,656           |   |                |   |        |  | 1.88 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Ratio of total interest-earning assets to total interest-bearing liabilities |  |                    | 1.11      |   |                    |   |                |  |      |                |  |   | 1.12              |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Other Ratios:                                                                |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Return on average assets (2)                                                 |  |                    | 0.48      | % |                    |   |                |  |      |                |  |   | 0.95              | % |                |   |        |  |      |  
|Return on average equity (2)                                                 |  |                    | 5.69      | % |                    |   |                |  |      |                |  |   | 10.96             | % |                |   |        |  |      |  
|Noninterest expense to average assets (2)                                    |  |                    | 0.96      | % |                    |   |                |  |      |                |  |   | 0.63              | % |                |   |        |  |      |  
|Efficiency ratio (4)                                                         |  |                    | 39        | % |                    |   |                |  |      |                |  |   | 24                | % |                |   |        |  |      |  
|Average stockholders equity to average assets                               |  |                    | 8.43      | % |                    |   |                |  |      |                |  |   | 8.67              | % |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  



|(1) | Includes average nonaccrual loans of $105.9 million in the 2008 period and $86.2 million in the 2007 period. Interest not accrued on such loans and excluded from the table above
totaled $1.1 million in the 2008 period and $2.0 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 2.31% and 2.51% 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

##### 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 September 30, 2008 vs. 2007Increase (Decrease) Due To
Change In: |       
|($ in thousands)                           |  | Rate                                                                                   |        |   | Volume |   |       | Rate/Volume |  |   | Total |  
|Interest-earning assets:                   |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Loans                                      |  | $                                                                                      | 122    |   |        | $ | 1,520 |             |  | $ | (77   | ) |  | $ | 1,565 |  
|Securities                                 |  |                                                                                        | (918   | ) |        |   | 765   |             |  |   | (159  | ) |  |   | (312  | )
|Other interest-earning assets              |  |                                                                                        | (97    | ) |        |   | (84   | )           |  |   | 52    |   |  |   | (129  | )
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Total interest-earning assets              |  |                                                                                        | (893   | ) |        |   | 2,201 |             |  |   | (184  | ) |  |   | 1,124 |  
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Interest-bearing liabilities:              |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Interest checking deposits                 |  |                                                                                        | 1      |   |        |   |      |             |  |   |      |   |  |   | 1     |  
|Savings deposits                           |  |                                                                                        |       |   |        |   | (3    | )           |  |   |      |   |  |   | (3    | )
|Money market deposits                      |  |                                                                                        | (586   | ) |        |   | 1,050 |             |  |   | (253  | ) |  |   | 211   |  
|Certificates of deposit                    |  |                                                                                        | (627   | ) |        |   | 513   |             |  |   | (43   | ) |  |   | (157  | )
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Total deposit accounts                     |  |                                                                                        | (1,212 | ) |        |   | 1,560 |             |  |   | (296  | ) |  |   | 52    |  
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|FHLB advances and Fed funds purchased      |  |                                                                                        | (254   | ) |        |   | 254   |             |  |   | (133  | ) |  |   | (133  | )
|Debentures and accrued interest payable    |  |                                                                                        | (24    | ) |        |   | (299  | )           |  |   | (1    | ) |  |   | (324  | )
|Debentures - capital securities            |  |                                                                                        | (3     | ) |        |   |      |             |  |   | (2    | ) |  |   | (5    | )
|Mortgage note payable                      |  |                                                                                        |       |   |        |   |      |             |  |   |      |   |  |   |      |  
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Total borrowed funds                       |  |                                                                                        | (281   | ) |        |   | (45   | )           |  |   | (136  | ) |  |   | (462  | )
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Total interest-bearing liabilities         |  |                                                                                        | (1,493 | ) |        |   | 1,515 |             |  |   | (432  | ) |  |   | (410  | )
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  
|Net change in interest and dividend income |  | $                                                                                      | 600    |   |        | $ | 686   |             |  | $ | 248   |   |  | $ | 1,534 |  
|                                           |  |                                                                                        |        |   |        |   |       |             |  |   |       |   |  |   |       |  

Provision for Loan Losses

The provision for loan losses increased by $1.9 million to $3.4 million in Q3-08, from $1.5 million in Q3-07. The increase was due to $2.2 million associated with credit downgrades resulting from a higher level of
nonaccrual loans and lower estimated real estate values on certain collateral properties, partially offset by a reduction of $0.3 million resulting from a decrease in net loans in Q3-08 versus net loan growth in Q3-07. Total loans outstanding
decreased by $32 million in Q3-08, compared to an increase of $10 million in Q3-07.

Noninterest Income

Noninterest income decreased by $1.4 million to $2.3 million in Q3-08, from $3.7 million in Q3-07. The decrease was due to a $1.7 million decrease in income from loan
prepayments, partially offset by a $0.3 million increase in income from mortgage lending activities (which consist of fees earned from expired loan commitments, mortgage assignment fees and loan servicing, maintenance and inspection charges earned
on the Companys loan portfolio). 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, which has severely reduced funds available in the general marketplace for real estate lending.

Noninterest Expenses

Noninterest expenses increased by $2.1 million to $5.3 million in Q3-08, from $3.2
million in Q3-07, nearly all due to a $1.8 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). As a result of the negative
effects of nonperforming assets, the Companys efficiency ratio, which is a measure of its ability to control expenses as a percentage of its revenues, increased to 39% in Q3-08 from 24% in Q3-07. The Company had 70 employees at
September 30, 2008 and 2007.

Provision for Income Taxes

The provision for income taxes decreased by $1.6 million to $2.0 million in Q3-08, from $3.6 million in Q3-07 due to a decrease in pre-tax income. The Companys effective tax rate (inclusive of state and local
taxes) amounted to 43.9% in Q3-08 and 43.0% in Q3-07.



29



---

##### Table of Contents

Comparison of Results of Operations for the Nine-Months Ended September 30, 2008 and 2007

Overview

Consolidated net earnings for
the nine-months ended September 30, 2008 (9mths-08) decreased by $8.8 million, or 56%, to $6.8 million, or $0.82 per diluted share, from $15.6 million, or $1.83 per diluted share, for the nine-months ended September 30, 2007
(9mths-07). The decrease in consolidated net earnings was due to a $3.7 million decrease in net interest and dividend income, a $5.4 million increase in the provision for loan losses, a $3.9 million increase in noninterest expenses and
$2.7 million decrease in noninterest income, partially offset by a $6.9 million decrease in the provision for income tax expense. Return on average assets and equity decreased to 0.42% and 4.92% respectively, in 9mths-08, from 1.02% and 11.83%,
respectively, in 9mths-07.

Selected information regarding results of operations by entity follows:



|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|--------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------------------------- | - | ----- | -------------- |  | - | ------------------------ | - |  | -------------------- | ------ | -------------------- |  | - | ------ |  | - | ------
|($ in thousands)                                                      |  | IntervestNationalBank |        |   | IntervestMortgageCorporation |   |       | HoldingCompany |  |   | Inter-CompanyAmounts (2) |   |  | Consolidated9mths-08 |        | Consolidated9mths-07
|Interest and dividend income                                          |  | $                     | 91,744 |   |                              | $ | 5,433 |                |  | $ | 194                      |   |  | $                    | (299   | )                    |  | $ | 97,072 |  | $ | 99,731
|Interest expense                                                      |  |                       | 61,489 |   |                              |   | 4,226 |                |  |   | 2,653                    |   |  |                      | (299   | )                    |  |   | 68,069 |  |   | 67,018
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net interest and dividend income (expense)                            |  |                       | 30,255 |   |                              |   | 1,207 |                |  |   | (2,459                   | ) |  |                      |       |                      |  |   | 29,003 |  |   | 32,713
|Provision (credit) for loan losses                                    |  |                       | 8,769  |   |                              |   | (307  | )              |  |   |                         |   |  |                      |       |                      |  |   | 8,462  |  |   | 3,092 
|Noninterest income                                                    |  |                       | 3,330  |   |                              |   | 2,991 |                |  |   | 338                      |   |  |                      | (2,259 | )                    |  |   | 4,400  |  |   | 7,121 
|Noninterest expenses                                                  |  |                       | 12,056 |   |                              |   | 2,761 |                |  |   | 433                      |   |  |                      | (2,259 | )                    |  |   | 12,991 |  |   | 9,102 
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Earnings (loss) before taxes                                          |  |                       | 12,760 |   |                              |   | 1,744 |                |  |   | (2,554                   | ) |  |                      |       |                      |  |   | 11,950 |  |   | 27,640
|Provision (benefit) for income taxes                                  |  |                       | 5,552  |   |                              |   | 803   |                |  |   | (1,173                   | ) |  |                      |       |                      |  |   | 5,182  |  |   | 12,079
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net earnings (loss)                                                   |  | $                     | 7,208  |   |                              | $ | 941   |                |  | $ | (1,381                   | ) |  | $                    |       |                      |  | $ | 6,768  |  | $ | 15,561
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Intercompany dividends (1)                                            |  |                       | (2,655 | ) |                              |   |      |                |  |   | 2,655                    |   |  |                      |       |                      |  |   |       |  |   |      
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net earnings after intercompany dividends                             |  | $                     | 4,553  |   |                              | $ | 941   |                |  | $ | 1,274                    |   |  | $                    |       |                      |  | $ | 6,768  |  | $ | 15,561
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       
|Net earnings after intercompany dividends for the same period of 2007 |  | $                     | 13,370 |   |                              | $ | 849   |                |  | $ | 1,342                    |   |  | $                    |       |                      |  | $ | 15,561 |  |   |       
|                                                                      |  |                       |        |   |                              |   |       |                |  |   |                          |   |  |                      |        |                      |  |   |        |  |   |       



|(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 $3.7 million to $29.0 million in 9mths-08, from $32.7 million in 9mths-07 largely due to a $69.5 million increase in average nonaccrual loans. Interest income that was not recorded on nonaccrual
loans increased to $5.9 million in 9mths-08 from $2.6 million in 9mths-07.

The Companys net interest margin (excluding income from loan prepayments)
decreased to 1.82% in 9mths-08, from 2.18% in 9mths-07. The decrease was due to the yield on the Companys interest-earnings assets decreasing at a faster pace than its cost of funds.

The Companys yield on interest-earning assets decreased by 57 basis points to 6.08% in 9mths-08. The yield was negatively affected by the increase in nonaccrual
loans, repayments of higher yielding loans coupled with lower competitive pricing for new loans, and lower market yields earned on investment securities and short-term investments.

The Companys cost of funds decreased by 25 basis points to 4.73% reflecting lower deposit costs as well as early repayment of higher cost borrowings. In order to remain competitive in attracting deposits, the
Bank was not able to fully lower its deposit rates at the same pace with the Federal Reserves rate reductions, which have totaled 275 basis points since September 19, 2007.

Total average interest-earning assets increased $128 million in 9mths-08 from 9mths-07 due to growth of $100 million in loans and $28 million in security and other short-term investments. This growth was funded by a
$130 million increase in interest-bearing deposits and a $8 million increase in stockholders equity, partially offset by a $9 million decrease in borrowed funds.



30



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##### Table of Contents

The following table provides information for the periods indicated, the contents of which are described above a similar
table on page 28 in the section entitled Comparison of Results of Operations for the Quarters Ended September 30, 2008 and 2007 under the caption Net Interest and Dividend Income.



|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|---------------------------------------------------------------------------- |  | ------------------ | --------- | - | ------------------ | - | -------------- |  | ---- | -------------- |  | - | ----------------- | - | -------------- | - | ------ |  | ---- | -
|                                                                             |  | Nine-Months Ended  |          
|                                                                             |  | September 30, 2008 |           |   | September 30, 2007 |  
|($ in thousands)                                                             |  | AverageBalance     |           |   | InterestInc./Exp.  |   | Yield/Rate (2) |  |      | AverageBalance |  |   | InterestInc./Exp. |   | Yield/Rate (2) |  
|Assets                                                                       |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-earning assets:                                                     |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Loans (1)                                                                    |  | $                  | 1,689,846 |   |                    | $ | 82,704         |  | 6.54 | %              |  | $ | 1,590,114         |   |                | $ | 83,915 |  | 7.06 | %
|Securities                                                                   |  |                    | 422,457   |   |                    |   | 13,974         |  | 4.42 |                |  |   | 397,908           |   |                |   | 15,134 |  | 5.09 |  
|Other interest-earning assets                                                |  |                    | 20,961    |   |                    |   | 394            |  | 2.51 |                |  |   | 17,734            |   |                |   | 682    |  | 5.14 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-earning assets                                                |  |                    | 2,133,264 |   |                    | $ | 97,072         |  | 6.08 | %              |  |   | 2,005,756         |   |                | $ | 99,731 |  | 6.65 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-earning assets                                                   |  |                    | 21,386    |   |                    |   |                |  |      |                |  |   | 19,179            |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total assets                                                                 |  | $                  | 2,154,650 |   |                    |   |                |  |      |                |  | $ | 2,024,935         |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Liabilities and Stockholders Equity                                         |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest-bearing liabilities:                                                |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Interest checking deposits                                                   |  | $                  | 5,743     |   |                    | $ | 77             |  | 1.79 | %              |  | $ | 7,900             |   |                | $ | 112    |  | 1.90 | %
|Savings deposits                                                             |  |                    | 8,432     |   |                    |   | 186            |  | 2.95 |                |  |   | 9,590             |   |                |   | 211    |  | 2.94 |  
|Money market deposits                                                        |  |                    | 297,119   |   |                    |   | 7,928          |  | 3.56 |                |  |   | 227,303           |   |                |   | 7,401  |  | 4.35 |  
|Certificates of deposit                                                      |  |                    | 1,455,535 |   |                    |   | 52,468         |  | 4.82 |                |  |   | 1,391,789         |   |                |   | 50,656 |  | 4.87 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total deposit accounts                                                       |  |                    | 1,766,829 |   |                    |   | 60,659         |  | 4.59 |                |  |   | 1,636,582         |   |                |   | 58,380 |  | 4.77 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|FHLB advances and Fed funds purchased                                        |  |                    | 26,196    |   |                    |   | 521            |  | 2.66 |                |  |   | 22,132            |   |                |   | 902    |  | 5.45 |  
|Debentures and related interest payable                                      |  |                    | 71,363    |   |                    |   | 4,226          |  | 7.91 |                |  |   | 84,463            |   |                |   | 5,067  |  | 8.02 |  
|Debentures - capital securities                                              |  |                    | 56,702    |   |                    |   | 2,653          |  | 6.25 |                |  |   | 56,702            |   |                |   | 2,658  |  | 6.27 |  
|Mortgage note payable                                                        |  |                    | 195       |   |                    |   | 10             |  | 6.85 |                |  |   | 210               |   |                |   | 11     |  | 7.00 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total borrowed funds                                                         |  |                    | 154,456   |   |                    |   | 7,410          |  | 6.41 |                |  |   | 163,507           |   |                |   | 8,638  |  | 7.06 |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total interest-bearing liabilities                                           |  |                    | 1,921,285 |   |                    | $ | 68,069         |  | 4.73 | %              |  |   | 1,800,089         |   |                | $ | 67,018 |  | 4.98 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Noninterest-bearing deposits                                                 |  |                    | 3,991     |   |                    |   |                |  |      |                |  |   | 4,289             |   |                |   |        |  |      |  
|Noninterest-bearing liabilities                                              |  |                    | 45,813    |   |                    |   |                |  |      |                |  |   | 45,122            |   |                |   |        |  |      |  
|Stockholders equity                                                         |  |                    | 183,561   |   |                    |   |                |  |      |                |  |   | 175,435           |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Total liabilities and stockholders equity                                   |  | $                  | 2,154,650 |   |                    |   |                |  |      |                |  | $ | 2,024,935         |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest and dividend income/spread                                      |  |                    |           |   |                    | $ | 29,003         |  | 1.35 | %              |  |   |                   |   |                | $ | 32,713 |  | 1.67 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Net interest-earning assets/margin (3)                                       |  | $                  | 211,979   |   |                    |   |                |  | 1.82 | %              |  | $ | 205,667           |   |                |   |        |  | 2.18 | %
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Ratio of total interest-earning assets to total interest-bearing liabilities |  |                    | 1.11      |   |                    |   |                |  |      |                |  |   | 1.11              |   |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Other Ratios:                                                                |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  
|Return on average assets (2)                                                 |  |                    | 0.42      | % |                    |   |                |  |      |                |  |   | 1.02              | % |                |   |        |  |      |  
|Return on average equity (2)                                                 |  |                    | 4.92      | % |                    |   |                |  |      |                |  |   | 11.83             | % |                |   |        |  |      |  
|Noninterest expense to average assets (2)                                    |  |                    | 0.80      | % |                    |   |                |  |      |                |  |   | 0.60              | % |                |   |        |  |      |  
|Efficiency ratio (4)                                                         |  |                    | 39        | % |                    |   |                |  |      |                |  |   | 23                | % |                |   |        |  |      |  
|Average stockholders equity to average assets                               |  |                    | 8.52      | % |                    |   |                |  |      |                |  |   | 8.66              | % |                |   |        |  |      |  
|                                                                             |  |                    |           |   |                    |   |                |  |      |                |  |   |                   |   |                |   |        |  |      |  



|(1) | Includes average nonaccrual loans of $108.3 million in the 2008 period and $38.8 million in the 2007 period. Interest not accrued on such loans and excluded from the table above
totaled $5.9 million in the 2008 period and $2.6 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 1.95% 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

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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##### Table of Contents

|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|------------------------------------------ |  | ------------------------------------------------------------------------------------------ | ------ | - | ------ | - | ----- | ----------- |  | - | ----- | - |  | - | ------ | -
|                                           |  | For the Nine-Months Ended September 30, 2008 vs. 2007Increase (Decrease) Due To Change In: |       
|($ in thousands)                           |  | Rate                                                                                       |        |   | Volume |   |       | Rate/Volume |  |   | Total |  
|Interest-earning assets:                   |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Loans                                      |  | $                                                                                          | (6,201 | ) |        | $ | 5,281 |             |  | $ | (291  | ) |  | $ | (1,211 | )
|Securities                                 |  |                                                                                            | (1,999 | ) |        |   | 937   |             |  |   | (98   | ) |  |   | (1,160 | )
|Other interest-earning assets              |  |                                                                                            | (350   | ) |        |   | 124   |             |  |   | (62   | ) |  |   | (288   | )
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total interest-earning assets              |  |                                                                                            | (8,550 | ) |        |   | 6,342 |             |  |   | (451  | ) |  |   | (2,659 | )
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Interest-bearing liabilities:              |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Interest checking deposits                 |  |                                                                                            | (7     | ) |        |   | (31   | )           |  |   | 3     |   |  |   | (35    | )
|Savings deposits                           |  |                                                                                            | 1      |   |        |   | (26   | )           |  |   |      |   |  |   | (25    | )
|Money market deposits                      |  |                                                                                            | (1,347 | ) |        |   | 2,278 |             |  |   | (404  | ) |  |   | 527    |  
|Certificates of deposit                    |  |                                                                                            | (522   | ) |        |   | 2,328 |             |  |   | 6     |   |  |   | 1,812  |  
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total deposit accounts                     |  |                                                                                            | (1,875 | ) |        |   | 4,549 |             |  |   | (395  | ) |  |   | 2,279  |  
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|FHLB advances and Fed funds purchased      |  |                                                                                            | (463   | ) |        |   | 166   |             |  |   | (84   | ) |  |   | (381   | )
|Debentures and accrued interest payable    |  |                                                                                            | (70    | ) |        |   | (788  | )           |  |   | 17    |   |  |   | (841   | )
|Debentures - capital securities            |  |                                                                                            | (9     | ) |        |   |      |             |  |   | 4     |   |  |   | (5     | )
|Mortgage note payable                      |  |                                                                                            |       |   |        |   | (1    | )           |  |   |      |   |  |   | (1     | )
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total borrowed funds                       |  |                                                                                            | (542   | ) |        |   | (623  | )           |  |   | (63   | ) |  |   | (1,228 | )
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Total interest-bearing liabilities         |  |                                                                                            | (2,417 | ) |        |   | 3,926 |             |  |   | (458  | ) |  |   | 1,051  |  
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  
|Net change in interest and dividend income |  | $                                                                                          | (6,133 | ) |        | $ | 2,416 |             |  | $ | 7     |   |  | $ | (3,710 | )
|                                           |  |                                                                                            |        |   |        |   |       |             |  |   |       |   |  |   |        |  

Provision for Loan Losses

The provision for loan losses increased by $5.4 million to $8.5 million in 9mths-08, from $3.1 million in 9mths-07. The increase was due to $6.2 million associated with credit downgrades on nonaccrual loans and lower
estimated real estate values on certain collateral properties, partially offset by a reduction of $0.8 million resulting from a decrease in the rate of net loan growth over the prior year period. Total loans outstanding grew by $76 million in
9mths-08, compared to $136 million in 9mths-07.

Noninterest Income

Noninterest income decreased by $2.7 million to $4.4 million in 9mths-08, from $7.1 million in 9mths-07. The decrease was primarily due to a $3.7 million decrease in income from loan prepayments, partially offset by a
$0.3 million increase in gains from the early call of investment securities (which consists of the recognition of any unamortized premium or discount at time of call) and a $0.3 million increase in loan service charge income.

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, which has severely reduced funds available in the general marketplace for real estate lending.

Noninterest Expenses

Noninterest expenses increased by $3.9 million to $13.0 million in 9mths-08, from $9.1 million in 9mths-07. The increase was primarily due to a $2.8 million increase
in expenses associated with nonaccrual loans/foreclosed real estate, a $0.4 million increase in FDIC insurance premiums, a $0.3 million increase in salaries and employee benefits (mostly due to stock compensation expense recorded under SFAS 123) and
a $0.2 million increase in expense from the early retirement of debentures.

The Companys efficiency ratio, which is a measure of its ability to
control expenses as a percentage of its revenues, was 39% in 9mths-08, compared to 23% in 9mths-07. The efficiency ratio was negatively affected by the impact of nonaccrual loans and higher FDIC insurance premiums. The Company had 70 employees at
September 30, 2008 and 2007.

Provision for Income Taxes

The provision for income taxes decreased by $6.9 million to $5.2 million in 9mths-08, from $12.1 million in 9mths-07 due to a decrease in pre-tax income. The Companys effective tax rate (inclusive of state and
local taxes) amounted to 43.4% in 9mths-08 and 43.7% in 9mths-07.



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##### Table of Contents

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. Additionally, despite rate reductions in the federal funds rate by the Federal Open Market Committee (FOMC) totaling 275 basis points since September 18, 2007, the Bank has not been able to fully lower its deposit rates in
step with the FOMC in order to remain competitive in attracting deposits. At September 30, 2008, the Bank also had $97 million of nonperforming assets. All of these factors have adversely affected the Banks net interest margin, which was
1.82% in the first nine months of 2008.

The Bank relies heavily on certificates of deposit (time deposits) as its main source of funds. Consolidated
deposits amounted to $1.73 billion at September 30, 2008 and time deposits represented 81% or $1.41 billion of those deposits, down from 85% at December 31, 2007, which reflects an increase in money market accounts. Time deposits of
$100,000 or more at September 30, 2008 totaled $599 million, compared to $586 million at December 31, 2007, and included $169 million and $166 million of brokered deposits at each date, respectively. Brokered deposits had a weighted
average remaining term of 4.2 years at September 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 September 30, 2008, $600 million, or 43%, of the Banks total time deposits mature by
September 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 September 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 borrowings totaled $26 million in the first nine months of 2008. At September 30, 2008,
there were $95 million of borrowings outstanding, of which $45 million, or 47%, matures within 30 days and the remainder at various times through September 2013. The Bank has utilized more FHLB advances due to favorable borrowing rates. At
September 30, 2008, the Bank had available collateral consisting of investment securities to support additional total borrowings of $294 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 September 30, 2008, the entire portfolio had a
weighted-average remaining maturity of 4.6 years, and $14 million, or 3%, of the portfolio matures by September 30, 2009. The Bank expects to reinvest the proceeds from these maturities into new securities. The Banks loan-to-deposit ratio
was 89% at September 30, 2008, compared to 88% at December 31, 2007. The Banks goal is to target its loan-to-deposit ratio at approximately 85%.



33



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##### Table of Contents

The Bank had cash and short-term investments of $15.1 million at September 30, 2008 and $324 million of its loan
portfolio (excluding nonaccrual loans) matures by September 30, 2009. The Bank expects to extend or refinance a portion of these maturing loans. At September 30, 2008, the Bank had commitments to lend of $56 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 since 2005. At September 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 issued to the public. Since early 2007, competitive market conditions and lower pricing for new loans have decreased Intervest Mortgage Corporations
loan originations significantly from its historical levels, and only one loan has been originated during 2008. As a result, Intervest Mortgage Corporation has been applying the proceeds from loan repayments to redeem its outstanding debentures, in
many cases prior to contractual maturity. To the extent that current market conditions continue to exist, it is likely that the level of Intervest Mortgage Corporations loan originations will continue to be relatively modest and it likely will
continue to apply the proceeds received from maturing loans to the repayment of outstanding debentures. Intervest Mortgage Corporation has sources of funds from its maturing loans sufficient to satisfy its maturing liabilities. Management will
continue to closely monitor market trends to determine if additional loan originations or other real estate activities, consistent with Intervest Mortgage Corporations overall goals and objectives, are appropriate for pursuit. At
September 30, 2008, $26.8 million of Intervest Mortgage Corporations mortgage loans (excluding nonaccrual loans) are scheduled to mature by September 30, 2009. At September 30, 2008, Intervest Mortgage Corporation had cash and
short-term investments of $32.0 million. On November 1, 2008, Intervest Mortgage Corporation is scheduled to repay $15.5 million of debentures prior to their contractual maturities and $0.7 million of related accrued interest payable from cash
on hand. A loss aggregating $328,000 from the early extinguishment of debentures will be recorded in the fourth quarter, which represents the expensing of remaining related unamortized issuance costs.

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 September 30, 2008, the Holding Company had no debentures outstanding and $2.4 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
September 30, 2008 and $55.0 million (representing outstanding debentures net of the Holding Companys common stock investments in the trusts) qualified for and was included in regulatory Tier 1 capital. The resulting proceeds have been
invested in the Bank at various times through capital contributions. The securities have fixed rates of interest for the initial five-year period and thereafter variable rates and contractually mature at various time through 2036. The Holding
Company is required to make interest payments that currently total $3.4 million annually, or an average cost of 6.20% inclusive of amortized offering expenses, on the outstanding trust preferred securities. On September 18, 2008, $15.4 million
of the securities converted from a fixed rate of 6.75% to a variable rate and will reprice quarterly based on 3-month libor plus 2.95%. On March 17 and September 20, 2009, an additional $15.4 million of these securities on each date will
convert from a fixed rate of 5.88% and 6.20%, respectively, to variable rate and reprice quarterly based on 3-month libor plus 2.79% and 3-month libor plus 2.40%, respectively. The Bank provides the funds for the debt service on the trust preferred
securities through the payment of cash 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.



34



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##### Table of Contents

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 or elsewhere in this report 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 September 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. As of the date
of filing of this report on Form 10-Q, management is not aware of any conditions or events that would have changed the Banks designation as a well-capitalized institution.

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



|                                       |  |                      |           |   |                     |   |           |  
|-------------------------------------- |  | -------------------- | --------- | - | ------------------- | - | --------- | -
|($ in thousands)                       |  | At September 30,2008 |           |   | At December 31,2007 |  
|Tier 1 Capital                         |  | $                    | 203,074   |   |                     | $ | 198,090   |  
|Tier 2 Capital                         |  |                      | 22,268    |   |                     |   | 20,268    |  
|                                       |  |                      |           |   |                     |   |           |  
|Total risk-based capital               |  | $                    | 225,342   |   |                     | $ | 218,358   |  
|                                       |  |                      |           |   |                     |   |           |  
|Net risk-weighted assets               |  | $                    | 1,778,863 |   |                     | $ | 1,627,053 |  
|Average assets for regulatory purposes |  | $                    | 2,099,545 |   |                     | $ | 1,914,469 |  
|                                       |  |                      |           |   |                     |   |           |  
|Tier 1 capital to average assets       |  |                      | 9.67      | % |                     |   | 10.35     | %
|Tier 1 capital to risk-weighted assets |  |                      | 11.42     | % |                     |   | 12.17     | %
|Total capital to risk-weighted assets  |  |                      | 12.67     | % |                     |   | 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 September 30, 2008 and December 31, 2007 management believes that the Company met its capital adequacy requirements.

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 September 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.



35



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##### Table of Contents

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



|                                       |  |                      |           |   |                     |   |           |  
|-------------------------------------- |  | -------------------- | --------- | - | ------------------- | - | --------- | -
|($ in thousands)                       |  | At September 30,2008 |           |   | At December 31,2007 |  
|Tier 1 Capital (1)                     |  | $                    | 241,230   |   |                     | $ | 234,561   |  
|Tier 2 Capital (1)                     |  |                      | 23,096    |   |                     |   | 21,593    |  
|                                       |  |                      |           |   |                     |   |           |  
|Total risk-based capital               |  | $                    | 264,326   |   |                     | $ | 256,154   |  
|                                       |  |                      |           |   |                     |   |           |  
|Net risk-weighted assets               |  | $                    | 1,844,969 |   |                     | $ | 1,733,124 |  
|Average assets for regulatory purposes |  | $                    | 2,188,594 |   |                     | $ | 2,023,606 |  
|                                       |  |                      |           |   |                     |   |           |  
|Tier 1 capital to average assets       |  |                      | 11.02     | % |                     |   | 11.59     | %
|Tier 1 capital to risk-weighted assets |  |                      | 13.08     | % |                     |   | 13.53     | %
|Total capital to risk-weighted assets  |  |                      | 14.33     | % |                     |   | 14.78     | %
|                                       |  |                      |           |   |                     |   |           |  



|(1) | At September 30, 2008 and December 31, 2007, there were $55 million of qualifying capital securities outstanding and included in Tier I capital, which represent 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 inclusion of these securities in Tier 1 capital is currently limited to 25% of core capital
elements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Asset and Liability Management

The Companys interest rate risk arises from differences in the repricing of its assets and its 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 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 balance sheet has steadily become more interest-rate sensitive over the past 21 months, with increased exposure to a rising interest
rate environment. At September 30, 2008, the Companys interest-bearing liabilities exceeded its interest-earning assets that are scheduled to mature or reprice within one-year. This one-year interest rate sensitivity gap amounted to a
negative $489 million, or (22.4)% of total assets, at September 30, 2008, compared to a negative gap of $99 million, or (4.9)% of total assets at December 31, 2007. The Company is currently liability-sensitive, indicating that
its interest-bearing liabilities would generally reprice with changes in interest rates more rapidly than its interest earning assets.

The change in the
gap from December 31, 2007 was due to 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 averaging 5 years and purchases of security
investments with longer-term maturities. The new loans and securities have been funded through an increase in money market and time deposit accounts with maturities of one year or less and short-term FHLB advances. In addition, the scheduled
repricing of certain trust preferred capital securities of the Holding Company from fixed to floating rate and the scheduled early repayment of certain debentures of Intervest Mortgage Corporation with original maturities of greater than one year
have also contributed to the increased negative gap.

In order to manage rising interest rate risk, the deposit flows of the Bank and deposit rates offered
by the Bank are monitored weekly. Currently, managements intention is to concentrate on attracting longer-term deposits by increasing the rates offered on these products and decreasing the rates on shorter-term deposits. In September 2008, the
Bank also began using longer-term FHLBNY advances (within one to five year maturities) to lock in favorable borrowing rates at the time and to help reduce interest rate risk.

It should be noted that for purposes of computing the one-year interest rate sensitivity gap noted above, all deposits with no stated maturities are treated as readily accessible accounts (as noted in footnote 3 to
the table that follows). 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 interest rate sensitivity gap would have computed to be a negative 11% at
September 30, 2008, compared to a positive 4% at December 31, 2007, which would have resulted in a significantly lower level of perceived interest rate sensitivity. Notwithstanding all of the above, there can be no assurances that a sudden
and substantial increase in interest rates may not adversely impact the Banks earnings and capital, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same
basis.



36



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##### Table of Contents

The table that follows summarizes interest-earning assets and interest-bearing liabilities as of September 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)                                  |  | $         | 169,523  |    |            | $ | 313,612  |               |  | $ | 724,240     |    |  | $     | 410,682 |   |  | $ | 1,618,057 |  
|Securities held to maturity (2)            |  |           | 16,502   |    |            |   | 17,509   |               |  |   | 206,723     |    |  |       | 170,110 |   |  |   | 410,844   |  
|Short-term investments                     |  |           | 18,886   |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 18,886    |  
|FRB and FHLB stock                         |  |           | 7,270    |    |            |   |         |               |  |   |            |    |  |       | 3,642   |   |  |   | 10,912    |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total rate-sensitive assets                |  | $         | 212,181  |    |            | $ | 331,121  |               |  | $ | 930,963     |    |  | $     | 584,434 |   |  | $ | 2,058,699 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Deposit accounts (3):                      |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Interest checking deposits                 |  | $         | 4,552    |    |            | $ |         |               |  | $ |            |    |  | $     |        |   |  | $ | 4,552     |  
|Savings deposits                           |  |           | 8,792    |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 8,792     |  
|Money market deposits                      |  |           | 311,329  |    |            |   |         |               |  |   |            |    |  |       |        |   |  |   | 311,329   |  
|Certificates of deposit                    |  |           | 118,377  |    |            |   | 481,445  |               |  |   | 630,235     |    |  |       | 176,293 |   |  |   | 1,406,350 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total deposits                             |  |           | 443,050  |    |            |   | 481,445  |               |  |   | 630,235     |    |  |       | 176,293 |   |  |   | 1,731,023 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|FHLB advances                              |  |           | 44,700   |    |            |   |         |               |  |   | 43,500      |    |  |       | 7,000   |   |  |   | 95,200    |  
|Debentures and mortgage note payable (1)   |  |           | 30,964   |    |            |   | 30,928   |               |  |   | 27,810      |    |  |       | 22,688  |   |  |   | 112,390   |  
|Accrued interest on all borrowed funds (1) |  |           | 1,706    |    |            |   |         |               |  |   | 623         |    |  |       | 632     |   |  |   | 2,961     |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total borrowed funds                       |  |           | 77,370   |    |            |   | 30,928   |               |  |   | 71,933      |    |  |       | 30,320  |   |  |   | 210,551   |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Total rate-sensitive liabilities           |  | $         | 520,420  |    |            | $ | 512,373  |               |  | $ | 702,168     |    |  | $     | 206,613 |   |  | $ | 1,941,574 |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|GAP (repricing differences)                |  | $         | (308,239 | )  |            | $ | (181,252 | )             |  | $ | 228,795     |    |  | $     | 377,821 |   |  | $ | 117,125   |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Cumulative GAP                             |  | $         | (308,239 | )  |            | $ | (489,491 | )             |  | $ | (260,696    | )  |  | $     | 117,125 |   |  | $ | 117,125   |  
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  
|Cumulative GAP to total assets             |  |           | (14.1    | )% |            |   | (22.4    | )%            |  |   | (12.0       | )% |  |       | 5.4     | % |  |   | 5.4       | %
|                                           |  |           |          |    |            |   |          |               |  |   |             |    |  |       |         |   |  |   |           |  



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 $82.8 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 Developments

There have been historical disruptions in the financial system during the past year and many lenders and financial institutions have reduced or ceased to provide funding to borrowers, including other lending institutions. The availability
of credit, confidence in the entire financial sector, and volatility in financial markets has been adversely affected. Although the Company does not actively lend in the home mortgage market, and does not own or invest in any collateralized debt
obligations or collateralized mortgage obligations, these disruptions are likely to have some impact on all institutions in the U.S. banking and financial industries. The Federal Reserve Bank has been providing vast amounts of liquidity into the
banking system to compensate for weaknesses in short-term borrowing markets and other capital markets. A reduction in the Federal Reserves activities or capacity could reduce liquidity in the markets, thereby increasing funding costs to the
Bank or reducing the availability of funds to the Bank to finance its existing operations.

In response to the financial crises affecting the overall
banking system and financial markets, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (EESA) was enacted. Under that act, the United States Treasury Department (Treasury) will have authority, among
other things, to purchase mortgages, mortgage backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.



37



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##### Table of Contents

Recent Developments, Continued



On October 3, 2008, the Troubled Asset Relief Program (TARP) was signed into law. TARP gave the Treasury authority to
deploy up to $750 billion into the financial system with an objective of improving liquidity in capital markets. On October 24, 2008, Treasury announced plans to direct $250 billion of this authority into preferred stock investments in banks.
The general terms of this preferred stock program are as follows for a participating bank: pay 5% dividends on the Treasurys preferred stock for the first five years and 9% dividends thereafter; cannot increase common stock dividends for three
years while Treasury is an investor; cannot redeem the Treasury preferred stock for three years unless the participating bank raises high-quality private capital; must receive Treasurys consent to buy back their own stock; Treasury receives
warrants entitling Treasury to buy participating banks common stock equal to 15% of Treasurys total investment in the participating bank; and participating bank executives must agree to certain compensation restrictions, and restrictions
on the amount of executive compensation which is tax deductible. The term of this Treasury preferred stock program could reduce investment returns to participating banks shareholders by restricting dividends to common shareholders, diluting
existing shareholders interests, and restricting capital management practices. Although both the Company and its subsidiary, Intervest National Bank, meet all applicable regulatory capital requirements and remain well capitalized, the Bank
currently expects to participate in the TARP capital purchase program and to make an application for the sale of shares of its preferred stock.

Federal
and state governments could pass additional legislation responsive to current credit conditions. As an example, the Company could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount
the Banks borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Company could experience higher credit losses because of federal or state legislation or regulatory action that limits the Banks
ability to foreclose on property or other collateral or makes foreclosure less economically feasible.

The Federal Deposit Insurance Corporation
(FDIC) insures deposits at FDIC insured financial institutions up to certain limits. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund. Current economic conditions have increased expectations
for bank failures, in which case the FDIC would take control of failed banks and ensure payment of deposits up to insured limits using the resources of the Deposit Insurance Fund. In such case, the FDIC may increase premium assessments to maintain
adequate funding of the Deposit Insurance Fund, including requiring riskier institutions to pay a larger share of the premiums. An increase in premium assessments would increase the Companys expenses. The EESA included a provision for an
increase in the amount of deposits insured by FDIC to $250,000 until December 2009. On October 14, 2008, the FDIC announced a new program  the Temporary Liquidity Guarantee Program that provides unlimited deposit insurance on funds in
noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. All eligible institutions will be covered under the program for the first 30 days without incurring any costs. After the
initial period, participating institutions will be assessed a 10 basis point surcharge on the additional insured deposits. The behavior of depositors in regard to the level of FDIC insurance could cause the Banks existing customers to reduce
the amount of deposits held at the Bank, and or could cause new customers to open deposit accounts at the Bank. The level and composition of the Banks deposit portfolio directly impacts the Banks funding cost and net interest margin.

The actions described above, together with additional actions announced by the Treasury and other regulatory agencies continue to develop. It is not clear
at this time what impact, EESA, TARP, other liquidity and funding initiatives of the Treasury and other bank regulatory agencies that have been previously announced, and any additional programs that may be initiated in the future will have on the
financial markets and the financial services industry. The extreme levels of volatility and limited credit availability currently being experienced could continue to effect the U.S. banking industry and the broader U.S. and global economies, which
will have an affect on all financial institutions, including the Company.

Recent Accounting Pronouncements

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



38



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##### Table of Contents

|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.

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 for the year ended December 31, 2007, where such factors are discussed on pages 24 through 29. In addition to those factors, in
connection with the Companys status as a financial holding company, certain additional risks and uncertainties should also be considered as discussed below.

U.S. and international credit markets and economic conditions could adversely affect our liquidity and financial condition

As
described in Managements Discussion and Analysis of Financial Condition and Results of Operations  Recent Developments, global market and economic conditions continue to be disrupted and volatile and the disruption has been
particularly acute in the financial sector. Although the Company remains well capitalized and has not suffered any liquidity issues as a result of these recent events, the cost and availability of funds may be adversely affected by illiquid credit
markets. Continued turbulence in the U.S. and international markets and economy may adversely affect our liquidity, financial condition and profitability.



39



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##### Table of Contents

|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) | Not Applicable
|--- | --------------



|(b) | Not Applicable
|--- | --------------



|(c) | Not Applicable
|--- | --------------



|(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: October 24, 2008 |  |  |  | By:                              |  | /s/ Lowell S. Dansker                                   
|                       |  |  |  |                                  |  | Lowell S. Dansker, Chairman and Executive Vice President
|                       |  |  |  |                                  |  | (Principal Executive Officer)                           
|                       |  |  | 
|Date: October 24, 2008 |  |  |  | By:                              |  | /s/ John J. Arvonio                                     
|                       |  |  |  |                                  |  | John J. Arvonio, Chief Financial and Accounting Officer 
|                       |  |  |  |                                  |  | (Principal Financial Officer)                           



40