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

                                 FORM 10-KSB/A-1

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                            -----------------

                        Commission File Number 000-23377

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

                  Delaware                               13-3699013
                  --------                               ----------
               (State or other                         (I.R.S. employer
         jurisdiction of incorporation)               identification no.)


                        10 Rockefeller Plaza, Suite 1015
                         New York, New York 10020-1903
                ------------------------------------------------
                    (Address of principal executive offices)


                                 (212) 218-2800
                ------------------------------------------------
                (Issuer's telephone number, including area code)


                Securities registered pursuant to Section 12(b)
                     of the Securities Exchange Act of 1934



                                      None
                                ----------------
                                (Title of class)



                Securities registered pursuant to Section 12(g)
                     of the Securities Exchange Act of 1934



                Class A Common Stock, par value $1.00 per share
                -----------------------------------------------
                                (Title of class)


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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of the Issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment of
this Form 10-KSB. [X]

The Issuer's  total  interest  income and total other income for its most recent
fiscal year was $12,934,000 and $349,000, respectively.

The aggregate  market value of 1,190,121  shares of the Issuer's  Class A Common
stock on February 16, 1999,  which excludes 994,904 shares held by affiliates as
a group, was $11,306,150.  This value is based on the average bid and ask prices
of $9.50 per share on February 16, 1999 of the Issuer's  Class A common stock on
the NASDAQ Small Cap Market.

As of February 16, 1999, there were 2,185,025 shares of the Issuer's Class A
common  stock  and  305,000   shares  of  the  Issuer's  Class  B  common  stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders  are
incorporated by reference to Part III of this Form 10-KSB.


<PAGE>

                Intervest Bancshares Corporation and Subsidiary

                       1998 ANNUAL REPORT ON FORM 10-KSB

                               TABLE OF CONTENTS


PART I
                                                                         Page
Item 1  Description of Business ....................................      1

Item 2  Description of Properties ..................................     11

Item 3  Legal Proceedings ..........................................     11

Item 4  Submission of Matters to Vote of Security Holders ..........     11


PART II

Item 5  Market for Common Equity and Related Stockholder Matters ...     11

Item 6  Management's Discussion and Analysis or Plan of Operation ..     13

Item 7  Financial Statements and Supplementary Data ................     30

Item 8  Changes In and Disagreements with Accountants on
        Accounting and Financial Disclosure ........................     57


PART III

Item 9   Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act .........     57

Item 10  Executive Compensation ....................................     59

Item 11  Security Ownership of Certain Beneficial Owners and Management  59

Item 12  Certain Relationships and Related Transactions ............     59

Item 13  Exhibits, Lists and Reports on Form 8-K ...................     60

Signatures .........................................................     61

<PAGE>

                                     PART I
Item 1. Description of Business

                                    General

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-KSB that are not  statements  of
historical fact may include forward-looking  statements that involve a number of
risks and  uncertainties.  Such  forward-looking  statements  are made  based on
management's  expectations  and beliefs  concerning  future events impacting the
Company and are subject to  uncertainties  and factors relating to the Company's
operations and economic  environment,  all of which are difficult to predict and
many of which are beyond the control of the  Company,  that could  cause  actual
results of the Company to differ  materially from those matters  expressed in or
implied by  forward-looking  statements.  The following  factors are among those
that could cause actual results to differ  materially  from the  forward-looking
statements:  changes in general economic, market and regulatory conditions,  the
development  of an  interest  rate  environment  that may  adversely  affect the
Company's  interest rate spread,  other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.

Intervest Bancshares Corporation
--------------------------------

Intervest  Bancshares  Corporation  is a registered  bank  holding  company (the
"Holding Company") incorporated in 1993 under the laws of the State of Delaware.
Its principal office is located at 10 Rockefeller  Plaza,  Suite 1015, New York,
New York 10020, and its telephone number is 212-218-2800.  The Holding Company's
Class A common  stock was  approved  for listing on the NASDAQ  SmallCap  Market
(Symbol:  IBCA) in November 1997.  Prior to then,  there had been no established
trading market for the securities of the Holding Company.  At December 31, 1998,
the  Holding  Company  owned  99.78% of the  outstanding  common and 100% of the
outstanding  preferred  stock of Intervest  Bank (the  "Bank").  Hereafter,  the
Holding Company and the Bank are referred to collectively as the "Company," on a
consolidated  basis. The Company's results of operations are primarily dependent
upon the Bank's results of operations.

At December 31, 1998, the Company had total assets of $200,522,000,  deposits of
$170,467,000,  convertible  debentures of $7,000,000 and stockholders' equity of
$19,544,000, compared to total assets of $150,755,000,  deposits of $131,167,000
and stockholders' equity of $17,620,000 at year-end 1997.

The Holding Company's primary business is the operation of the Bank. It does not
engage in any other substantial  business activities other than a limited amount
of real  estate  mortgage  lending.  In 1998,  the  Holding  Company  also  sold
convertible  debentures  that raised  funds for  working  capital  purposes.  At
December  31,  1998,  the  Holding  Company  had total  assets  of  $27,143,000,
convertible  debentures of $7,000,000 and  stockholders'  equity of $19,544,000,
compared to total assets of $17,675,000 and stockholders'  equity of $17,620,000
at December 31, 1997.

In  December  1998,  the  Office  of the  Comptroller  of the  Currency  granted
preliminary  approval  of  the  Holding  Company's  application  to  form  a new
nationally-chartered  commercial  bank.  The new bank will be called  "Intervest
National  Bank" and will  have its  headquarters,  which is also a full  service
branch,  located at One Rockefeller  Plaza in Manhattan,  New York. The new bank
will be a member of the Federal  Reserve Banking system and its deposits will be
insured by the Federal Deposit  Insurance  Corporation  (the "FDIC").  Intervest
National Bank will provide full banking  services and is anticipated to open for
business in the spring of 1999.

                                      -1-
<PAGE>

Intervest Bank
--------------

The Bank is a Florida state-chartered commercial bank that provides a wide range
of  banking  services  to small and  middle-market  businesses  and  individuals
through its banking offices located in Pinellas County,  Florida.  The principal
executive  offices  of the Bank are  located  at 625 Court  Street,  Clearwater,
Florida 33756.  In addition,  the Bank has four  branches;  three in Clearwater,
Florida and one in South Pasadena, Florida.

At December 31, 1998,  the Bank had total  assets of  $184,460,000,  deposits of
$170,467,000 and stockholders'  equity of $11,104,000,  compared to total assets
of $142,480,000, deposits of $131,167,000 and stockholders' equity of $9,420,000
at December 31, 1997.

The Bank is subject to examination  and regulation by the Federal  Reserve Board
(the "FRB") and its deposits are insured by the FDIC to the extent  permitted by
law.  The Bank is also  subject to the  supervision  of and  examination  by the
Florida  Department  of Banking and Finance.  The Bank  conducts a  personalized
commercial and consumer banking business,  which consists of attracting deposits
from the areas served by its banking  offices.  Those  deposits,  together  with
funds derived from other sources, are used to originate a variety of commercial,
consumer and real estate loans and to purchase investment securities. Commercial
loans  include  both  collateralized  and  uncollateralized  loans for:  working
capital (including inventory,  receivables and business expansion);  real estate
acquisitions  and  improvements;  and  purchases  of  equipment  and  machinery.
Consumer loans include  collateralized and uncollateralized  loans for financing
automobiles, boats, home improvements and personal investments.

As is the case with banking  institutions  generally,  the Bank's operations are
significantly  influenced by general economic conditions and by related monetary
and fiscal policies of banking regulatory agencies,  including the FRB, the FDIC
and Florida Department of Banking and Finance.  Deposit flows and the rates paid
thereon are  influenced by interest rates on competing  investments  and general
market  rates of  interest.  Lending  activities  are affected by the demand for
financing of real estate and other types of loans,  which in turn is affected by
the  interest  rates at which such  financing  may be offered and other  factors
affecting  local  demand  and  availability  of  funds.  The Bank  faces  strong
competition  in the  attraction of deposits (its primary source of funds) and in
the origination of loans.

The  revenues  of the Bank are  primarily  derived  from  interest  on, and fees
received  in  connection  with,  loans  and from  interest  and  dividends  from
securities and other short-term investments.  The principal sources of funds for
the Bank's lending activities are deposits,  repayment of loans,  maturities and
calls of securities  and cash flow  generated  from  operating  activities.  The
Bank's  principal  expenses are  interest  paid on deposits  and  operating  and
general administrative expenses.

                                  Market Area

The Bank's  facilities  are  located  in  Pinellas  County,  which is the Bank's
primary  market  area and is the most  populous  county in the Tampa Bay area of
Florida with an estimated  resident  population of over 800,000 people. The area
has many more  seasonal  residents.  The "Tampa Bay" area is located on the West
Coast of Florida, midway up the Florida peninsula.  The major cities in the area
are Tampa  (Hillsborough  County) and St.  Petersburg and  Clearwater  (Pinellas
County).  The  current  population  of the Tampa Bay area is  estimated  at over
2,000,000,  which reflects significant population increases since 1970. Pinellas
is the most densely  populated  county in Florida,  with nearly 3,000 people per
square mile. The average age of the population for the region is estimated at 45
years (as  compared to 38 years for the State of  Florida),  which  reflects the
history of  Pinellas  County as a  retirement  area.  Recent  years have shown a
slight  drop in  average  age due to an  increase  in office  and  manufacturing
employment  opportunities.  Clearwater is the county seat of Pinellas County and
its second  largest  city,  encompassing  approximately  32 square  miles with a
population of about 100,000.  The Bank's deposit  gathering and lending  markets
are  concentrated in the  communities  surrounding its offices in Clearwater and
South Pasadena,  Florida. Management believes that its offices are located in an
area serving small and mid-sized  businesses and serving middle and upper income
residential communities.

                                      -2-
<PAGE>

The Holding Company's direct lending activities have, to date, been concentrated
in the  New  York  City  metropolitan  region.  It also  considers  Connecticut,
Florida,  New Jersey,  Pennsylvania  and Washington  D.C. as its primary lending
market.

                                  Competition

The deregulation of the banking  industry and the widespread  enactment of state
laws that permit multi-bank holding companies, as well as an increasing level of
interstate banking, have created a highly competitive environment for commercial
banking.  In one or more aspects of its  business,  the Bank competes with other
commercial  banks,  savings  and  loan  associations,   credit  unions,  finance
companies,  mutual funds, insurance companies,  brokerage and investment banking
companies, and other financial intermediaries.  Most of these competitors,  some
of which are affiliated with large bank holding  companies,  have  substantially
greater  resources and lending limits,  and may offer certain  services that the
Bank does not  currently  provide.  In  addition,  many of the  Bank's  non-bank
competitors  are not  subject to the same  extensive  Federal  regulations  that
govern bank holding companies and Federally insured banks.

Competition among financial institutions is based upon interest rates offered on
deposit  accounts,  interest rates charged on loans and other credit and service
charges,  the quality and scope of the services  rendered,  the  convenience  of
banking facilities and, in the case of loans to commercial  borrowers,  relative
lending limits.  Management  believes that a community bank is better positioned
to establish  personalized  relationships  with both  commercial  customers  and
individual  households.  The Bank's community  commitment and involvement in its
primary  market  area,  as well as its  commitment  to quality and  personalized
banking  services are factors  that  contribute  to the Bank's  competitiveness.
Management  believes  a  locally-based  bank is  often  perceived  by the  local
business  community as possessing a clearer  understanding of local commerce and
its  needs.  Consequently,   management  believes  that  the  Bank  can  compete
successfully  in its primary  market area by making  prudent  lending  decisions
quickly and more efficiently than its competitors,  without  compromising  asset
quality or profitability,  although no assurances can be given that such factors
will assure success.  In addition,  management  believes a personalized  service
approach enables the Bank to attract and retain core deposits.

                                 Asset Quality

Management seeks to maintain a high level of asset quality. The Company seeks to
maintain  diversification  when  considering  investments  in securities and the
originations  of  loans.  In  originating  loans,  emphasis  is  placed  on  the
borrower's  ability to generate  cash flow to support its debt  obligations  and
other cash  related  expenses.  Lending  activities  are  conducted  pursuant to
written policies. Each loan officer has defined lending authority.  Depending on
their type and size,  certain  loans must be  reviewed  and  approved  by a Loan
Committee  comprised of certain members of the Board of Directors prior to being
originated.  As part of its loan  portfolio  management  strategy,  the  Company
typically  limits its loans to a maximum  of 80% of the value of the  underlying
real estate as determined by an appraisal. In addition, knowledgeable members of
management make physical inspections of properties being considered for mortgage
loans.  Further,  the Loan Committee  concentrates its efforts and resources and
that  of its  senior  management  and  lending  officers,  on  loan  review  and
underwriting procedures. Internal controls include ongoing reviews of loans made
to monitor  documentation and ensure the existence and valuations of collateral.
Management  also has in place a review  process  with the  objective  of quickly
identifying,  evaluating and  initiating  necessary  corrective  actions for any
problem loans. The goal of this loan review process is to address any classified
loans  as  early  as  possible.  Management  maintains  a  cautious  outlook  in
anticipating  the  potential  effects of  uncertain  economic  conditions  (both
locally  and  nationally)  and  the  possibility  of more  stringent  regulatory
standards.  Management  believes  that its  policies and  procedures  reduce the
Company's  exposure  to the risks  associated  with a  downturn  in real  estate
values.  However,  there can be no  assurance  that a  downturn  in real  estate
values, as well as other economic  factors,  would not have an adverse impact on
the Company's profitability.

                                      -3-
<PAGE>

At December 31, 1998 and 1997, the Bank did not have any nonperforming assets.

                               Lending Activities

The Company's  lending  activities  include real estate loans and commercial and
consumer loans. Real estate loans include primarily the origination of loans for
commercial and multifamily  properties.  While the Company's lending  activities
include  single-family   residential  mortgages,   such  lending  has  not  been
emphasized.  Commercial  loans  are  originated  for  working  capital  funding.
Consumer  loans  include  those for the  purchase of  automobiles,  boats,  home
improvements and investments.

At December 31, 1998,  the Company's  loan  portfolio  amounted to  $98,221,000,
compared to $77,226,000 at December 31, 1997. At December 31, 1998 and 1997, the
loan portfolio consisted predominantly of real estate mortgage loans.

Real Estate Mortgage Lending
----------------------------

The Company offers real estate loans secured by commercial and residential  real
estate.  A substantial  portion of the Company's  loan portfolio is comprised of
loans secured by commercial and  multifamily  real estate,  including  apartment
buildings,  office  buildings and retail  shopping  centers.  The properties are
located mostly in the Company's primary market area.

Commercial and multifamily mortgage lending generally involves greater risk than
1-4 family  residential  lending.  Such lending  typically  involves larger loan
balances to single  borrowers and repayment of loans secured by income producing
properties  is  typically  dependent  upon  the  successful   operation  of  the
underlying real estate.

The Company's underwriting  procedures require mortgage title insurance,  hazard
insurance  and an appraisal of the property  securing the loan to determine  the
property's  adequacy  as  security.  Loan-to-value  ratios  (the  ratio that the
original  principal  amount of the loan bears to the lower of the purchase price
or appraised value of the property securing the loan at the time of origination)
on new loans originated by the Company typically do not exceed 80%.

New mortgage  loans on commercial  real estate and  multifamily  properties  are
normally  originated for terms of no more than 20 years with interest rates that
are  predominantly  variable rate, based on a fixed margin mainly over the prime
rate and the five-year constant maturity treasury index.

Commercial Lending
------------------

The Bank offers a variety of  commercial  loan  services  including  term loans,
lines of credit and equipment financing.  Short-to-medium term commercial loans,
both collateralized and  uncollateralized,  are made available to businesses for
working  capital needs  (including  those secured by inventory,  receivables and
other assets),  business  expansion  (including  acquisitions of real estate and
improvements),  and the purchase of equipment  and  machinery.  The purpose of a
particular loan generally determines its structure.  The Bank's commercial loans
primarily  are  underwritten  in its  primary  market  area on the  basis of the
borrower's ability to service such debt from income. As a general practice,  the
Bank takes as  collateral a lien on any  available  real estate,  equipment,  or
other assets.  Working capital loans are primarily  collateralized by short-term
assets, whereas term loans are primarily collateralized by longer-term assets.

                                      -4-
<PAGE>

Unlike 1-4 family residential  mortgage loans,  (which generally are made on the
basis of the  borrower's  ability to make  repayment  from their  employment and
other income and which are  collateralized by real property whose value tends to
be more readily  ascertainable)  commercial  loans typically are underwritten on
the basis of the  borrower's  ability  to make  repayment  from the cash flow of
their  business and generally are  collateralized  by business  assets,  such as
accounts receivable,  equipment and inventory.  As a result, the availability of
funds for the repayment of commercial  loans may be  substantially  dependent on
the success of the business itself. Further, the collateral underlying the loans
may  depreciate  over  time,  cannot  be  appraised  with as much  precision  as
residential real estate,  and may fluctuate in value based on the success of the
business.

Consumer Lending
----------------

Consumer  loans  made by the Bank have  included  those  for:  the  purchase  of
automobiles, recreation vehicles and boats; second mortgages; home improvements;
home  equity  lines of credit;  and  personal  loans  (both  collateralized  and
uncollateralized).  Consumer loans  typically have a short term and carry higher
interest rates than that charged on other types of loans. In addition,  consumer
loans pose additional risks of collectability when compared to traditional types
of loans granted by commercial banks such as residential mortgage loans. In many
instances, the Bank is required to rely on the borrower's ability to repay since
the collateral may be of reduced value at the time of collection.

Loan Solicitation and Processing
--------------------------------

Loan  originations are derived from:  direct  solicitation by the Company's loan
officers; existing customers and borrowers;  advertising; walk-in customers; and
referrals from brokers.  Upon receipt of a loan  application  from a prospective
borrower,  the  Company  orders a  credit  report  and  other  verifications  to
substantiate specific information relating to the applicant's  employment income
and credit standing.  An appraisal,  where required, of any real estate intended
to collateralize the proposed loan is undertaken by an appraiser approved by the
Company.

                         Security Investment Activities

The Bank's  investment policy and strategy is reviewed and approved by the Board
of  Directors  and its  Investment  Committee.  The Bank has  historically  only
purchased  securities that are issued directly by the U.S.  Government or one of
its  agencies.  Accordingly,  the  Bank's  investments  in  securities  carry  a
significantly lower credit risk than its loan portfolio. To manage interest rate
risk,  the Bank normally  purchases  securities  that have  adjustable  rates or
securities with fixed rates that have short- to intermediate-maturity terms. The
Holding Company  normally  invests its excess cash in short-term  investments of
three  months  or less.  Securities  held to  maturity  totaled  $82,338,000  at
December 31, 1998, compared to $58,821,000 at December 31, 1997.

                               Deposit Activities

Deposits  are the  major  source  of the  Bank's  funds  for  lending  and other
investment   purposes.   At  December  31,  1998,  deposit  liabilities  totaled
$170,467,000,  compared to  $131,167,000  at December 31, 1997.  The majority of
deposit  accounts are  solicited  from small  business,  professional  firms and
households  located  throughout  the Bank's  primary  market  area  through  the
offering  of a broad  variety  of  deposit  services.  These  services  include:
certificates of deposit  (including  "jumbo"  certificates in  denominations  of
$100,000 or more); individual retirement accounts ("IRAs"); other time deposits;
checking and other demand deposit accounts; negotiable order of withdrawal (NOW)
accounts,  savings accounts and money market accounts.  Transaction accounts and
time  deposits  are tailored to the  principal  market area of the Bank at rates
competitive to those in the area. In addition,  the  determination  of rates and
terms also considers the Bank's liquidity requirements, growth goals and Federal
regulations.  Maturity terms, service fees and withdrawal penalties are reviewed
and  established  by the Bank on a  periodic  basis.  The Bank also  offers  ATM
services  with access to local,  state and national  networks,  wire  transfers,
direct deposit of payroll and social  security  checks and automated  drafts for
various  accounts.  In  addition,  the Bank  offers  safe  deposit  boxes to its
customers.  The Bank periodically  reviews the scope of the banking products and
services  it  offers  so as to  determine  whether  to  add to or  modify  them,
consistent with market opportunities and available resources.

                                      -5-
<PAGE>

                             Other Sources of Funds

The Bank, from time to time, obtains funds through the Federal funds market when
such funds are available at attractive  rates. Such funds were not emphasized in
1988 or 1997. In June 1998, the Holding  Company sold  $7,000,000 of convertible
subordinated  debentures  for net  proceeds  of  approximately  $6,500,000.  The
proceeds  are part of the  Holding  Company's  working  capital.  For a  further
discussion of the convertible debentures, see page 25.

                                   Employees

At December 31 1998, the Company employed 32 full-time employees and 3 part-time
employees.  None  of  the  employees  are  covered  by a  collective  bargaining
agreement and the Company believes that its employee relations are good.

                           Federal and State Taxation

The Holding  Company and the Bank file a consolidated  Federal income tax return
on a calendar year basis.  Consolidated  returns have the effect of  eliminating
intercompany  distributions,   including  dividends,  from  the  computation  of
consolidated  taxable  income for the  taxable  year in which the  distributions
occur.  Banks and bank holding companies are subject to Federal and state income
taxes in the same manner as other corporations. In accordance with an income tax
sharing  agreement,  income tax charges or credits are, for financial  reporting
purposes,  allocated to the Holding  Company and its  subsidiary on the basis of
their respective taxable income or loss included in the consolidated  income tax
return.

Although a bank's  income tax liability is  determined  under  provisions of the
Internal  Revenue Code of 1986, as amended (the "Code"),  which is applicable to
all  taxpayers,  Sections  581  through  597 of the Code apply  specifically  to
financial  institutions.  The two  primary  areas  in  which  the  treatment  of
financial  institutions  differs from the treatment of other  corporations under
the Code are in the areas of bond gains and losses and bad debt deductions. Bond
gains and losses  generated  from the sale or exchange of portfolio  instruments
are generally treated for financial institutions as ordinary gains and losses as
opposed  to  capital  gains  and  losses  for  other  corporations,  as the Code
considers bond  portfolios  held by banks to be inventory in a trade or business
rather than capital assets. Banks are allowed a statutory method for calculating
a reserve for bad debt  deductions.  Based on the asset size of the bank, a bank
is permitted to maintain a bad debt reserve  calculated on an experience method,
based on chargeoffs and recoveries for the current and preceding five years,  or
a "grandfathered" base year reserve, if larger.

The Holding  Company  files a state income tax return in New York and New Jersey
and a franchise tax return in Delaware. The Bank files a state income tax return
in Florida.  Florida taxes banks under  primarily  the same  provisions as other
corporations.  The Holding Company's activities, other than the bank operations,
are taxable in the State of New York.  Generally,  New York State taxable income
is calculated under applicable Code sections with some modifications required by
state law.

                                      -6-
<PAGE>


                            Investment in Subsidiary

The following  schedule sets forth  information  with respect to investments in,
income  from  dividends,  and  equity  in  earnings  of  the  Holding  Company's
consolidated subsidiary:
<TABLE>
<CAPTION>

                                        At December 31, 1998          Holding Company's Share
($ in thousands)                 % of                 Equity in      of Earnings for the Years
                                 Voting    Total      Underlying         Ended December 31,
Subsidiary                       Stock  Investment    Net Assets     1998                  1997
----------                       -----  ----------    ----------     ----                  ----
<S>                              <C>      <C>          <C>          <C>                    <C> 
Intervest Bank                   99.78%   $11,081      $11,081      $1,149                 $753
</TABLE>

There were no dividends paid to the Holding Company by the Bank in 1998 or 1997.

                           Supervision and Regulation

Bank holding  companies and banks are  extensively  regulated under both Federal
and state laws and  regulations  that are  intended to protect  depositors,  not
stockholders.  To the extent that the following  information describes statutory
and regulatory  provisions,  it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in the applicable law
or  regulation  may have a material  effect on the business and prospects of the
Holding Company and its subsidiary.

Bank Holding Company Regulation
-------------------------------

As a bank holding company  registered under the Bank Holding Company Act of 1956
(BHCA),  the Holding Company is subject to the regulation and supervision of the
FRB. The Holding  Company is required to file with the FRB periodic  reports and
other information regarding its business operations and those of its subsidiary.
Under the BHCA, the Holding Company's activities and those of its subsidiary are
limited to banking,  managing or controlling  banks,  furnishing  services to or
performing  services for its  subsidiary or engaging in any other activity which
the  FRB  determines  to be  so  closely  related  to  banking  or  managing  or
controlling banks as to be properly incident thereto.

As a bank holding  company,  the Holding Company is required to obtain the prior
approval of the FRB before acquiring direct or indirect  ownership or control of
more than 5% of the voting  shares of a bank or bank  holding  company.  The FRB
will not  approve any  acquisition,  merger or  consolidation  that would have a
substantial  anti-competitive result, unless the anti-competitive effects of the
proposed  transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial,  capital
and other financial factors in acting on acquisition or merger  applications.  A
bank holding company may not engage in, or acquire direct or indirect control of
more than 5% of the voting  shares of any  company  engaged  in any  non-banking
activity,  unless such  activity  has been  determined  by the FRB to be closely
related to banking or  managing  banks.  The FRB has  identified  by  regulation
various  non-banking  activities in which a bank holding company may engage with
notice to, or prior approval by, the FRB.

                                      -7-
<PAGE>

It is the  policy  of the FRB  that  bank  holding  companies  should  pay  cash
dividends  on common stock only out of income  available  over the past year and
only if prospective  earnings  retention is consistent  with the  organization's
expected  future needs and financial  condition.  The policy  provides that bank
holding  companies should not maintain a level of cash dividends that undermines
the bank  holding  company's  ability  to serve as a source of  strength  to its
banking  subsidiaries.   In  addition,   the  Federal  regulatory  agencies  are
authorized  to  prohibit a banking  institution  or bank  holding  company  from
engaging  in  an  unsafe  or  unsound  banking  practice.   Depending  upon  the
circumstances, the agencies could take the position that paying a dividend would
constitute  an unsafe or unsound  banking  practice.  Under FRB  policy,  a bank
holding  company is  expected  to act as a source of  financial  strength to its
banking subsidiaries and to commit resources to their support.  Such support may
be required at times when,  absent this FRB policy, a holding company may not be
inclined to provide it. As discussed  below,  a bank holding  company in certain
circumstances   could  be  required  to   guarantee   the  capital  plan  of  an
undercapitalized banking subsidiary.

The FRB monitors the capital adequacy of bank holding  companies and has adopted
risk-based  capital adequacy  guidelines to evaluate bank holding companies on a
consolidated  basis. The guidelines  require a ratio of "Tier 1" or Core Capital
(generally,  common stockholders'  equity,  perpetual  noncumulative,  preferred
stock and minority interests in consolidated subsidiaries,  less goodwill, other
disallowed intangibles and disallowed deferred tax assets, among other items) to
total  risk-weighted  assets  of at least 4% and a ratio  of  total  capital  to
risk-weighted  assets  of at least 8%.  At  December  31,  1998,  the  Company's
consolidated  ratio of total capital to risk-weighted  assets was 17.01% and its
risk-based Tier 1 capital ratio was 15.75%.

The FRB also uses a leverage  ratio to  evaluate  the  capital  adequacy of bank
holding companies. The leverage ratio applicable to the Holding Company requires
a ratio of Tier 1 capital to adjusted  total average assets of not less than 3%,
although most  organizations  are expected to maintain  leverage ratios that are
100-200 basis points above this minimum ratio.  The Holding  Company's  leverage
ratio at December 31, 1998, was 72.35%. The Federal banking agencies' risk-based
and leverage  ratios are minimum  supervisory  ratios  generally  applicable  to
banking  organizations that meet certain specified criteria,  assuming that they
have the highest  regulatory  rating.  Banking  organizations  not meeting these
criteria are expected to operate with capital  positions  well above the minimum
ratios. The FRB guidelines also provide that banking organizations  experiencing
internal  growth or making  acquisitions  will be expected  to  maintain  strong
capital positions  substantially above the minimum  supervisory levels,  without
significant  reliance on intangible assets. In addition,  the regulations of the
FRB provide  that  concentration  of credit risk and certain  risk  arising from
nontraditional  activities,  as well as an institution's ability to manage these
risks, are important factors to be taken into account by regulatory  agencies in
assessing an organization's overall capital adequacy.

The FRB and the other Federal banking agencies have adopted  amendments to their
risk-based capital regulations to provide for the consideration of interest rate
risk in the agency's  determination of a banking institution's capital adequacy.
The amendments  require such  institutions  to  effectively  measure and monitor
their interest rate risk and to maintain capital adequate for that risk.

Bank Regulation
---------------

The Bank is a state-chartered banking corporation subject to the supervision and
regular  examination  by the FRB, the Florida  Department of Banking and Finance
and the FDIC.  The  operations of the Bank are subject to numerous  statutes and
regulations.  Such statutes and regulations  relate to required reserves against
deposits,   investments,   loans,   mergers  and  consolidations,   issuance  of
securities,  payment of dividends,  establishment of branches, and other aspects
of the Bank's operations.  Various consumer laws and regulations also affect the
operations  of  the  Bank,   including   state  usury  laws,  laws  relating  to
fiduciaries,  consumer credit and equal credit, and fair credit reporting. Under
the  provisions  of the  Federal  Reserve  Act,  the Bank is  subject to certain
restrictions on any extensions of credit to the Holding Company or, with certain
exceptions, other affiliates, on investments in the stock or other securities of
national  banks,  and on the taking of such stock or securities  as  collateral.
These  regulations and restrictions may limit the Holding  Company's  ability to
obtain funds from the Bank for its cash needs, including funds for acquisitions,
and the payment of dividends, interest and operating expenses. Further, the Bank
is prohibited from engaging in certain tying arrangements in connection with any
extension of credit,  lease or sale of property or furnishing  of services.  For
example,  the Bank may not generally require a customer to obtain other services
from the Bank or the  Holding  Company,  and may not  require  the  customer  to
promise not to obtain  other  services  from a  competitor  as a condition to an
extension of credit. The Bank is also subject to certain restrictions imposed by
the  Federal  Reserve  Act  on  extensions  of  credit  to  executive  officers,
directors,  principal  stockholders  or any related  interest  of such  persons.
Extensions of credit (i) must be made on substantially the same terms (including
interest rates and collateral) as, and following credit underwriting  procedures
that are not less  stringent than those  prevailing at the time for,  comparable
transactions  with persons not covered  above and who are not employees and (ii)
must not  involve  more than the  normal  risk of  repayment  or  present  other
unfavorable features.  In addition,  extensions of credit to such persons beyond
limits set by FRB  regulations  must be approved by the Board of Directors.  The
Bank is also subject to certain lending limits and restrictions on overdrafts to
such persons.  A violation of these restrictions may result in the assessment of
substantial  civil  monetary  penalties  on the Bank or any  officer,  director,
employee,  agent or other person  participating in the conduct of the affairs of
the Bank or the imposition of a cease and desist order.

                                      -8-
<PAGE>

Applicable law provides the Federal  banking  agencies with broad powers to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of those powers  depends upon whether the  institution in question is
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized,"  or  "critically   undercapitalized."   The  Federal  banking
agencies have issued uniform regulations defining such capital levels. Under the
regulations,  a bank  is  considered  "well  capitalized"  if it has (i) a total
risk-based  capital  ratio of 10% or greater,  (ii) a Tier 1 risk-based  capital
ratio of 6% or greater,  (iii) a leverage ratio of 5% or greater and (iv) is not
subject  to any order or  written  directive  to meet and  maintain  a  specific
capital  level for any capital  measure.  An  "adequately  capitalized"  bank is
defined as one that has (i) a total  risk-based  capital ratio of 8% or greater,
(ii) a Tier 1 risk-based  capital  ratio of 4% or greater,  and (iii) a leverage
ratio of 4% or greater  (or 3% or greater in the case of a bank with a composite
CAMEL rating of 1). A bank is considered (a) "undercapitalized" if it has (i) a
total  risk-based  capital  ratio  of less  than  8%,  (ii) a Tier 1  risk-based
capitalized ratio of less than 4%, or (iii) a leverage ratio of less than 4% (or
3% in the case of a bank with a composite CAMEL rating of 1); (b) "significantly
undercapitalized"  if the bank has (i) a total risk-based  capital ratio of less
than 6%,  (ii) a Tier 1  risk-based  Capital  ratio  of less  than 3% or (iii) a
leverage  ratio of less than 3%, and (c)  "critically  undercapitalized"  if the
bank has a ratio of tangible equity to total assets equal to or less than 2%.

At December 31, 1998 and 1997, the Bank met the definition of a well-capitalized
institution.

The deposits of the Bank are insured by the FDIC through the Bank Insurance Fund
(the "BIF") to the extent provided by law. Under the FDIC's risk-based insurance
system, BIF-insured institutions are currently assessed premiums of between zero
and $0.27 per $100 of eligible deposits, depending upon the institutions capital
position and other supervisory  factors.  Congress has enacted legislation that,
among other things,  provides for assessments  against BIF insured  institutions
that will be used to pay certain financing corporation ("FICO") obligations.  In
addition to any BIF  insurance  assessments,  BIF-insured  banks are expected to
make payments for the FICO obligations equal to an estimated $0.0129 per $100 of
eligible deposits each year during 1997 through 1999 and an estimated $0.024 per
$100 of eligible deposits thereafter.

Regulations  promulgated by the FDIC pursuant to the Federal  Deposit  Insurance
Corporation  Improvement  Act of 1991 ("1991 Banking Law") place  limitations on
the  ability of certain  insured  depository  institutions  to accept,  renew or
rollover deposits by offering rates of interest which are  significantly  higher
than the prevailing  rates of interest on deposits  offered by other  depository
institutions  having the same type of charter  in such  depository  institutions
normal market area. Under these regulations,  well-capitalized  institutions may
accept,  renew or rollover such deposits without  restriction,  while adequately
capitalized  institutions  may accept,  renew or rollover  such  deposits with a
waiver  from the FDIC  (subject  to certain  restrictions  on payment of rates).
Undercapitalized institutions may not accept, renew or rollover such deposits.

The Bank is subject to Sections 23A and 23B of the Federal  Reserve  Act,  which
governs certain transactions,  such as loans, extensions of credit,  investments
and purchases of assets  between  member banks and their  affiliates,  including
their parent holding  companies.  These restrictions limit the transfer of funds
to the  Holding  Company,  as  defined  in the  statute,  in the form of  loans,
extensions of credit, investment or purchases of assets ("Transfers"),  and they
require  that the Bank's  transactions  with the Holding  Company be on terms no
less  favorable  to the Bank than  comparable  transaction  between the Bank and
unrelated  third  parties.  Transfers  by the Bank to the  Holding  Company  are
limited in amount to 10% of the Bank's capital and surplus, and transfers to all
affiliates  are  limited  in the  aggregate  to 20% of the  Bank's  capital  and
surplus.  Furthermore,  such loans and  extensions of credit are also subject to
various collateral requirements.

                                      -9-
<PAGE>

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  a depository institution insured by the FDIC can be held liable for
any loss  incurred  by, or  reasonably  expected to be incurred  by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured institution in danger of default. "Default" is defined generally as
the  appointment  of a  conservator  or  receiver  and "in danger of Default" is
defined  generally as the  existence  of certain  conditions  indicating  that a
"default"  is likely  to occur in the  absence  of  regulatory  assistance.  The
Federal Community  Reinvestment Act of 1977 ("CRA"),  among other things, allows
regulators to withhold  approval of an  acquisition  or the  establishment  of a
branch  unless  the  applicant  has  performed  satisfactorily  under  the  CRA.
Satisfactory  performance  means  adequately  meeting  the  credit  needs of the
communities the institution serves, including low and moderate income areas. The
applicable  Federal  regulators now regularly conduct CRA examinations to assess
the   performance   of   financial   institutions.   The  Bank  has  received  a
"satisfactory" rating in its most recent CRA examination.

The Federal  regulators  have adopted  regulations  and  examination  procedures
promoting the safety and soundness of individual  institutions  by  specifically
addressing,  among other things: (i) internal controls;  information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate  exposure;  (v) asset growth;  (vi) ratio of classified  assets to
capital;  (vii) minimum earnings; and (viii) compensation and benefits standards
for management officials.

The  laws  and  regulations  affecting  banks  and bank  holding  companies  are
continually being reviewed and revised.  The rules of the regulatory agencies in
this area have  changed  significantly  over recent years and there is reason to
expect that  similar  changes  will  continue in the future.  It is difficult to
predict the outcome of these changes.

The FRB and the other Federal banking  agencies have broad  enforcement  powers,
including the power to terminate deposit insurance, and impose substantial fines
and other civil and criminal  penalties and appoint a conservative  or receiver.
Failure to comply with applicable laws,  regulations and supervisory  agreements
could  subject  the  Holding  Company  or its  banking  subsidiary,  as  well as
officers,   directors   and  other   institution-affiliated   parties  of  these
organizations,  to  administrative  sanctions  and  potentially  civil  monetary
penalties.  In addition, the Florida Department of Banking and Finance possesses
certain enumerated enforcement powers to address violations of the Florida State
Law by state-chartered banks and to preserve safety and soundness, including, in
the most severe cases, the authority to take possession of a state bank.

Monetary Policy and Economic Control
------------------------------------

The  commercial  banking  business in which the Company  engages is affected not
only by general economic  conditions,  but also by the monetary  policies of the
FRB.  Changes in the discount  rate on member bank  borrowing,  availability  of
borrowing at the "discount  window," open market  operations,  the imposition of
changes in reserve  requirements  against  member banks'  deposits and assets of
foreign  branches  and the  imposition  of and  changes in reserve  requirements
against  certain  borrowings  by  banks  and  their  affiliates  are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying  combinations to influence  overall growth and  distributions of
bank loans,  investments  and deposits,  and this use may affect  interest rates
charged on loans or paid on deposits.  The monetary policies of the FRB have had
a  significant  effect on the  operating  results  of  commercial  banks and are
expected to do so in the future.  The  monetary  policies of these  agencies are
influenced by various factors, including inflation, unemployment, short-term and
long-term changes in the international  trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Company cannot be predicted.

                                      -10-
<PAGE>

Item 2. Description of Properties

The office of the Holding Company is located at 10 Rockefeller  Plaza, New York,
N.Y,  10020.  The Bank  maintains  its  principal  office at 625  Court  Street,
Clearwater,  Florida, 33756. In addition, the Bank operates four branch offices;
three of which are in  Clearwater,  Florida,  at 1875 Belcher  Road North,  2175
Nursery Road and 2575 Ulmerton  Road,  and one is at 6750 Gulfport  Blvd,  South
Pasadena,  Florida.  With the  exception of the Belcher  Road  office,  which is
leased  through June 2007,  all of the offices are owned by the Bank. The office
at 625 Court Street consists of a two-story  building  containing  approximately
22,000 sq. ft. The Bank occupies the ground floor  (approximately 8,500 sq. ft.)
and leases the 2nd floor to a single  commercial  tenant.  The branch  office at
1875 Belcher Road is a two-story building in which the Bank leases approximately
5,100 sq. ft. on the ground  floor.  The branch office at 2175 Nursery Road is a
one-story  building  containing  approximately  2,700 sq. ft., which is entirely
occupied by the Bank.  The branch  office at 2575 Ulmerton Road is a three-story
building  containing  approximately  17,000 sq. ft. The Bank occupies the ground
floor  (approximately  2,500 sq. ft.) and leases the upper floors to  commercial
tenants.  The branch  office at 6750  Gulfport  Blvd.  is a  one-story  building
containing  approximately 2,800 sq. ft., which is entirely occupied by the Bank.
In addition, each of the Bank's offices include drive-through teller facilities.

Subject to final regulatory approval to commence operations,  Intervest National
Bank's main office will be located on the third floor of One  Rockefeller  Plaza
in New York City,  N.Y. The office consists of  approximately  7,000 sq. ft. and
has been  leased  through  May  2008.  See page 1 under the  heading  "Intervest
Bancshares Corporation" for a further discussion of Intervest National Bank.


Item 3.  Legal Proceedings

The Company is periodically  party to or otherwise involved in legal proceedings
arising  in the normal  course of  business,  such as claims to  enforce  liens,
claims  involving the making and servicing real property loans, and other issues
incident to the Company's  business.  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,
or financial position of the Company.


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

No matter  was  submitted  during the  fourth  quarter of the fiscal  year ended
December 31,  1998,  to a vote of security  holders of the Company,  through the
solicitation of proxies or otherwise.

                                    PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

                             Market for Securities

The  Holding  Company's  Class A common  stock was  approved  for listing on the
NASDAQ SmallCap Market (Symbol: IBCA) in November 1997. Prior to then, there had
been no  established  public  trading  market for the  securities of the Holding
Company. At December 31, 1998, there were approximately 700 holders of record of
the Holding  Company's Class A common stock,  which includes persons or entities
who hold their stock in nominee form or "street name" through various  brokerage
firms.  At  December  31,  1998,  there were three  holders of record of Class B
common stock. There is no public-trading market for the Class B common stock.

                                      -11-
<PAGE>



The high and low sale price for the Class A common stock by calendar quarter for
1998 are as follows:


                     High      Low
--------------------------------------------------------------------------------
First quarter       $15.25    $11.00
Second quarter      $16.00    $11.25
Third quarter       $13.00    $ 8.25
Fourth quarter      $10.00    $ 8.00
--------------------------------------------------------------------------------

The high and low sale price for the Class A common  stock during the period from
November 25, 1997, when trading commenced, through December 31, 1997 were $12.25
and $11.50,  respectively.  The aforementioned prices were obtained from Nasdaq.

                                   Dividends

Holders of the Holding  Company's  Class A common  stock are entitled to receive
dividends  when and if declared by the Board of Directors  out of funds  legally
available therefore. No dividends may be declared or paid with respect to shares
of Class B common stock until January 1, 2000. The Holding  Company has not paid
any cash  dividends on its capital  stock and there is no immediate  prospect or
contemplation  of the payment of dividends on its stock.  The Holding  Company's
ability to pay  dividends is generally  limited to earnings from the prior year,
although  retained  earnings and  dividends  from its  subsidiary to the Holding
Company  may also be used to pay  dividends  under  certain  circumstances.  The
primary  source of funds for  dividends  payable by the  Holding  Company to its
shareholders is the dividends payable to it by the Bank.

The payment of dividends by the Bank is subject to a determination by the Bank's
Board of Directors and is dependent upon a number of factors,  including capital
requirements,  regulatory  limitations,  the Bank's  results of  operations  and
financial condition, tax considerations of the Bank and the Holding Company, the
number of outstanding  shares of stock, and general economic  conditions.  There
are various legal  limitations with respect to the Bank's financing or otherwise
supplying  funds to the Holding  Company.  In particular,  under Federal banking
law, the Bank may not declare a dividend  that  exceeds  undivided  profits.  In
addition,  the approval of the FRB as well as the Florida  Department of Banking
and Finance,  is required if the total amount of all  dividends  declared in any
calendar  year  exceeds  the  Bank's net  profits,  as  defined,  for that year,
combined  with its retained net profits for the  proceeding  two years.  The FRB
also has the  authority  to limit  further the payment of  dividends by the Bank
under  certain  circumstances.  In addition,  Federal  banking laws  prohibit or
restrict the Bank from  extending  credit to the Holding  Company  under certain
circumstances.  The FRB not only has established  certain  financial and capital
requirements that affect the ability of banks to pay dividends,  but it has also
the general  authority to prohibit  banks from  engaging in an unsafe or unsound
practice in conducting  business.  Depending upon the financial condition of the
Bank, the payment of cash dividends could be deemed to constitute such an unsafe
or unsound practice.

The FRB and Florida Department of Banking and Finance have publicly stated their
view that it is generally an unsafe and unsound  practice to pay cash  dividends
except out of current  operating  earnings.  Under FRB  policy,  a bank  holding
company is expected to act as a source of financial  strength to its  subsidiary
banks and to commit  resources to support each such bank.  Consistent  with this
policy,  the FRB has stated that, as a matter of prudent banking, a bank holding
company  generally  should  not pay cash  dividends  unless  the  available  net
earnings of the bank holding  company is sufficient to fully fund the dividends,
and the prospective rate of earnings retention appears to be consistent with the
Company's capital needs, asset quality and overall financial condition.

The  ability  of the Bank and the  Holding  Company  to pay  cash  dividends  is
currently,  and in the future could be further influenced by regulatory policies
or agreements and by capital guidelines. Accordingly, the actual amount, if any,
and timing of future  dividends  will  depend on,  among  other  things,  future
earnings,  the  financial  condition  of the Bank and the Holding  Company,  the
amount  of  cash  on  hand  at  the  Holding  Company  level,  outstanding  debt
obligations and the requirements imposed by regulatory authorities.

                                      -12-
<PAGE>

Item 6.   Management's Discussion and Analysis or Plan of Operation

                            Selected Financial Data

The  following  table  presents  selected  consolidated  financial  data for the
Company. The selected financial data should be read in conjunction with, and are
qualified in their entirety by, the  Consolidated  Financial  Statements and the
Notes  thereto as well as  Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations included elsewhere in this report.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------

                                                           At or For The Year Ended December 31,
                                                           -------------------------------------
($ in thousands, except per share amounts)     1998          1997          1996          1995           1994
-------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>           <C>           <C>       
Financial Condition Data:
Total assets                               $  200,522    $  150,755    $  105,196    $   68,942    $   40,117
Cash and cash equivalents                      13,472         9,176         6,320         8,551         6,088
Loans receivable, net of deferred fees         97,736        76,825        60,310        37,058        22,754
Securities, net                                82,338        58,821        34,507        19,630         8,638
Deposits                                      170,467       131,167        93,447        58,601        30,092
Convertible debentures                          7,000          --            --            --            --
Stockholders' equity                           19,544        17,620         9,747         9,189         8,884
Nonaccrual loans                                 --            --            --            --             101
Allowance for loan loss reserves                1,662         1,173           811           593           369
Loan chargeoffs                                  --            --              65            30            16
Loan recoveries                                    10            10            33            21            10
-------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income               $   12,934    $    9,347    $    6,381    $    4,190    $    2,158
Interest expense                                8,297         5,894         3,745         2,225           803
                                           ------------------------------------------------------------------
Net interest and dividend income                4,637         3,453         2,636         1,965         1,355
Provision for loan loss reserves                  479           352           250           233           124
                                           ------------------------------------------------------------------
Net interest and dividend income after
     provision for loan loss reserves           4,158         3,101         2,386         1,732         1,231
Other noninterest income                          349           136           106            89           112
Other noninterest expenses                      2,133         1,906         1,551         1,415         1,054
                                           ------------------------------------------------------------------
Earnings before income taxes                    2,374         1,331           941           406           289
Provision for income taxes                        939           487           383           136           108
                                           ------------------------------------------------------------------
Net earnings                               $    1,435    $      844    $      558    $      270    $      181
-------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share                   $     0.58    $     0.49    $     0.34    $     0.16    $     0.11
Diluted earnings per share                       0.46          0.41          0.34          0.16          0.11
Common book value per share                      7.87          7.27          5.91          5.57          5.38
Dividends per share                              --            --            --            --            --
-------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding                   2,484,515     2,424,415     1,650,000     1,650,000     1,650,000
Average common shares used to calculate:
     Basic earnings per share               2,457,113     1,712,292     1,650,000     1,650,000     1,650,000
     Diluted earnings per share             3,473,516     2,072,459     1,650,000     1,650,000     1,650,000
Adjusted net earnings for diluted
   earnings per share                      $    1,607    $      844    $      558    $      270    $      181
Full-service banking offices                        5             5             4             4             1
Return on average assets                         0.81%         0.68%         0.67%         0.51%         0.58%
Return on average equity                         7.74%         7.53%         5.91%         3.01%         2.46%
Stockholders' equity to total assets             9.75%        11.69%         9.27%        13.32%        22.15%
-------------------------------------------------------------------------------------------------------------
</TABLE>
                                      -13-
<PAGE>

                                    General

Management's  discussion  and  analysis of  financial  condition  and results of
operations  that follows  should be read in  conjunction  with the  Consolidated
Financial Statements and Notes thereto beginning on page 33.

Intervest  Bancshares  Corporation's  principal  assets  are its 99.87% and 100%
ownership  interest in Intervest Bank's  outstanding common and preferred stock,
respectively.  Intervest  Bancshares  Corporation  (the  "Holding  Company") and
Intervest Bank (the "Bank") are referred to  collectively as the "Company," on a
consolidated  basis. The Holding  Company's primary business is the operation of
the Bank and it does not  engage in any other  substantial  business  activities
other than a limited amount of real estate mortgage  lending.  As a result,  the
Company's results of operations are primarily  dependent upon the Bank's results
of operations.  The Bank conducts a commercial banking business,  which consists
of  attracting  deposits  from the general  public and  investing  those  funds,
together with other source of funds,  through the  origination of commercial and
residential  real estate loans,  commercial and consumer loans, and the purchase
of security investments.

The Company's  profitability  depends primarily on net interest income, which is
the difference  between  interest  income  generated  from its  interest-earning
assets less the interest expense incurred on interest-bearing  liabilities.  Net
interest income is affected by the relative amounts of  interest-earning  assets
and interest-bearing liabilities, and the interest-rate earned and paid on these
balances.  Net interest income is dependent upon the interest-rate spread, which
is the difference  between the average yield earned on  interest-earning  assets
and the average rate paid on interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will  generate net  interest  income.  The  interest  rate spread is
impacted by interest rates,  deposit flows, and loan demand.  Additionally,  the
Company's  profitability is affected by such factors as the level of noninterest
income and expenses,  the provision  for loan loss  reserves,  and its effective
income tax rate. Noninterest income consists primarily of loan and other banking
fees.  Noninterest expense consists of compensation and benefits,  occupancy and
equipment  related  expenses,   data  processing  expenses,   deposit  insurance
premiums,  and other operating  expenses.  The Company's  profitability  is also
significantly affected by general economic and competitive  conditions,  changes
in  market  interest  rates,  government  policies  and  actions  of  regulatory
authorities.

In November 1997,  the Holding  Company  completed a public  offering of 747,500
Units  for  gross  proceeds  of  $7,475,000  (the  "1997  Offering").  Each Unit
consisted  of one share of the Holding  Company's  Class A common  stock and one
warrant to purchase an additional  share of Class A common stock.  In connection
with the 1997  Offering,  the Holding  Company also issued  warrants  related to
shares  of  Class  A  common  stock  to  the   underwriter   and   participating
broker/dealers.

In June 1998, the Holding Company completed the sale of Convertible Subordinated
Debentures (the  iDebenturesi)  in the principal  amount of $7,000,000,  for net
proceeds of  approximately  $6,500,000.  The Debentures are due July 1, 2008 and
are  convertible at the option of the holders at any time prior to April 1, 2008
into shares of Class A common stock at various  conversion  prices.  The Holding
Company can also redeem the  Debentures at any time prior to maturity at various
redemption  prices,  including the payment of all accrued interest.  Interest on
the Debentures  accrues and compounds  each calendar  quarter at 8%. All accrued
interest is payable at the maturity of the Debentures  whether by  acceleration,
redemption or otherwise.  Any Debenture  holder may, on or before July 1 of each
year  commencing  July 1, 2003,  elect to be paid all  accrued  interest  and to
thereafter receive payments of interest quarterly.

In  December  1998,  the  Office  of the  Comptroller  of the  Currency  granted
preliminary  approval of the Holding  Company's  application  to establish a new
nationally-chartered  commercial  bank.  The new bank will be called  "Intervest
National  Bank" and will be located at One  Rockefeller  Plaza in New York City.
The new bank will be a member of the  Federal  Reserve  Banking  system  and its
deposits will be insured by the Federal Deposit Insurance Corporation. Intervest
National Bank will provide full banking  services and is anticipated to open for
business in the spring of 1999.  

                                      -14-
<PAGE>

At December 31, 1998, the Company had total assets of $200,522,000,  deposits of
$170,467,000,  convertible  debentures of $7,000,000 and stockholders' equity of
$19,544,000.  The  Company's  net earnings  increased 70% to $1,435,000 in 1998,
from $844,000 in 1997.  Return on average  assets  amounted to 0.81% in 1998, up
from 0.68% in 1997. Return on average equity amounted to 7.74% for 1998, also up
from 7.53% in 1997.  Asset  quality  continued to remain strong as there were no
loans on a  nonaccrual  or impaired  status at December  31, 1998 or 1997.  Book
value per common  share rose to $7.87 at December  31,  1998,  from $7.27 a year
ago. At December 31, 1998 and 1997,  the Bank  exceeded all  regulatory  capital
requirements for designation as a well-capitalized institution.

                             Results of Operations

Comparison of the Years Ended December 31, 1998 and 1997.

General
-------

The Company earned $1,435,000 for the year ended December 31, 1998,  compared to
$844,000 in 1997.  On a diluted per share  basis,  net  earnings  were $0.46 for
1998,  compared to $0.41 for 1997.  (The  computation  of earnings per share for
1998 included a higher average number of common shares resulting from the public
offering of Class A common stock in November 1997 and an increase in potentially
dilutive common stock warrants and convertible debentures outstanding.)

The  increase in net  earnings  was  primarily  due to higher net  interest  and
dividend  income  resulting  from  growth  in   interest-earning   assets.  This
improvement was partially offset by increases in the provisions for income taxes
and loan loss reserves, and higher operating expenses.

Net Interest and Dividend Income
--------------------------------

Net interest and dividend income is the Company's largest source of earnings and
is   influenced   primarily   by  the   amount,   distribution   and   repricing
characteristics of its interest-earning assets and interest-bearing  liabilities
as well as by the relative levels and movements of interest rates. The Company's
net  interest  and  dividend  income  increased  to  $4,637,000  in  1998,  from
$3,453,000 in 1997. The increase was due to growth in  interest-earning  assets,
partially  offset by a decline in the net interest  margin from 2.92% in 1997 to
2.75% in 1998.

The decline in the margin was a function of a lower  interest rate spread caused
by a decline in the yield on the Company's earning assets and an increase in its
cost of funds.  The yield on earning assets  declined by 22 basis points largely
due to a decline in the yield on the loan  portfolio  as well as an  increase in
securities and  short-term  investments.  Securities and short-term  investments
have a lower yield than the Company's  loan  portfolio.  The  Company's  cost of
funds increased by 4 basis points due to higher-cost funds obtained through sale
of the Debentures,  partially offset by a slight decline in the average cost for
deposit accounts.

The effect of the  decrease  in the  interest  rate spread  described  above was
partially  offset by an increase of $7,007,000  in net average  interest-earning
assets. This increase was largely due to the investment of the proceeds from the
issuance of common stock as well as the reinvestment of earnings  generated from
operations.

The table that follows sets forth  information on the Company's  average assets,
liabilities and stockholders' equity; yields earned on interest-earning  assets;
and rates paid on interest-bearing liabilities for 1998 and 1997. The yields and
rates shown are based on a computation of  income/expense  for each year divided
by average  interest-earning  assets/interest-bearing  liabilities  during  each
year.  Certain  yields and rates  shown are  adjusted  for related fee income or
expense.  Average balances are derived from daily balances.  Net interest margin
is computed by dividing net interest and dividend income by the average of total
interest-earning assets during each year.

                                      -15-
<PAGE>
<TABLE>
<CAPTION>

                                                            For the Year Ended December 31,
                                                            -------------------------------
                                                          1998                             1997
                                              -----------------------------   ------------------------------
                                              Average   Interest      Yield/  Average    Interest      Yield/
($ in thousands)                              Balance   Inc./Exp.      Rate   Balance    Inc./Exp.      Rate
----------------                              -------   ---------      ----   -------    ---------      ----
<S>                                          <C>        <C>            <C>   <C>         <C>           <C>  
          Assets
Interest-earning assets:
  Loans                                      $ 90,470   $  8,278       9.15% $ 68,711    $  6,415      9.34%
  Securities                                   69,508      4,224       6.08    42,763       2,632      6.15
  Other interest-earning assets                 8,344        432       5.18     6,913         300      4.34
-------------------------------------------------------------------------------------------------------------
Total interest-earning assets                 168,322   $ 12,934       7.68%  118,387    $  9,347      7.90%
-------------------------------------------------------------------------------------------------------------
Noninterest-earning assets                      8,395                           6,619
-------------------------------------------------------------------------------------------------------------
Total assets                                 $176,717                        $125,006
-------------------------------------------------------------------------------------------------------------

      Liabilities and Stockholders' Equity
Interest-bearing liabilities:
  Demand, money market and NOW deposits      $ 28,756   $  1,324       4.60%  $ 18,087    $    816      4.51%
  Savings deposits                             17,210        832       4.83      9,128         446      4.89
  Time deposits                               101,547      5,821       5.73     81,149       4,631      5.71
-------------------------------------------------------------------------------------------------------------
  Total deposit accounts                      147,513      7,977       5.41    108,364       5,893      5.44
-------------------------------------------------------------------------------------------------------------
  Federal funds purchased                          20          1       5.00         18           1      5.56
  Convertible debentures                        3,777        319       8.45       --          --         --
-------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities            151,310   $  8,297       5.48%   108,382    $  5,894      5.44%
-------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits                    3,096                            2,325
Noninterest-bearing liabilities                 3,782                            3,088
Stockholders' equity                           18,529                           11,211
-------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity   $176,717                         $125,006
-------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread                 $  4,637       2.20%              $  3,453      2.46%
-------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin           $ 17,012                  2.75%  $ 10,005                  2.92%
-------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities           1.11x                            1.09x
-------------------------------------------------------------------------------------------------------------
</TABLE>

The table below 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).

<TABLE>
<CAPTION>

                                   For the Year Ended December 31, 1998 vs. 1997
                                   ---------------------------------------------
                                           Increase (Decrease) Due To Change In:
                                           -------------------------------------
($ in thousands)                               Rate    Volume  Rate/Volume Total
--------------------------------------------------------------------------------
<S>                                          <C>       <C>      <C>       <C>   
Interest-earning assets:
  Loans                                      $ (131)   $2,032   $  (38)   $1,863
  Securities                                    (30)    1,645      (23)    1,592
  Other interest-earning assets                  58        62       12       132
--------------------------------------------------------------------------------
Total interest-earning assets                  (103)    3,739      (49)    3,587
--------------------------------------------------------------------------------
Interest-bearing liabilities:
  Demand, money market and NOW deposits          16       481       11       508
  Savings deposits                               (5)      395       (4)      386
  Time deposits                                  16     1,165        9     1,190
                                               ---------------------------------
  Total deposit accounts                         27     2,041       16     2.084
                                               ---------------------------------
  Federal funds purchased                      --        --         --        --
  Convertible debentures                       --        --        319       319
--------------------------------------------------------------------------------
Total interest-bearing liabilities               27     2,041      335     2,403
--------------------------------------------------------------------------------
Net change in interest and dividend income   $ (130)   $1,698   $ (384)   $1,184
--------------------------------------------------------------------------------
</TABLE>
                                      -16-
<PAGE>

Provision for Loan Loss Reserves
--------------------------------

The provision for loan loss reserves is based on management's ongoing assessment
of the adequacy of the allowance for loan loss reserves.  The provision amounted
to $479,000 in 1998,  compared to  $352,000 in 1997.  The  increase  reflected a
higher level of outstanding loans as well as management's intent to maintain the
allowance at a level it believes to be adequate.  At December 31, 1998 and 1997,
the Company did not have any nonaccrual or impaired loans.

Noninterest Income
------------------

Total  noninterest  income increased to $349,000 in 1998, from $136,000 in 1997.
The increase  primarily  reflected  an increase in service  charge fee income as
well as a higher level of loan prepayment fees.

Noninterest Expenses
--------------------

Noninterest  expenses  increased to $2,133,000 in 1998, from $1,906,000 in 1997.
The increase was largely due to higher salaries and employee  benefits,  as well
as an increase in professional fees and services,  resulting  primarily from the
Company's growth, need for additional staff and normal merit increases.

Provision for Income Taxes
--------------------------

The provision for income taxes  increased to $939,000 in 1998,  from $487,000 in
1997, largely due to higher pre-tax earnings.  The Company's  effective tax rate
(inclusive  of state and local  taxes)  amounted  to 39.6% in 1998,  compared to
36.6% in 1997.  The higher rate for 1998 reflects an increase in the earnings of
the Holding Company, which has a higher state income tax rate than the Bank.


Comparison of the Years Ended December 31, 1997 and 1996.

General
-------

Net earnings for the year ended  December  31, 1997 were  $844,000,  compared to
$558,000 for the year ended December 31, 1996. On a diluted per share basis, net
earnings  was $0.41 for 1997,  compared to $0.34 for 1996.  The  increase in the
Company's  net  earnings was  primarily  due to higher net interest and dividend
income, partially offset by increases in noninterest expenses, the provision for
income taxes and provision for loan loss reserves.

Net Interest and Dividend Income
--------------------------------

Net  interest  and  dividend  income  increased  to  $3,453,000  in  1997,  from
$2,636,000   in  1996.   The  increase  was  due  to  growth  in  the  Company's
interest-earning  assets,  partially offset by a lower net interest margin.  The
lower margin was a function of a lower yield on earning  assets,  an increase in
deposit  rates  and a  decline  in  the  ratio  of  interest-earning  assets  to
interest-bearing  liabilities.  The yield on earning assets declined by 12 basis
points  primarily  due to a lower  yield  earned  on loans  and an  increase  in
securities and short-term investments. The cost of funds increased slightly by 4
basis points due to higher rates paid on deposits.

The table that follows sets forth  information on the Company's  average assets,
liabilities and stockholders' equity; yields earned on interest-earning  assets;
and rates paid on interest-bearing liabilities for 1997 and 1996. The yields and
rates shown are based on a computation of interest  income/expense for each year
divided by average interest-earning  assets/interest-bearing  liabilities during
each year. Certain yields and rates shown are adjusted for related fee income or
expense.  Average balances are derived from daily balances.  Net interest margin
is computed by dividing net interest and dividend income by the average of total
interest-earning assets during each year.

                                      -17-
<PAGE>
<TABLE>
<CAPTION>

                                                              For the Year Ended December 31,
                                                              -------------------------------
                                                            1997                            1996
                                                ------------------------------- ----------------------------------
                                                Average   Interest       Yield/   Average   Interest      Yield/
($ in thousands)                                Balance   Inc./Exp.      Rate     Balance   Inc./Exp.     Rate      
------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>            <C>    <C>         <C>            <C> 
                              Assets
Interest-earning assets:
  Loans                                        $ 68,711   $  6,415       9.34%  $ 49,266    $  4,624      9.39%
  Securities                                     42,763      2,632       6.15     25,577       1,514      5.92
  Other interest-earning assets                   6,913        300       4.34      4,730         243      5.14
------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                   118,387   $  9,347       7.90%    79,573    $  6,381      8.02%
------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets                        6,619                            4,089
------------------------------------------------------------------------------------------------------------------
Total assets                                   $125,006                         $ 83,662
------------------------------------------------------------------------------------------------------------------

        Liabilities and Stockholders' Equity
Interest-bearing liabilities:
  Demand, money market and NOW deposits        $ 18,087   $    816       4.51%  $  8,432    $    310      3.68%
  Savings deposits                                9,128        446       4.89      1,470          62      4.22
  Time deposits                                  81,149      4,631       5.71     59,437       3,371      5.67
                                               -------------------------------------------------------------------
  Total deposit accounts                        108,364      5,893       5.44     69,339       3,743      5.40
  Federal funds purchased                            18          1       5.56         34           2      5.88
------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities              108,382   $  5,894       5.44%    69,373    $  3,745      5.40%
------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits                      2,325                            2,709
Noninterest-bearing liabilities                   3,088                            2,131
Stockholders' equity                             11,211                            9,449
------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity     $125,006                         $ 83,662
------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread                   $  3,453       2.46%              $  2,636      2.62%
------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin             $ 10,005                  2.92%  $ 10,200                  3.31%
------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
  to total interest-bearing liabilities           1.09x                                        1.15x
------------------------------------------------------------------------------------------------------------------
</TABLE>




The 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).

<TABLE>
<CAPTION>

                                               For the Year Ended December 31, 1997 vs. 1996
                                               ---------------------------------------------
                                               Increase (Decrease) Due To Change In:
                                               -------------------------------------
($ in thousands)                               Rate      Volume   Rate/Volume   Total
--------------------------------------------------------------------------------------
<S>                                          <C>        <C>        <C>        <C>    
Interest-earning assets:
  Loans                                      $   (25)   $ 1,826    $   (10)   $ 1,791
  Securities                                      59      1,020         39      1,118
  Other interest-earning assets                  (38)       112        (17)        57
--------------------------------------------------------------------------------------
Total interest-earning assets                     (4)   $ 2,958         12    $ 2,966
--------------------------------------------------------------------------------------
Interest-bearing liabilities:
  Demand, money market and NOW deposits           70    $   356         80    $   506
  Savings deposits                                10        323         51        384
  Time deposits                                   24      1,228          8      1,260
                                             -----------------------------------------
Total deposit accounts                           104      1,907        139      2,150
Federal funds purchased                           (2)        (2)         3         (1)
--------------------------------------------------------------------------------------
Total interest-bearing liabilities               102      1,905        142      2,149
--------------------------------------------------------------------------------------
Net change in interest and dividend income   $  (106)   $ 1,053    $  (130)   $   817
--------------------------------------------------------------------------------------
</TABLE>
                                      -18-
<PAGE>

Provision for Loan Loss Reserves
--------------------------------

The provision for loan loss reserves is based on management's ongoing assessment
of the adequacy of the allowance for loan loss reserves. The provision increased
from  $250,000 for the year ended  December  31, 1996,  to $352,000 for the year
ended December 31, 1997,  reflecting growth in the Company's loan portfolio.  At
December 31, 1997, there were no nonperforming or impaired loans.

Noninterest Income and Noninterest Expenses
-------------------------------------------

Total  noninterest  income increased  $30,000 to $136,000 in 1997, from $106,000
1996,  reflecting  increased fee income.  Total noninterest  expenses  increased
$355,000  to  $1,906,000  for the year ended  December  31,  1997,  compared  to
$1,551,000  in 1996.  The  increase  was  primarily  due to higher  salaries and
benefits and occupancy and equipment expense resulting from additional costs for
the Bank's new branches and overall growth of the Company.

Provision for Income Taxes
--------------------------

In 1997,  the  provision  for income taxes  amounted to  $487,000,  an effective
income tax rate of 36.6%,  as compared to $383,000 and 40.7%,  respectively,  in
1996. In 1996, a greater portion of the  consolidated  earnings was generated by
the Holding Company, which has a higher state income tax rate.

                              Financial Condition

Comparison of December 31, 1998 and December 31, 1997.

Overview
--------

Total assets  increased from  $150,755,000 at December 31, 1997, to $200,522,000
at December 31, 1998,  reflecting a higher level of securities held to maturity,
loans receivable and cash and cash equivalents. Total liabilities increased from
$133,135,000  at December  31,  1997,  to  $180,978,000  at December  31,  1998,
reflecting an increase in deposit liabilities and the borrowing of funds through
the sale of the  Debentures.  Stockholders'  equity  grew  from  $17,620,000  at
December 31, 1997, to $19,544,000  at year-end  1998,  reflecting an increase in
retained earnings and additional common stock outstanding.

The Company's balance sheet was comprised of the following:

<TABLE>
<CAPTION>

                                              At December 31, 1998      At December 31, 1997
                                              --------------------      --------------------
                                             Carrying      % of        Carrying      % of
($ in thousands)                               Value    Total Assets     Value     Total Assets
-----------------------------------------------------------------------------------------------
<S>                                          <C>            <C>        <C>            <C> 
Cash and cash equivalents                    $ 13,472       6.7%       $  9,176       6.1%
Securities held to maturity, net               82,338      41.1          58,821      39.0
Loans receivable, net                          96,074      47.9          75,652      50.2
All other assets                                8,638       4.3           7,106       4.7
-----------------------------------------------------------------------------------------------
Total assets                                 $200,522     100.0%       $150,755     100.0%
-----------------------------------------------------------------------------------------------
Deposits                                     $170,467      85.0%       $131,167      87.0%
Convertible debentures                          7,000       3.5           --      --
All other liabilities                           3,511       1.8           1,968       1.3
-----------------------------------------------------------------------------------------------
Total liabilities                             180,978      90.3         133,135      88.3
-----------------------------------------------------------------------------------------------
Stockholders' equity                           19,544       9.7          17,620      11.7
-----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity   $200,522     100.0%       $150,755     100.0%
-----------------------------------------------------------------------------------------------

</TABLE>
                                      -19-
<PAGE>

Securities
----------

The Company invests in securities after satisfying its liquidity  objectives and
lending commitments. The Company has historically only purchased securities that
are  issued by the U.S.  government  or one of its  agencies.  Accordingly,  the
Company's  investments  in  securities  carry  lower  yields,  but  also  have a
significantly lower credit risk than its loan portfolio. To manage interest rate
risk, the Company  normally  purchases  securities that have adjustable rates or
securities with fixed rates that have short- to intermediate-maturity terms.

Securities  for which the Company has the intent and ability to hold to maturity
are  classified  as held to maturity and carried at amortized  cost.  Securities
held  to  maturity  totaled  $82,338,000  at  December  31,  1998,  compared  to
$58,821,000  at  December  31,  1997.  The  increase   reflected   purchases  of
securities,  partially  offset by principal  repayments and calls. The estimated
fair value of the  held-to-maturity  portfolio was  $82,173,000  at December 31,
1998 and  $58,836,000 at December 31, 1997. At December 31, 1998, the securities
portfolio  consisted of  fixed-rate  debt  obligations  of the Federal Home Loan
Bank,  Federal Farm Credit Bank and Federal National Mortgage  Association.  The
securities  have  terms  that  allow the  issuer the right to call or prepay its
obligation without prepayment penalty.

From time to time,  the Bank may also  maintain a securities  available-for-sale
account to provide flexibility in the management of asset/liability  strategies.
During 1998 and 1997, there were no securities classified as available for sale.
The Company does not engage in trading activities.

The  investment  in the capital stock of the Federal  Reserve Bank (FRB),  which
pays a dividend,  is  required  in order to be a member of the  Federal  Reserve
Banking  System.  The amount of the investment was $233,000 at December 31, 1998
and 1997.

Loans Receivable
----------------

Loans  receivable,  before the  allowance for loan loss  reserves,  increased to
$97,736,000 at December 31, 1998, from  $76,825,000 at December 31, 1997, due to
new  originations  of commercial real estate and  multifamily  loans,  partially
offset by principal repayments on the loan portfolio. The portfolio consisted of
$28,944,000 of fixed-rate  loans and  $69,277,000 of  adjustable-rate  loans. At
December  31, 1998 and 1997,  the Company did not have any loans on a nonaccrual
status or classified as impaired.

Almost all of of the loans in the Company's loan portfolio are collateralized by
commercial real estate and multifamily properties.  As of December 31, 1998, 94%
of  the  loan  portfolio  was  concentrated  in  loans  collateralized  by  such
properties,  compared to 92% at  December  31,  1997.  Loan  concentrations  are
defined  as  amounts  loaned  to  a  number  of  borrowers  engaged  in  similar
activities, which would cause them to be similarly impacted by economic or other
conditions.

Credit risk,  which  represents  the  possibility  of the Company not recovering
amounts  due from its  borrowers,  is  significantly  related to local  economic
conditions as well as the Company's underwriting standards.  Economic conditions
affect the income  levels of borrowers  and the market  value of the  underlying
collateral.  In addition,  although commercial real estate and multifamily loans
typically bear higher  interest rates than 1-4 family  residential  loans,  they
entail  certain  risks not  normally  found in 1-4 family  residential  mortgage
lending.  Commercial  real estate and  multifamily  loans usually involve larger
loans to single borrowers. In addition, satisfactory payment experience on loans
secured  by  income-producing  properties  (such as office  buildings,  shopping
centers and rental and cooperative  apartment buildings) is largely dependent on
high  levels of  occupancy.  Thus,  these  loans  are more  subject  to  adverse
conditions in the real estate market and economy or specific conditions at or in
the vicinity of the property's location.

                                      -20-
<PAGE>


The  following  table sets  forth  information  concerning  the  Company's  loan
portfolio by type of loan:

<TABLE>
<CAPTION>

                                          At December 31, 1998              At December 31, 1997
                                          --------------------              --------------------
($ in thousands)                  # of loans     Amount   % of Total # of loans Amount    % of Total
----------------------------------------------------------------------------------------------------
<S>                                     <C>      <C>         <C>         <C>     <C>        <C>   
Commercial real estate loans             95    $ 68,828       70.1%      106   $ 64,270      83.2%
Residential multifamily loans            51      23,707       24.1        34      6,903       8.9
Residential 1-4 family loans             47       2,627        2.7        49      3,162       4.1
Construction loans                       --          --         --         1        158       0.2
Commercial loans                         49       2,875        2.9        49      2,641       3.4
Consumer loans                           17         184        0.2        13         92       0.2
----------------------------------------------------------------------------------------------------
Total gross loans receivable            259      98,221      100.0%      252     77,226     100.0%
----------------------------------------------------------------------------------------------------
Deferred loan fees                                 (485)                           (401)
Allowance for loan loss reserves                 (1,662)                         (1,173)
----------------------------------------------------------------------------------------------------
Loans receivable, net                          $ 96,074                        $ 75,652
----------------------------------------------------------------------------------------------------
</TABLE>


The following  table shows the  scheduled  contractual  principal  repayments by
period of the Company's loan portfolio:

                           At December 31,
                           ---------------
($ in thousands)           1998      1997
-------------------------------------------
Within one year          $15,674   $ 8,383
Over one to five years    69,416    49,195
Over five years           13,131    19,648
-------------------------------------------
                         $98,221   $77,226
-------------------------------------------


At December 31, 1998, $56,551,000 of loans with adjustable rates and $25,996,000
of loans with fixed rates were due after one year.

The following table sets forth the activity in the loan portfolio:


                                             For the Year Ended December 31,
                                             -------------------------------
($ in thousands)                                    1998        1997
--------------------------------------------------------------------------------
Loans receivable, net, at beginning of year      $ 75,652    $ 59,499
  Loans originated                                 33,222      23,844
  Principal repayments                            (12,237)     (7,281)
  Recoveries                                           10          10
  Increase in unearned loan fees                      (84)        (58)
                                                 -------------------------------
  Net loan activity                                96,563      76,014
  Increase in allowance for loan loss reserves       (489)       (362)
--------------------------------------------------------------------------------
Loans receivable, net, at end of year            $ 96,074    $ 75,652
--------------------------------------------------------------------------------


Nonaccrual Loans
----------------

Generally,  interest on loans is accrued and  credited to income  based upon the
principal  balance  outstanding.  The  Company's  policy is to  discontinue  the
accrual of interest  income and classify a loan as nonaccrual  when principal or
interest  is  past  due  90  days  or  more  and  the  loan  is  not  adequately
collateralized  and in the process of collection,  or when in the opinion of the
Company's  management,  principal  or  interest  is not  likely  to be  paid  in
accordance with the terms of the loan.  Consumer  installment  loans are charged
off after 90 days of delinquency  unless they are adequately  collateralized and
in the process of  collection.  Loans are not  returned to accrual  status until
principal and interest  payments are brought  current and future payments appear
reasonably certain.  Interest accrued and unpaid at the time a loan is placed on
nonaccrual  status is reversed and charged against interest  income.  Subsequent
payments  received on loans in nonaccrual  status are applied to the outstanding
principal.  During  1998 and  1997,  the  Company  did not  have any  loans on a
nonaccrual status. 

                                      -21-
<PAGE>

Allowance for Loan Loss Reserves
--------------------------------

The allowance for loan loss reserves is established through a provision for loan
loss reserves charged to operations. Loans are charged against the allowance for
loan loss  reserves when  management  believes  that the  collectability  of the
principal is unlikely.  Subsequent  recoveries are added to the  allowance.  The
adequacy of the allowance is evaluated monthly or more frequently when necessary
with  consideration  given to:  the  nature  and  volume of the loan  portfolio;
overall  portfolio  quality;  loan  concentrations;  specific  problem loans and
commitments  and  estimates of fair value  thereof;  historical  chargeoffs  and
recoveries; adverse situations which may affect the borrowers' ability to repay;
and management's  perception of the current and anticipated  economic conditions
in the Company's lending region.  Although  management believes it uses the best
information  available to make  determinations with respect to the allowance for
loan loss reserves,  future adjustments may be necessary if economic conditions,
or other factors, differ from those assumed in the determination of the level of
the allowance.

In addition,  SFAS No. 114, as amended by SFAS No. 118,  specifies the manner in
which the portion of the allowance  for loan loss  reserves  related to impaired
loans is computed.  A loan is normally deemed impaired when,  based upon current
information  and events,  it is probable  the Company  will be unable to collect
both full principal and interest due according to the  contractual  terms of the
loan  agreement.  Impairment  for larger  balance loans such as commercial  real
estate and  multifamily  loans are required to be measured based on: the present
value of expected future cash flows, discounted at the loan's effective interest
rate; or the observable market price of the loan; or the estimated fair value of
the loan's  collateral,  if payment of the  principal  and interest is dependent
upon the  collateral.  When the fair  value  of the  property  is less  than the
recorded  investment in the loan,  this  deficiency is recognized as a valuation
allowance  within the  overall  allowance  for loan loss  reserves  and a charge
through the provision for loan loss reserves.  The Company  normally charges off
any portion of the recorded  investment  in the loan that exceeds the fair value
of the  collateral.  The net carrying amount of an impaired loan does not at any
time exceed the recorded investment in the loan.

The  Company  considers  a variety of factors in  determining  whether a loan is
impaired,  including  (i) any notice from the borrower that the borrower will be
unable to repay all principal interest amounts  contractually due under the loan
agreement,  (ii) any delinquency in the principal and/or interest payments other
than minimum delays or shortfalls in payments, and (iii) other information known
by management  that would  indicate the full repayment of principal and interest
is not  probable.  In  evaluating  loans for  impairment,  management  generally
considers delinquencies of 60 days or less to be minimum delays, and accordingly
does not consider such  delinquent  loans to be impaired in the absence of other
indications. Impaired loans normally consist of loans on nonaccrual status.

Management evaluates all commercial real estate,  residential mortgage loans and
commercial  loans for impairment on a loan-by-loan  basis.  For smaller  balance
homogeneous loans, such as consumer loans, evaluations for impairment is done on
an  aggregate  basis.  The  Company  utilizes  its  own  historical   charge-off
experience  as well as the charge off  experience of its peer group and industry
statistics  to evaluate the adequacy of the allowance for loan loss reserves for
consumer loans. Lastly, the Company's  regulators,  as an integral part of their
examination  process,  periodically review the allowance for loan loss reserves.
Accordingly,  the  Company may be required  to take  certain  chargeoffs  and/or
recognize  additions  to  the  allowance  based  on  the  regulators'   judgment
concerning information available to them during their examination.

At December 31, 1998, the Company's allowance for loan loss reserves amounted to
$1,662,000,  compared to $1,173,000 at year-end 1997. The increase reflected the
growth in the loan portfolio and management's intent to maintain the reserves at
a level it believes to be  adequate.  During 1998 and 1997,  the Company did not
have any loans on a nonaccrual status or classified as impaired. At December 31,
1998 and 1997, the allowance for loan loss reserves was predominately  allocated
to commercial real estate and multifamily loans.

                                      -22-
<PAGE>

The following table sets forth certain information with respect to the Company's
allowance for loan loss reserves:


                                                 For the Year Ended December 31,
                                                 -------------------------------
($ in thousands)                                           1998            1997
--------------------------------------------------------------------------------
Allowance at beginning of year                          $ 1,173         $   811
Provision charged to operations                             479             352
Recoveries                                                   10              10
--------------------------------------------------------------------------------
Allowance at end of year                                $ 1,662         $ 1,173
--------------------------------------------------------------------------------
Ratio of allowance to total loans                          1.70%           1.53%
Total loans, net of deferred fees                       $97,736         $76,825
Average loans during the year                           $90,470         $68,711
--------------------------------------------------------------------------------


Foreclosed Real Estate
----------------------

Real estate  acquired by the Company as a result of  foreclosure or deed in lieu
of foreclosure is classified as foreclosed  real estate.  Foreclosed real estate
is recorded  at the lower of cost or fair value less  estimated  selling  costs.
This estimated  loss, if any, is charged to the allowance for loan loss reserves
at the  time the loan is  transferred.  An  additional  valuation  allowance  is
recorded at the time management believes that further deterioration in value has
occurred subsequent to the transfer of the loan.

During 1998 and 1997, the Company did not have any foreclosed real estate.

All Other Assets
----------------

All other assets  increased to $8,638,000 at December 31, 1998,  from $7,106,000
at December 31,  1997.  The  increase  was almost all due to  unamortized  costs
related to the sale of the Debentures ($522,000), start-up costs associated with
organizing  the new  nationally-chartered  bank  ($309,000),  and  increases  in
accrued interest receivable ($473,000) and deferred tax benefits ($94,000).

In April 1998, the AICPA issued Statement of Position (SOP) 98-5,  "Reporting on
the Costs of Start-Up  Activities,"  which is effective for the  Company's  1999
financial statements. The SOP requires that all start-up costs (except for those
that are capitalizable under other generally accepted accounting  principles) be
expensed as incurred. Previously,  start-up costs were generally capitalized and
amortized over a period of time. Upon adoption of this statement,  approximately
$160,000 of start-up  costs already  incurred in organizing the new bank will be
expensed in the first quarter of 1999. Additional expenses also will be incurred
in the first quarter in connection with organizing Intervest National Bank.

Deposits
--------

Deposit  liabilities  increased  to  $170,467,000  at December  31,  1998,  from
$131,167,000  at December 31, 1997. The increase was due to net deposit  inflows
and growth in deposit  accounts.  At December  31, 1998,  time deposit  accounts
totaled  $99,033,000  and demand  deposits  and  savings and  checking  accounts
aggregated   $71,434,000.   This  compared  to  deposits  of   $93,378,000   and
$37,789,000,  respectively,  at December 31, 1997. Time deposits represented 58%
of total deposits at December 31, 1998, compared to 71% at year-end 1997.

The  Bank  does not  have a  concentration  of  deposits  from  any one  source.
Management  believes  that  substantially  all  of  the  Bank's  depositors  are
residents  in its  primary  market  area.  The  Bank  does not  accept  brokered
deposits.

                                      -23-
<PAGE>
<TABLE>
<CAPTION>

The following table shows the distribution of deposit accounts by type:

                                         At December 31, 1998  At December 31, 1997
                                         --------------------  --------------------
($ in thousands)                         Amount   %  of Total  Amount    %  of Total
------------------------------------------------------------------------------------
<S>                                     <C>           <C>     <C>           <C>   
Demand deposits                         $  3,027        1.8%  $  3,490        2.7%
NOW deposits                               7,955        4.7      4,290        3.3
Money market deposits                     33,629       19.7     17,180       13.1
Savings deposits                          26,823       15.7     12,829        9.7
------------------------------------------------------------------------------------
                                          71,434       41.9     37,789       28.8
------------------------------------------------------------------------------------
Certificates of deposit (1):
4.00% to 4.99%                            13,968        8.2         30     --
5.00% to 5.99%                            62,472       36.6     69,855       53.3
6.00% to 6.99%                            16,824        9.9     16,882       12.9
7.00% to 7.99%                             5,769        3.4      6,611        5.0
------------------------------------------------------------------------------------
                                          99,033       58.1     93,378       71.2
------------------------------------------------------------------------------------
Total deposit accounts                  $170,467      100.0%  $131,167      100.0%
------------------------------------------------------------------------------------


         (1)      Includes  individual  retirement  accounts totaling $7,986,000
                  and  $7,065,000  at December 31, 1998 and 1997,  respectively,
                  all of which are in the form of certificates of deposit.

</TABLE>

The following table presents by various  interest rate categories the amounts of
certificates  of deposit at December 31, 1998 and 1997,  which mature during the
periods indicated:


                                   Year Ending December 31,
                                   ------------------------
                                                               2003 &
($ in thousands)         1999      2000      2001      2002  thereafter   Total
--------------------------------------------------------------------------------
At December 31, 1998:
4.00% to 4.99%         $11,525   $ 2,130   $   109   $    43   $   161   $13,968
5.00% to 5.99%          40,912    10,358     2,597     3,427     5,178    62,472
6.00% to 6.99%             795       905     7,347     6,996       781    16,824
7.00% to 7.99%           1,898     3,659       100       110         2     5,769
--------------------------------------------------------------------------------
                       $55,130   $17,052   $10,153   $10,576   $ 6,122   $99,033
--------------------------------------------------------------------------------



                                   Year Ending December 31,
                                   ------------------------
                                                                2002 &
($ in thousands)          1998      1999     2000      2001  thereafter  Total
--------------------------------------------------------------------------------
At December 31, 1997:
4.00% to 4.99%         $    30   $  --     $  --     $  --     $  --     $    30
5.00% to 5.99%          46,513    13,955     4,149     1,873     3,365    69,855
6.00% to 6.99%             349       791       656     7,389     7,697    16,882
7.00% to 7.99%              62     1,808     4,641       100      --       6,611
--------------------------------------------------------------------------------
                       $46,954   $16,554   $ 9,446   $ 9,362   $11,062   $93,378
--------------------------------------------------------------------------------


The  following  table  shows  the  maturities  of  certificates  of  deposit  in
denominations of $100,000 or more:


                                                               At December 31,
                                                               ---------------
($ in thousands)                                             1998           1997
--------------------------------------------------------------------------------
Due within three months or less                           $ 1,800        $ 1,554
Due over three months to six months                         1,757          1,149
Due over six months to one year                             3,796          1,787
Due over one year                                           3,609          5,016
--------------------------------------------------------------------------------
                                                          $10,962        $ 9,506
--------------------------------------------------------------------------------

                                      -24-
<PAGE>


The following table shows the net deposit flows for the Bank:


                                                 For the Year Ended December 31,
                                                 -------------------------------
($ in thousands)                                      1998          1997
--------------------------------------------------------------------------------
Net increase before interest credited                 $31,323       $32,164
Net interest credited                                   7,977         5,556
--------------------------------------------------------------------------------
Net deposit increase                                  $39,300       $37,720
--------------------------------------------------------------------------------


Convertible Debentures
----------------------

In June 1998, the Holding  Company sold  $7,000,000 of Convertible  Subordinated
Debentures (the "Debentures") in a public offering.  The proceeds from the sale,
net  of  underwriting  discounts,   commissions  and  other  fees,  amounted  to
approximately $6,500,000. The proceeds are part of the Holding Company's working
capital.

The  Debentures  are due July 1, 2008 and are  convertible  at the option of the
holders at any time prior to April 1, 2008,  unless  previously  redeemed by the
Holding  Company,  into  shares of Class A common  stock at  various  conversion
prices.  The Holding  Company also has the option at any time to call all or any
part of the  Debentures  for  payment  and  redeem the same at any time prior to
maturity thereof. Interest on the Debentures accrues and compounds each calendar
quarter  at  8%.  All  accrued  interest  is  payable  at  maturity  whether  by
acceleration,  redemption or otherwise.  Any debenture  holder may, on or before
July 1 of each  year  commencing  July 1,  2003,  elect to be paid  all  accrued
interest and to thereafter receive payments of interest quarterly. See note 7 to
the consolidated  financial statements for a discussion of conversion prices and
redemption premiums.

Other Borrowed Funds
--------------------

The Bank, from time to time,  obtains funds through Federal funds purchases when
such funds are available at attractive rates. There was an insignificant  amount
of  borrowings  during 1998 and 1997 from this source.  At December 31, 1998 and
1997, there were no outstanding borrowings.

Stockholders' Equity
--------------------

Stockholders'  equity  increased  to  $19,544,000  at December  31,  1998,  from
$17,620,000 at year-end 1997. The increase was almost all due to net earnings of
$1,435,000  and $446,000 of proceeds from the issuance of 60,100 shares of Class
A common stock upon the exercise of stock warrants.

                                      -25-
<PAGE>

                           Asset/Liability Management

The Company's  primary objective in managing  interest-rate  risk is to minimize
the adverse  impact of changes in interest  rates on the  Company's net interest
income and capital, while adjusting the Company's  asset/liability  structure to
maximize the net yield on that  structure.  The Company relies  primarily on its
asset-liability  strategy  to control  interest  rate  risk.  This  strategy  is
overseen in part  through the  direction  of the Asset and  Liability  Committee
("ALCO") of the Board of  Directors,  which  establishes  policies  and monitors
results to control interest rate sensitivity.

As a part of the Company's interest rate risk management  policy,  ALCO examines
the  extent  to  which  the  Company's  assets  and  liabilities  are  "interest
rate-sensitive"  and monitors the Company's  interest rate sensitivity "gap." An
asset or liability is normally  considered to be interest  rate-sensitive  if it
will reprice or mature  within one year or less.  The interest  rate-sensitivity
gap is the  difference  between  interest-earning  assets  and  interest-bearing
liabilities  scheduled to mature or reprice  within such time  period.  A gap is
considered  positive when the amount of interest  rate-sensitive  assets exceeds
the  amount  of  interest  rate-sensitive  liabilities.  Conversely,  a  gap  is
considered negative when the opposite is true.

During a period of rising interest rates, a negative gap would tend to adversely
affect net  interest  income,  while a  positive  gap would tend to result in an
increase in net interest  income.  During a period of falling  interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive  gap  would  tend to  adversely  affect  net  interest  income.  If the
repricing of the  Company's  assets and  liabilities  were equally  flexible and
moved concurrently,  the impact of any increase or decrease in interest rates on
net interest income would be minimal.

A simple interest rate "gap" analysis by itself may not be an accurate indicator
of how net interest  income will be affected by changes in interest rates due to
the following reasons.  Income associated with interest-earning assets and costs
associated with  interest-bearing  liabilities may not be affected  uniformly by
changes in interest rates. In addition, the magnitude and duration of changes in
interest  rates  may have a  significant  impact  on net  interest  income.  For
example,  although certain assets and liabilities may have similar maturities or
periods of repricing,  they may react in different  degrees to changes in market
interest  rates.  Interest  rates on  certain  types of assets  and  liabilities
fluctuate in advance of changes in general market interest rates, while interest
rates on other  types may lag  behind  changes  in market  rates.  In  addition,
certain  assets,  such as  adjustable-rate  mortgage  loans,  may have  features
generally  referred to as "interest  rate caps," which limit changes in interest
rates on a  short-term  basis and over the life of the asset.  In the event of a
change in interest rates,  asset prepayment and early deposit  withdrawal levels
also  could  deviate   significantly  from  those  assumed  in  calculating  the
interest-rate gap. The ability of many borrowers to service their debts also may
decrease  in the  event  of an  interest-rate  increase,  and  the  behavior  of
depositors may be different than those assumed in the gap analysis.

For purposes of creating the gap  analysis on page 27,  deposits  with no stated
maturities are treated as readily  accessible  accounts.  Given this assumption,
the  Company's  negative  one-year  interest rate  sensitivity  gap was 36.7% at
December  31, 1998 and 28.2% at December 31, 1997.  However,  if those  deposits
were treated differently in the gap analysis, then the interest-rate sensitivity
gap would be lower.  The behavior of core depositors may not necessarily  result
in the  immediate  withdrawal of funds in the event deposit rates offered by the
Company 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  (within the one year buckets),  the Company's negative
one-year gap would have been 11.1% at year-end 1998 and year-end 1997.

                                      -26-
<PAGE>

The  Company  also  maintains  a  "floor,"  or  minimum  rate,  on  many  of its
floating-rate  loans.  The contractual  "floor" amount for each specific loan is
determined in relation to the prevailing market rates on the date of origination
and  management  retains a great  deal of  flexibility  in  connection  with the
establishment   of   floors   for   particular   loans.    Notwithstanding   the
aforementioned,  there  can be no  assurances  that  a  sudden  and  substantial
increase in interest rates may not adversely impact the Company's  earnings,  to
the extent that the interest rates borne by assets and liabilities do not change
at the same speed, to the same extent, or on the same basis.

The  following   table   summarizes   information   relating  to  the  Company's
interest-earning  assets and  interest-bearing  liabilities  as of December  31,
1998, that are scheduled to mature or reprice within the periods shown.

<TABLE>
<CAPTION>

                                          0-3        4-12     Over 1-5     Over 5
                                          ---        ----     --------     ------
($ in thousands)                        Months      Months      Years       Years       Total
----------------------------------------------------------------------------------------------
<S>   <C>                             <C>         <C>         <C>         <C>         <C>     
Loans (1)                             $ 21,846    $ 15,011    $ 60,035    $  1,329    $ 98,221
Securities (2)                             500       1,515      68,099      12,224      82,338
Federal funds sold                       6,473        --          --          --         6,473
Short-term investments                   4,123        --          --          --         4,123
Federal reserve bank stock                 233        --          --          --           233
Interest-bearing deposits                  199        --          --          --           199
----------------------------------------------------------------------------------------------
Total rate-sensitive assets           $ 33,374    $ 16,526    $128,134    $ 13,553    $191,587
----------------------------------------------------------------------------------------------

Deposit accounts (3):
  Money market deposits               $ 33,629    $   --      $   --      $   --      $ 33,629
  NOW deposits                           7,955        --          --          --         7,955
  Savings deposits                      26,823        --          --          --        26,823
  Time deposits                         16,555      38,575      42,903       1,000      99,033
                                      --------------------------------------------------------
  Total deposits                        84,962      38,575      42,903       1,000     167,440
Convertible subordinated debentures       --          --          --         7,000       7,000
Accrued interest on debentures            --          --          --           299         299
----------------------------------------------------------------------------------------------
Total rate-sensitive liabilities      $ 84,962    $ 38,575    $ 42,903    $  8,299    $174,739
----------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------
GAP (repricing differences)           $(51,588)   $(22,049)   $ 85,231    $  5,254    $ 16,848
----------------------------------------------------------------------------------------------
Cumulative GAP                        $(51,588)   $(73,637)   $ 11,594    $ 16,848    $ 16,848
----------------------------------------------------------------------------------------------
Cumulative GAP to total assets          -25.7%      -36.7%         5.8%        8.4%        8.4%
----------------------------------------------------------------------------------------------
</TABLE>

        Assumptions used in preparing the table above:

        (1)  Adjustable-rate  loans are  included in the period in which
        their interest rates are next scheduled to adjust rather than in
        the  period  in which  the loans  mature.  Fixed-rate  loans are
        scheduled, including repayments,  according to their contractual
        maturities;  (2)  securities  are  scheduled  according to their
        contractual   maturity   dates,   which   does  not  take   into
        consideration  the  effects  of  possible  prepayments  that may
        result  from the  issuer's  right to call a security  before its
        contractual  maturity  date;  (3) money market,  NOW and savings
        deposits are regarded as ready accessible withdrawable accounts;
        and all other time deposits are scheduled through their maturity
        dates.

                         Liquidity and Capital Resources

The Company manages its liquidity position on a daily basis to assure that funds
are  available to meet  operations,  loan and  investment  funding  commitments,
deposit  withdrawals and the repayment of borrowed funds. The Company's  primary
sources of funds consist of: retail deposits  obtained through the Bank's branch
offices; amortization, satisfactions and repayments of loans; the maturities and
calls of securities;  and cash provided by operating activities.  For additional
information  about the cash flows from the  Company's  operating,  investing and
financing activities,  see the consolidated statements of cash flows included in
the financial statements.

At  December  31,  1998,  the  Company's  total  commitment  to lend  aggregated
$3,175,000.  The Company also had approximately $600,000 in signed contracts for
the  purchase  of  furniture,  equipment  and other  leasehold  improvements  in
connection  with the formation of the new national bank.  Based on its cash flow
projections,  the  Company  believes  that it can  fund  all of its  outstanding
commitments and future capital  expenditures from the aforementioned  sources of
funds. 

                                      -27-
<PAGE>

The Bank has  agreements  with  correspondent  banks whereby it may borrow up to
$6,000,000 on an unsecured basis.  There were no significant  borrowings  during
1998 and 1997 from  these  sources.  In June  1998,  the  Holding  Company  sold
convertible   subordinated   debentures   for  net  proceeds  of   approximately
$6,500,000. These funds are part of the Holding Company's working capital

The Bank is subject to various regulatory capital  requirements  administered by
the Federal banking  agencies.  The FDIC  Improvement  Act of 1991,  among other
matters,  established five capital  categories  ranging from well capitalized to
critically undercapitalized. Such classifications are used by the FDIC and other
bank  regulatory  agencies  to  determine  various  matters,   including  prompt
corrective  action and each  institution's  semi-annual  FDIC deposit  insurance
premium assessments.  The capital categories involve quantitative  measures of a
bank's assets,  liabilities,  and certain  off-balance-sheet items as calculated
under  regulatory   accounting   practices.   The  Bank's  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 initiate  certain  mandatory and possibly  additional
discretionary actions by the regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements.

The Bank is  required to  maintain,  for  regulatory  compliance  and  reporting
purposes,  regulatory  defined minimum  leverage and Tier 1 and total risk-based
capital  ratio levels of at least 4%, 4% and 8%,  respectively.  At December 31,
1998,  management believes that the Bank met its capital adequacy  requirements.
The Bank is a well-capitalized institution as defined in the regulations,  which
requires minimum Tier 1 leverage and Tier 1 and total  risk-based  ratios of 5%,
6% and  10%,  respectively.  Management  believes  that  there  are  no  current
conditions or events  outstanding which would change the Bank's designation as a
well-capitalized institution.

<TABLE>
<CAPTION>

Information  regarding  the Bank's  regulatory  capital and related  ratios,  is
summarized below:


                                                                 At December 31
                                                                 --------------
($ in thousands)                                               1998          1997
-----------------------------------------------------------------------------------
<S>                                                        <C>           <C>      
Tier 1 Capital:
   Common stockholders' equity                             $  11,104     $   9,420
   Less disallowed portion of deferred tax asset                (412)         (295)
-----------------------------------------------------------------------------------
Total Tier 1 capital                                          10,692         9,125
-----------------------------------------------------------------------------------
Tier 2 Capital:
   Allowable portion of allowance for loan loss reserves       1,354         1,118
-----------------------------------------------------------------------------------
Total risk-based capital                                   $  12,046     $  10,243
-----------------------------------------------------------------------------------
Risk-weighted assets                                       $ 108,050     $  89,414
Average assets for regulatory purposes                     $ 177,148     $ 139,777
Tier 1 capital to average regulatory assets                     6.04%         6.53%
Tier 1 capital to risk-weighted assets                          9.90%        10.21%
Total capital to risk-weighted assets                          11.15%        11.46%
-----------------------------------------------------------------------------------
</TABLE>


                        Recent Accounting Pronouncements

Refer to note 1 to the  notes to the  consolidated  financial  Statements  for a
discussion  of  this  topic  as well  as  page  23 for a  discussion  of the new
accounting principle related to start-up costs.


                     Impact of Inflation and Changing Prices

The financial  statements  and related  financial  data  concerning  the Company
presented  herein  have been  prepared in  accordance  with  generally  accepted
accounting  principles,  which require the measurement of financial position and
operating results in terms of historical dollars without  considering changes in
the relative  purchasing power of money over time due to inflation.  The primary
impact of inflation on the  operations  of the Company is reflected in increased
operating costs. Unlike most industrial  companies,  virtually all of the assets
and liabilities of a financial  institution are monetary in nature. As a result,
changes in interest rates have a more significant impact on the performance of a
financial  institution  than do the  effects of changes in the  general  rate of
inflation and changes in prices.  Interest rates do not necessarily  move in the
same direction or in the same magnitude as the prices of goods and services.

                                      -28-
<PAGE>

                                   Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's  market risk arises  primarily from interest rate risk inherent in
its lending and deposit  taking  activities.  To that end,  management  actively
monitors and manages its interest rate risk exposure.  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, 1998 and 1997, which reflect changes in
market  prices and rates,  can be found in Note 19 of the notes to  consolidated
financial statements.

The Company's  primary objective in managing  interest-rate  risk is to minimize
the adverse  impact of changes in interest  rates on the  Company's net interest
income and capital, while adjusting the Company's  asset/liability  structure to
maximize the net yield on that  structure.  The Company relies  primarily on its
asset-liability  strategy  to control  interest  rate  risk.  This  strategy  is
overseen in part through the direction of the Asset and  Liability  Committee of
the Board of  Directors,  which  establishes  policies and  monitors  results to
control interest rate sensitivity. For a further discussion, see page 26.

                              Year 2000 Compliance

The  Company's  operations  are, by their  nature,  dependent  upon its internal
computer systems as well as those of other third-party companies.  The Year 2000
issue is the result of computer  programs,  which were written  using two digits
rather  than four  digits to  define  the  applicable  year.  As a result,  such
programs  may  recognize a date using "00" as the year 1900  instead of the year
2000, which could result in system failures or miscalculations.

The Company is aware of the many areas affected by the Year 2000 computer issue,
as addressed by the Federal Financial  Institutions  Examination  Council in its
interagency statement, which provided an outline for institutions to effectively
manage the Year 2000 challenges. The Board of Directors has approved a Year 2000
plan, which includes multiple phases, tasks to be completed and target dates for
completion. Issues addressed therein include awareness, assessment,  renovation,
validation, implementation, testing and contingency planning.

The Company has formed a Year 2000  committee that is charged with the oversight
of completing the Year 2000 project on a timely basis. The Company has completed
its  awareness,  assessment and  renovation  phases and is actively  involved in
validating and  implementing  its plan. At the present time, the Company is into
its  testing  phase  and  anticipates  that  this  phase  will be  substantially
completed by March 31, 1999. The Company has determined that the costs of making
modifications  to  correct  any Year  2000  issues  will not  materially  affect
reported operating results.

The Company  recognizes  the  importance of  determining  that its borrowers are
facing the Year 2000 problem in a timely  manner to avoid  deterioration  of the
loan portfolio  solely due to this issue. All material  relationships  have been
identified and questionnaires  have been completed to assess the inherent risks.
Deposit customers have received statement stuffers and informational material in
this regard.  The Company plans to work on a one-on-one  basis with any borrower
who has been identified as having high Year 2000 risk exposure.

                                      -29-
<PAGE>

Although  management  believes  that the Company will not incur  material  costs
associated  with  the Year  2000  issue,  there  can be no  assurances  that all
hardware  and software  that the Company  will use will be Year 2000  compliant.
Management cannot predict the amount of financial  difficulties it may incur due
to customers and vendors inability to perform according to their agreements with
the  Company or the effects  that other  third  parties may cause as a result of
this issue.  Therefore,  there can be no assurance  that the failure or delay of
others to address the Year 2000 issue or that the costs involved in such process
will not have a material  adverse  effect on the Company's  business,  financial
condition, and results of operations.

The  Company's  contingency  plans  relative  to Year 2000  issues have not been
finalized.  These plans are evolving as the testing of systems proceeds.  During
the testing  phase,  management  will  determine if it is necessary to develop a
"worst case scenario"  contingency  plan.  Based on testing results to date, the
Company's  mission  critical  systems have been deemed to be Year 2000 compliant
and, therefore,  a contingency plan has not been developed with respect to those
systems.  With regards to non-mission  critical internal systems,  the Company's
contingency plans are to replace those systems that test as being  noncompliant.
Alternatively,  some  systems  could be handled  manually  on an interim  basis.
Should outside service providers not be able to provide compliant  systems,  the
Company will terminate those  relationships  and transfer to Year 2000 compliant
vendors.  It is  anticipated  that the  Company's  deposit  customers  will have
increased demands for cash in the latter part of 1999 and  correspondingly,  the
Company will maintain its liquidity levels to meet any increased demand.

Item 7.  Financial Statements and Supplementary Data

                              Financial Statements

The  following   consolidated   financial  statements  of  Intervest  Bancshares
Corporation and Subsidiary are included herein:

Independent Auditors' Report  (page 32)
Consolidated Balance Sheets at December 31, 1998 and 1997  (page 33)
Consolidated  Statements  of Earnings for the Years Ended  December 31, 1998 and
     1997 (page 34)
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
     1998 and 1997 (page 35)
Consolidated  Statements of Cash Flows for the Years Ended December 31, 1998 and
     1997 (page 36)
Notes to the Consolidated Financial Statements (pages 37 to 56)

                               Supplementary Data

Securities
----------

The following table sets forth, by maturity distribution, information pertaining
to securities held to maturity:


<TABLE>
<CAPTION>

                                               After One Year to  After Five Years to
                                               -----------------  -------------------
                           One Year or less       Five Years        Ten Years           Total
                           ----------------       ----------        ---------           -----
($ in thousands)           Carrying     Avg.    Carrying   Avg.  Carrying      Avg.    Carrying    Avg.
                             Value     Yield      Value   Yield    Value      Yield     Value     Yield
                             -----     -----      -----   -----    -----      -----     -----     -----
<S>                        <C>          <C>       <C>     <C>    <C>          <C>      <C>         <C>  
At December 31, 1998:
--------------------------------------------------------------------------------------------------------
U.S. Treasury securities   $ 2,015      6.03%     $  --     --%  $   --        -- %    $ 2,015     6.03%
U.S. Government
   agencies securities        --         --        61,060 5.80    19,263      6.18      80,323     5.89
--------------------------------------------------------------------------------------------------------
Total                      $ 2,015      6.03%     $61,060 5.80%  $19,263      6.18%    $82,338     5.89%
--------------------------------------------------------------------------------------------------------

At December 31, 1997:
U.S. Treasury securities   $ 1,996      6.10%     $ 2,031 6.03%  $  --         -- %    $ 4,027     6.06%
U.S. Government
   agencies securities      11,173      6.08       30,859 6.23    12,762      6.46      54,794     6.28
--------------------------------------------------------------------------------------------------------
Total                      $13,169      6.08%     $32,890 6.21%  $12,762      6.46%    $58,821     6.24%
--------------------------------------------------------------------------------------------------------

At December 31, 1996:
U.S. Treasury securities   $   500      6.04%     $   999 6.17%  $  --         -- %    $ 1,499     6.12%
U.S. Government
   agencies securities       8,142      5.97       22,856 6.16     2,010      6.33      33,008     6.12
--------------------------------------------------------------------------------------------------------
Total                      $ 8,642      5.97%     $23,855 6.16%  $ 2,010      6.33%    $34,507     6.12%
--------------------------------------------------------------------------------------------------------
</TABLE>

                                      -30-
<PAGE>

Loans and Allowance for Loan Loss Reserves
------------------------------------------

The following  table sets forth  information  with respect to the composition of
loans receivable at December 31:

<TABLE>
<CAPTION>

                                                 1998        1997       1996        1995        1994
                                                 ----        ----       ----        ----        ----
                                               Carrying    Carrying   Carrying    Carrying     Carrying 
($ in thousands)                                 Value       Value      Value       Value       Value
--------------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>         <C>         <C>     
Commercial real estate and multifamily loans   $ 92,535    $ 71,173    $ 54,151    $ 29,384    $ 14,599
Residential 1-4 family loans                      2,627       3,162       2,784       3,046       2,966
Construction loans                                 --           158          47         335        --
Commercial loans                                  2,875       2,641       3,514       4,391       5,053
Consumer loans                                      184          92         157         115         196
--------------------------------------------------------------------------------------------------------
Total gross loans receivable                     98,221      77,226      60,653      37,271      22,814
--------------------------------------------------------------------------------------------------------
Deferred loan fees and unamortized discounts       (485)       (401)       (343)       (213)        (60)
Allowance for loan loss reserves                 (1,662)     (1,173)       (811)       (593)       (369)
--------------------------------------------------------------------------------------------------------
Loans receivable, net                          $ 96,074    $ 75,652    $ 59,499    $ 36,465    $ 22,385
--------------------------------------------------------------------------------------------------------
Loans included above that were
   on a nonaccrual status at year end          $   --      $   --      $   --      $   --      $    101
--------------------------------------------------------------------------------------------------------
</TABLE>


The  following  table sets forth  information  with respect to the allowance for
loan loss reserves at December 31:
<TABLE>
<CAPTION>


($ in thousands)                                    1998        1997        1996         1995          1994
-------------------------------------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>          <C>          <C>     
Allowance at beginning of year                    $  1,173    $    811    $    593     $    369     $    251
Provision charged to operations                        479         352         250          233          124
Chargeoffs                                            --          --           (65)         (30)         (16)
Recoveries                                              10          10          33           21           10
-------------------------------------------------------------------------------------------------------------
Allowance at end of year                          $  1,662    $  1,173    $    811     $    593     $    369
-------------------------------------------------------------------------------------------------------------
Total loans, net of deferred fees and discounts   $ 97,736    $ 76,825    $ 60,310     $ 37,058     $ 22,754
Average loans outstanding for the year            $ 90,470    $ 68,711    $ 49,266     $ 28,052     $ 19,324
Net chargeoffs (recoveries) to average loans
    outstanding during the year                         -%          -%        0.06%        0.03%        0.03%
Ratio of allowance to net loans receivable            1.70%       1.53%       1.34%        1.60%        1.62%
-------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -31-
<PAGE>



                          Independent Auditors' Report

The Board of Directors
Intervest Bancshares Corporation
New York, New York:

We have  audited  the  accompanying  consolidated  balance  sheets of  Intervest
Bancshares  Corporation  and Subsidiary (the "Company") at December 31, 1998 and
1997,  and  the  related  consolidated   statements  of  earnings,   changes  in
stockholders'   equity,   and  cash  flows  for  the  years  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the consolidated  financial statements referred to above fairly
present,  in all material  respects,  the  financial  position of the Company at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended,  in  conformity  with  generally  accepted  accounting
principles.


HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 15, 1999

                                      -32-
<PAGE>

<TABLE>
<CAPTION>

                Intervest Bancshares Corporation and Subsidiary

                          Consolidated Balance Sheets

                                                                                  December 31,  December 31,
($ in thousands, except par value)                                                      1998        1997
-------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>          <C>       
ASSETS
Cash and due from banks                                                            $    2,876   $    1,738
Federal funds sold                                                                      6,473          162
Short-term investments                                                                  4,123        7,276
                                                                                   -----------------------
    Total cash and cash equivalents                                                    13,472        9,176
Interest-bearing deposits with banks                                                      199           99
Securities held to maturity, net (estimated fair value of
     $82,173 and $58,836, respectively)                                                82,338       58,821
Restricted security, Federal reserve bank stock, at cost                                  233          233
Loans receivable (net of allowance for loan loss reserves of
     $1,662 and $1,173, respectively)                                                  96,074       75,652
Accrued interest receivable                                                             1,800        1,327
Premises and equipment, net                                                             4,917        4,877
Deferred income tax asset                                                                 579          485
Other assets                                                                              910           85
-------------------------------------------------------------------------------------------------------------
Total assets                                                                       $  200,522   $  150,755
-------------------------------------------------------------------------------------------------------------

LIABILITIES
Deposits:
  Demand deposits                                                                  $    3,027   $    3,490
  Savings and NOW deposits                                                             34,778       17,119
  Money-market deposits                                                                33,629       17,180
  Time deposits                                                                        99,033       93,378
                                                                                   -----------------------
Total deposits                                                                        170,467      131,167
Convertible debentures                                                                  7,000         --
Accrued interest on convertible debentures                                                299         --
Mortgage escrow funds                                                                     870          590
Official checks outstanding                                                             1,572          719
Other liabilities                                                                         747          638
-------------------------------------------------------------------------------------------------------------
Total liabilities                                                                     180,955      133,114
-------------------------------------------------------------------------------------------------------------
Minority interest                                                                          23           21

Commitments and contingencies (notes 5, 16, 18 and 22)

STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued)                                 --           --
Class A common stock ($1.00 par value,  7,500,000 shares  authorized, 2,184,515
      and 2,124,415 shares issued and outstanding, respectively)                        2,184        2,124
Class B common stock ($1.00 par value, 700,000 shares authorized, 300,000 issued
      and outstanding)                                                                    300          300
Additional paid-in-capital, common                                                     13,789       13,360
Retained earnings                                                                       3,271        1,836
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                             19,544       17,620
-------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest and stockholders' equity                      $  200,522   $  150,755
-------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.
                                      -33-
<PAGE>
<TABLE>
<CAPTION>

                Intervest Bancshares Corporation and Subsidiary
                      Consolidated Statements of Earnings

                                                                          For the Year Ended
                                                                             December 31,
                                                                             ------------
($ in thousands, except per share data)                                     1998      1997
---------------------------------------------------------------------------------------------
<S>                                                                       <C>       <C>    
INTEREST AND DIVIDEND INCOME
Loans receivable                                                          $ 8,278   $ 6,415
Securities                                                                  4,224     2,632
Other interest-earning assets                                                 432       300
---------------------------------------------------------------------------------------------
Total interest and dividend income                                         12,934     9,347
---------------------------------------------------------------------------------------------

INTEREST EXPENSE
Deposits                                                                    7,977     5,893
Convertible debentures and other borrowed funds                               320         1
---------------------------------------------------------------------------------------------
Total interest expense                                                      8,297     5,894
---------------------------------------------------------------------------------------------

Net interest and dividend income                                            4,637     3,453

Provision for loan loss reserves                                              479       352

---------------------------------------------------------------------------------------------
Net interest and dividend income after provision for loan loss reserves     4,158     3,101
---------------------------------------------------------------------------------------------

NONINTEREST INCOME

Customer service fees                                                         139        92
Income from mortgage activities                                               195        32
All other                                                                      15        12
---------------------------------------------------------------------------------------------
Total noninterest income                                                      349       136
---------------------------------------------------------------------------------------------

NONINTEREST EXPENSES
Salaries and employee benefits                                              1,056       907
Occupancy and equipment, net                                                  467       457
Advertising and promotion                                                      31        41
Professional fees and services                                                225       149
Stationery, printing and supplies                                              98        83
All other                                                                     254       267
Minority interest in subsidiary                                                 2         2
---------------------------------------------------------------------------------------------
Total noninterest expenses                                                  2,133     1,906
---------------------------------------------------------------------------------------------

Earnings before income taxes                                                2,374     1,331

Income taxes                                                                  939       487

---------------------------------------------------------------------------------------------
Net earnings                                                              $ 1,435   $   844
---------------------------------------------------------------------------------------------

Basic earnings per share                                                  $  0.58   $  0.49
Diluted earnings per share                                                $  0.46   $  0.41
---------------------------------------------------------------------------------------------
           See accompanying notes to consolidated financial statements.

</TABLE>
                                      -34-
<PAGE>
<TABLE>
<CAPTION>

                Intervest Bancshares Corporation and Subsidiary

           Consolidated Statements of Changes in Stockholders' Equity

                                                                       For the Year Ended
                                                                           December 31,
                                                                           ------------
($ in thousands)                                                          1998       1997
---------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>     
CLASS A COMMON STOCK
Balance at beginning of year                                           $  2,124   $    900
Effect of 1.5 for 1 stock split                                             --         450
Issuance of 747,500 shares in public offering                               --         748
Issuance of 26,915 shares in exchange for common stock of minority
     stockholders of Intervest Bank                                         --          26
Issuance of 60,100 shares upon exercise of stock warrants                    60         --
---------------------------------------------------------------------------------------------
Balance at end of year                                                    2,184      2,124
---------------------------------------------------------------------------------------------

CLASS B COMMON STOCK
Balance at beginning of year                                                300        200
Effect of 1.5 for 1 stock split                                              --        100
---------------------------------------------------------------------------------------------
Balance at end of year                                                      300        300
---------------------------------------------------------------------------------------------

ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of year                                             13,360      7,655
Effect of 1.5 for 1 stock split                                              --       (550)
Issuance of 747,500 shares in public offering, net of issuance costs         --      5,972
Issuance of 26,915 shares in exchange for common stock of minority
     stockholders of Intervest Bank                                          --        283
Compensation related to issuance of Class B stock warrants                   43         --
Issuance of 60,100 shares upon exercise of stock warrants,
     including tax benefits                                                 386         --
---------------------------------------------------------------------------------------------
Balance at end of year                                                   13,789     13,360
---------------------------------------------------------------------------------------------

RETAINED EARNINGS
Balance at beginning of year                                              1,836        992
Net earnings for the year                                                 1,435        844
---------------------------------------------------------------------------------------------
Balance at end of year                                                    3,271      1,836
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Total stockholders' equity at end of year                              $ 19,544   $ 17,620
---------------------------------------------------------------------------------------------

           See accompanying notes to consolidated financial statements.
</TABLE>
                                      -35-
<PAGE>
<TABLE>
<CAPTION>

                Intervest Bancshares Corporation and Subsidiary

                      Consolidated Statements of Cash Flows

                                                                                    For the Year Ended
                                                                                        December 31,
                                                                                        ------------
($ in thousands)                                                                      1998       1997
---------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>     
OPERATING ACTIVITIES
Net earnings                                                                       $  1,435    $    844
Adjustments  to  reconcile  net  earnings  to net  cash  provided  by  operating
    activities:
Depreciation and amortization                                                           337         260
Provision for loan loss reserves                                                        479         352
Deferred income tax (benefit) expense                                                   (94)         41
Accrued interest expense on debentures                                                  299        --
Compensation expense related to stock warrants                                           43        --
Amortization of premiums, fees and discounts, net                                      (218)         19
Increase in accrued interest receivable and other assets                               (698)       (495)
Increase in other liabilities                                                           996         115
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                             2,579       1,136
---------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES

Increase to interest-earning deposits                                                  (100)       --
Maturities and calls of securities held to maturity                                  50,050      20,175
Purchases of securities held to maturity                                            (73,650)    (44,450)
Net increase in loans receivable                                                    (20,657)    (16,563)
Purchases of Federal reserve bank stock                                                --           (30)
Purchases of premises and equipment, net                                               (377)     (2,197)
Sales of foreclosed real estate                                                        --           185
---------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                               (44,734)    (42,880)
---------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits                       33,645      18,603
Net increase in time deposits                                                         5,655      19,117
Net increase in mortgage escrow funds                                                   280         160
Net proceeds from sale of convertible debentures                                      6,457        --
Proceeds from issuance of common stock, net of issuance costs                           414       6,720
---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                            46,451      44,600
---------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                             4,296       2,856

Cash and cash equivalents at beginning of year                                        9,176       6,320

---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                           $ 13,472    $  9,176
---------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
  Interest                                                                         $  7,929    $  5,832
  Income taxes                                                                          849         700
Noncash activities:
  Compensation related to warrants                                                       43        --
  Interest on convertible debentures                                                    299        --
  Issuance of common stock in exchange for common stock of minority
     stockholders of  subsidiary                                                       --           309
---------------------------------------------------------------------------------------------------------

         See accompanying notes to consolidated financial statements.
</TABLE>

                                      -36-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------

1.      Description of Business and Summary of Significant Accounting Policies

        Description of Business

        Intervest   Bancshares   Corporation   (the   "Holding   Company")   was
        incorporated on February 5, 1993 and is  headquartered in New York City.
        At  December  31,  1998,  the  Holding   Company  owned  99.78%  of  the
        outstanding common stock and 100% of the outstanding  preferred stock of
        Intervest Bank (the "Bank"). Hereafter, the Holding Company and the Bank
        are referred to collectively as the "Company," on a consolidated  basis.
        The Holding Company's primary business is the operation of the Bank. The
        Bank is a Florida  state-chartered  commercial bank that provides a wide
        range of banking  services  to small and  middle-market  businesses  and
        individuals through its five banking offices located in Pinellas County,
        Florida.  The principal executive offices of the Bank are located at 625
        Court Street, Clearwater, Florida

        In December  1998, an application  filed by the Holding  Company for the
        formation  of a new  nationally-chartered  commercial  bank,  "Intervest
        National  Bank," was granted  preliminary  approval by the Office of the
        Comptroller  of the  Currency.  The  new  bank  will be a  wholly  owned
        subsidiary  and is expected to open in the spring of 1999.  The new bank
        will be located at One  Rockefeller  Plaza in Manhattan,  New York,  and
        will provide full banking services.

        Principles of Consolidation, Basis of Presentation and Use of Estimates

        The accompanying  consolidated financial statements include the accounts
        of the  Holding  Company  and the  Bank.  All  significant  intercompany
        accounts and  transactions  are  eliminated  in  consolidation.  Certain
        reclassifications have been made to prior year amounts to conform to the
        current year's  presentation.  The accounting and reporting  policies of
        the Company conform to 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  and  liabilities,   and  disclosure  of  contingent
        liabilities, as of the date of the financial statements and revenues and
        expenses  during the  reporting  periods.  Actual  results  could differ
        significantly from those estimates.

        Cash Equivalents

        For purposes of the statements of cash flows,  cash equivalents  include
        Federal  funds  sold  and  short-term  investments.  Federal  funds  are
        generally  sold for one-day  periods  and  short-term  investments  have
        maturities of three months or less.

        Securities

        Securities  for which the  Company  has the  ability  and intent to hold
        until  maturity are  classified as  securities  held to maturity and are
        carried  at  cost,   adjusted  for   accretion  of  any   discounts  and
        amortization  of premiums,  which are  recognized  into interest  income
        using the interest  method over the period to maturity.  Securities that
        are held for indefinite  periods of time which management intends to use
        as part of its asset/liability  management strategy, or that may be sold
        in  response  to  changes  in  interest  rates  or  other  factors,  are
        classified  as  available  for  sale  and are  carried  at  fair  value.
        Unrealized  gains and losses are  reported  as a separate  component  of
        stockholders'  equity,  net of related income taxes.  Realized gains and
        losses  from  sales are  determined  using the  specific  identification
        method.

                                      -37-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------

1.      Description of Business and Summary of Significant Accounting Policies, 
        Continued

        Loans Receivable

        Loans  that the  Company  has the  intent  and  ability  to hold for the
        foreseeable  future or until  maturity  or  satisfaction  are carried at
        their  outstanding  principal net of chargeoffs,  the allowance for loan
        loss reserves,  unamortized discounts and deferred loan origination fees
        or costs.  Loan  origination and commitment  fees, net of certain costs,
        are deferred and  amortized to interest  income as an  adjustment to the
        yield of the related loans over the contractual  life of the loans using
        the interest method. When a loan is paid off or sold, or if a commitment
        expires unexercised,  any unamortized net deferred amount is credited or
        charged to income as appropriate.

        Loans are placed on nonaccrual status when principal or interest becomes
        90  days  or more  past  due.  Accrued  interest  receivable  previously
        recognized  is  reversed  when a loan is  placed on  nonaccrual  status.
        Amortization of net deferred fee income is discontinued for loans placed
        on nonaccrual status.  Interest payments received on loans in nonaccrual
        status  are   recognized  as  income  on  a  cash  basis  unless  future
        collections  of  principal  are  doubtful,  in which  case the  payments
        received  are  applied as a  reduction  of  principal.  Loans  remain on
        nonaccrual status until principal and interest payments are current.

        Allowance for Loan Loss Reserves

        The allowance for loan loss reserves is netted against loans  receivable
        and is increased by provisions  charged to  operations  and decreased by
        chargeoffs  (net  of  recoveries).  The  adequacy  of the  allowance  is
        evaluated monthly with consideration  given to: the nature and volume of
        the loan portfolio;  overall  portfolio  quality;  loan  concentrations;
        specific  problem  loans and  commitments  and  estimates  of fair value
        thereof; historical chargeoffs and recoveries;  adverse situations which
        may affect the borrowers' ability to repay; and management's  perception
        of the current and  anticipated  economic  conditions  in the  Company's
        lending region. In addition,  SFAS No. 114 specifies the manner in which
        the portion of the allowance for loan loss reserves is computed  related
        to certain loans that are impaired.  A loan is normally  deemed impaired
        when,  based upon  current  information  and events,  it is probable the
        Company  will be unable to  collect  both  principal  and  interest  due
        according to the contractual terms of the loan agreement. Impaired loans
        normally  consist  of loans on  nonaccrual  status.  Interest  income on
        impaired loans is recognized on a cash basis.  Impairment for commercial
        real estate and  residential  loans is required to be measured based on:
        the present  value of expected  future  cash  flows,  discounted  at the
        loan's  effective  interest rate; or the observable  market price of the
        loan; or the estimated fair value of the loan's  collateral,  if payment
        of the principal and interest is dependent upon the collateral.

        When the fair value of the property is less than the recorded investment
        in the loan,  this  deficiency is  recognized  as a valuation  allowance
        within the overall allowance for loan loss reserves and a charge through
        the  provision  for loan losses.  The Company  normally  charges off any
        portion of the  recorded  investment  in the loan that  exceeds the fair
        value of the  collateral.  The net carrying  amount of an impaired  loan
        does not at any time exceed the recorded investment in the loan.

        Lastly,  the  Company's  regulators,   as  an  integral  part  of  their
        examination  process,  periodically  review the  allowance for loan loss
        reserves.  Accordingly,  the Company  may be  required  to take  certain
        chargeoffs  and/or  recognize  additions to the  allowance  based on the
        regulators'  judgment  concerning  information  available to them during
        their examination. 

                                      -38-
<PAGE>

                 Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------

1.     Description of Business and Summary of Significant Accounting Policies,
       Continued

        Foreclosed Real Estate

        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 loss reserves. 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 consolidated statement of earnings.

        Premises and Equipment

        Land  is  carried  at  cost.  Buildings,   leasehold   improvements  and
        furniture,  fixtures and equipment are carried at cost, less accumulated
        depreciation  and  amortization.  Depreciation  is  computed  using  the
        straight-line  method  over  the  estimated  useful  life of the  asset.
        Leasehold improvements are amortized using the straight-line method over
        the  terms of the  related  leases,  or the  useful  life of the  asset,
        whichever is shorter.  Maintenance,  repairs and minor  improvements are
        charged to operating expense as incurred,  while major  improvements are
        capitalized.

        Stock Based Compensation

        Statement of Financial  Accounting  Standards No. 123,  "Accounting  for
        Stock-Based  Compensation,"  establishes  a "fair value" based method of
        accounting  for  stock-based   compensation  plans  and  encourages  all
        entities to adopt that method of  accounting  for all their  stock-based
        compensation  plans.  However it also  allows an entity to  continue  to
        measure   compensation   cost  for  those  plans  using  the   intrinsic
        value-based  method of accounting  prescribed  by Accounting  Principles
        Board Opinion No. 25,  "Accounting  for Stock Issued to Employees."  The
        Company has elected to follow APB No. 25 and related  interpretations in
        accounting  for its  stock-based  compensation,  which is in the form of
        stock warrants.  Statement 123 requires pro forma disclosures of net for
        earnings and earnings per share  determined as if the Company  accounted
        for its stock warrants under the fair value method.

        Advertising Costs

        Advertising costs are expensed as incurred.

        Income Taxes

        Under SFAS No. 109,  "Accounting for Income Taxes,"  deferred tax assets
        and liabilities are recognized for the estimated future tax consequences
        attributable to temporary  differences  between the financial  statement
        carrying amounts of existing assets and liabilities and their respective
        tax bases.  Deferred  tax  assets and  liabilities  are  measured  using
        enacted  tax rates  expected  to apply to taxable  income in the year in
        which  those  temporary  differences  are  expected to be  recovered  or
        settled.  The effect on deferred tax assets and  liabilities of a change
        in tax law or rates is  recognized in income in the period that includes
        the enactment date of change. A valuation allowance is recorded if it is
        more likely than not that some portion or all of the deferred tax assets
        will not be realized based on a review of available evidence.  

                                      -39-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------

1.      Description of Business and Summary of Significant Accounting Policies, 
        Continued

        Earnings Per Share (EPS)

        Basic EPS is calculated by dividing net earnings by the weighted-average
        number of shares of common stock outstanding.  Diluted EPS is calculated
        by dividing  adjusted  net  earnings by the  weighted-average  number of
        shares of common stock and dilutive  potential  common stock shares that
        may be outstanding in the future.  Potential common stock shares consist
        of outstanding  dilutive common stock warrants (which are computed using
        the treasury stock method) and  convertible  debentures  (computed using
        the "if converted method"). Diluted EPS considers the potential dilution
        that  could  occur  if the  Company's  outstanding  stock  warrants  and
        convertible debentures were converted into common stock that then shared
        in the Company's  earnings (as adjusted for expense that would no longer
        occur if the  debentures  were  converted).  Prior to the  public  stock
        offering in November 1997,  there was no public market for the Company's
        common stock. For purposes of calculating  Diluted EPS for 1997, the $10
        public stock offering price is assumed to be the market price.

        Off-Balance Sheet Financial Instruments

        In the ordinary course of business,  the Company enters into off-balance
        sheet financial instruments  consisting of commitments to extend credit,
        unused  lines of credit and standby  letters of credit.  Such  financial
        instruments are recorded in the consolidated  financial  statements when
        they are funded or related fees are incurred or received.

        Recent Accounting Pronouncements

        Reporting  Comprehensive Income. On January 1, 1998, the Company adopted
        Statement of Financial  Accounting  Standards (SFAS) No. 130, "Reporting
        Comprehensive   Income,"  which  established   standards  for  reporting
        comprehensive income. Comprehensive income is defined by the standard as
        the change in equity of an enterprise except for those changes resulting
        from stockholder  transactions.  All components of comprehensive  income
        are  required  to be  reported  in a new  financial  statement  that  is
        displayed with equal prominence as existing  financial  statements.  The
        Company had no items of comprehensive  income in 1998 or 1997, therefore
        such a statement is not presented.

        Employers' Disclosures about Pensions and Other Postretirement Benefits.
        On December 31,  1998,  the Company  adopted  SFAS No. 132,  "Employers'
        Disclosures  about  Pensions  and  Other  Postretirement  Benefits  - an
        amendment of SFAS No. 87, 88 and 106." The statement revised, deleted or
        added certain  disclosures  with regard to such plans. It did not change
        the  measurement  or  recognition  of those plans.  The adoption of this
        standard had no impact on the Company's financial statement disclosures.

        Accounting for Start-Up Costs. In April 1998, the American  Institute of
        Certified Public Accountants  (AICPA) issued Statement of Position (SOP)
        98-5,  "Reporting  on  the  Costs  of  Start-Up  Activities,"  which  is
        effective for fiscal years  beginning  after  December 15, 1998. The SOP
        requires   that  all   start-up   costs   (except  for  those  that  are
        capitalizable under other generally accepted  accounting  principles) be
        expensed as incurred.

                                      -40-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------

1.      Description of Business and Summary of Significant Accounting Policies, 
        Continued

        Accounting for Start-Up  Costs,  Continued.  Previously,  start-up costs
        were generally  capitalized  and amortized  over a period of time.  Upon
        adoption of this  statement,  approximately  $160,000 of start-up  costs
        associated  with  organizing  the new bank will be expensed in the first
        quarter of 1999.  Additional expenses also will be incurred in the first
        quarter in connection with organizing the new bank.

        Accounting for Derivative  Instruments and Hedging  Activities.  In June
        1998,  the  FASB  issued  SFAS  No.  133,   "Accounting  for  Derivative
        Instruments   and  Hedging   Activities."   The  statement   establishes
        accounting and reporting standards for derivative instruments, including
        certain  derivative  instruments  embedded in other  contracts,  and for
        hedging  activities.  It requires,  among other  things,  that an entity
        recognizes  all  derivatives  as  either  assets or  liabilities  in the
        balance  sheet  and  measures  those  instruments  at  fair  value.  The
        statement is effective for all fiscal quarters of fiscal years beginning
        after June 15, 1999. Since the Company does not currently use derivative
        financial  instruments,  the  standard  will not have any  impact on the
        Company's financial statements when adopted.

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


2.      Securities Held To Maturity

The  carrying  and  estimated  fair values of  securities  held to maturity  are
summarized as follows:

                                                    Gross      Gross   Estimated
                                                    -----      -----   ---------
                                        Amortized Unrealized Unrealized    Fair
                                        --------- ---------- ----------    ----
($ in thousands)                           Cost     Gains     Losses      Value
--------------------------------------------------------------------------------
At December 31, 1998:
   U.S. Treasury securities              $ 2,015   $    15   $  --       $ 2,030
   U.S. Government and agency securities  80,323       186       366      80,143
--------------------------------------------------------------------------------
                                         $82,338   $   201   $   366     $82,173
--------------------------------------------------------------------------------
At December 31, 1997:
   U.S. Treasury securities              $ 4,027   $    15   $  --       $ 4,042
   U.S. Government and agency securities  54,794        64        64      54,794
--------------------------------------------------------------------------------
                                         $58,821   $    79   $    64     $58,836
--------------------------------------------------------------------------------


        At December 31, 1998 and 1997, the securities portfolio was comprised of
        securities with fixed rates of interest.  The weighted-average  yield of
        the portfolio was approximately  5.89% at December 31, 1998 and 6.24% at
        December 31, 1997.

        At December 31, 1998, U.S Government  and agency  securities  consist of
        debt obligations of the Federal Home Loan Bank, Federal Farm Credit Bank
        and  Federal  National  Mortgage  Association.  There  were no  sales of
        securities during the years ended December 31, 1998 and 1997.  

                                      -41-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------

2.      Securities Held To Maturity, Continued

        The carrying and estimated fair values of securities held to maturity at
        December  31,  1998,  by  remaining  term to  contractual  maturity  are
        summarized as follows:

                                       Amortized  Estimated Fair
                                       ---------  --------------
($ in thousands)                           Cost      Value
--------------------------------------------------------------------------------
Due in one year or less                  $ 2,015   $ 2,030
Due after one year through five years     61,060    60,870
Due after five years through ten years    19,263    19,273
--------------------------------------------------------------------------------
                                         $82,338   $82,173
--------------------------------------------------------------------------------

3.      Loans Receivable

        Loans receivable are summarized as follows:
                                  At December 31, 1998     At December 31, 1997
                                  --------------------     --------------------
($ in thousands)                 # of loans      Amount  # of loans     Amount
--------------------------------------------------------------------------------
Commercial real estate loans             95    $ 68,828         106   $ 64,270
Residential multifamily loans            51      23,707          34      6,903
Residential 1-4 family loans             47       2,627          49      3,162
Construction loans                       --          --           1        158
Commercial loans                         49       2,875          49      2,641
Consumer loans                           17         184          13         92
--------------------------------------------------------------------------------
Loans receivable                        259      98,221         252     77,226
--------------------------------------------------------------------------------
Deferred loan fees                                 (485)                  (401)
Allowance for loan loss reserves                 (1,662)                (1,173)
--------------------------------------------------------------------------------
Loans receivable, net                          $ 96,074               $ 75,652
--------------------------------------------------------------------------------

        At December 31, 1998 and 1997, there were no loans held for sale.

        The  geographic  distribution  of the loan  portfolio is  summarized  as
follows:

                At December 31, 1998          At December 31, 1997
                --------------------          --------------------
($ in thousands) Amount   % of Total          Amount     % of Total
--------------------------------------------------------------------------------
Florida         $82,167       83.7%           $72,649       94.1%
New York City    16,054       16.3              4,577        5.9
--------------------------------------------------------------------------------
                $98,221      100.0%           $77,226      100.0%
--------------------------------------------------------------------------------

        Credit  risk,  which  represents  the  possibility  of the  Company  not
        recovering amounts due from its borrowers,  is significantly  related to
        local  economic  conditions  as  well  as  the  Companyis   underwriting
        standards. Economic conditions affect the income levels of borrowers and
        the market value of the  underlying  collateral.  In addition,  although
        commercial  real  estate and  multifamily  loans  typically  bear higher
        interest rates than 1-4 family  residential  loans,  they entail certain
        risks not normally  found in 1-4 family  residential  mortgage  lending.
        Commercial  real estate and  multifamily  loans usually  involve  larger
        loans to single borrowers. In addition,  satisfactory payment experience
        on  loans  secured  by  income-producing   properties  (such  as  office
        buildings,   shopping  centers  and  rental  and  cooperative  apartment
        buildings) is largely dependent on high levels of occupancy. Thus, these
        loans are more subject to adverse  conditions  in the real estate market
        and  economy  or  specific  conditions  at or in  the  vicinity  of  the
        property's  location.

                                      -42-
<PAGE>

                 Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
4.      Allowance for Loan Loss Reserves

        Activity  in the  allowance  for loan loss  reserves  is  summarized  as
        follows:


                         For the Year Ended December 31,
                         -------------------------------
($ in thousands)                   1998      1997
--------------------------------------------------------------------------------
Balance at beginning of year      $1,173   $  811
Provision charged to operations      479      352
Recoveries                            10       10
--------------------------------------------------------------------------------
Balance at end of year            $1,662   $1,173
--------------------------------------------------------------------------------


        There  were no loans on  nonaccrual  status or  classified  as  impaired
        during the years ended December 31, 1998 or 1997.

5.      Premises and Equipment, Lease Commitments and Rental Expense

        Premises and equipment is summarized as follows:


                                                  At December 31,
                                                  ---------------
($ in thousands)                                  1998       1997
--------------------------------------------------------------------------------
Land                                            $ 1,264    $ 1,064
Buildings                                         3,419      3,398
Leasehold improvements                              136        162
Furniture, fixtures and equipment                 1,289      1,226
--------------------------------------------------------------------------------
Total cost                                        6,108      5,850
--------------------------------------------------------------------------------
Less accumulated deprecation and amortization    (1,191)      (973)
--------------------------------------------------------------------------------
Net book value                                  $ 4,917    $ 4,877
--------------------------------------------------------------------------------


        The Bank leases its Belcher  Road office,  which is accounted  for as an
        operating  lease expiring in June 2007.  The lease  contains  escalation
        clauses based upon the consumer  price index and several  adjustments up
        to a maximum of 3% of the previous year's rental.

        The  Holding  Company  has  leased  office  space  for the new  proposed
        national  bank in  Manhattan,  New York,  which is  accounted  for as an
        operating  lease expiring in May 2008. The rental  payments are fixed at
        $257,261 per annum beginning on July 1, 1999, increasing to $285,073 per
        annum on December 1, 2003 until expiration.

        The Company's rental expense aggregated  $94,000 and $125,000,  for 1998
        and 1997, respectively.

        Future  minimum  annual  lease  rental  payments  under   noncancellable
        operating leases at December 31, 1998,  aggregated as follows:  $225,000
        in 1999;  $356,000 in 2000; $359,000 in 2001; $363,000 in 2002; $369,000
        in 2003; and $1,665,000 thereafter.

        The Bank subleases  certain of its space to other companies under leases
        that expire at various times through August 2007. Sublease rental income
        aggregated $338,000 and $195,000 for 1998 and 1997, respectively. Future
        sublease  rental  income at December 31, 1998 is  summarized as follows:
        $281,000 in 1999,  $271,000 in 2000, $211,000 in 2001, $190,000 in 2002,
        $161,000 in 2003 and $631,000 thereafter.

                                      -43-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
6.      Deposits

        Scheduled  maturities of certificates of deposit accounts are summarized
        as follows:

                             At December 31, 1998    At December 31, 1997
                             --------------------    --------------------
                                        Wtd-Avg                  Wtd-Avg
($ in thousands)            Amount    Stated Rate   Amount    Stated Rate
--------------------------------------------------------------------------------
Within one year            $55,130       5.36%     $46,954       5.46%
Over one to two years       17,052       5.90       16,554       5.97
Over two to three years     10,153       6.00        9,446       6.40
Over three to four years    10,576       6.06        9,362       6.05
Over four years              6,122       5.85       11,062       6.07
--------------------------------------------------------------------------------
                           $99,033       5.62%     $93,378       5.78%
--------------------------------------------------------------------------------


        Certificates of deposit accounts of $100,000 or more totaled $10,962,000
        and $9,506,000 at December 31, 1998 and 1997, respectively.  At December
        31,  1998,  certificates  of deposit  accounts  of  $100,000  or more by
        remaining maturity were as follows: due within one year $7,353,000; over
        one to two years $1,619,000;  over two to three years  $1,028,000;  over
        three to four years $862,000; and over four years $100,000.

        Interest expense on deposits is summarized as follows:


                         For the Year Ended December 31,
                         -------------------------------
($ in thousands)                   1998      1997
--------------------------------------------------------
Money-market and NOW accounts     $1,324   $  816
Savings accounts                     832      446
Certificates of deposit accounts   5,821    4,631
--------------------------------------------------------
                                  $7,977   $5,893
--------------------------------------------------------



7.     Convertible Debentures

        In June 1998, the Holding Company sold $7,000,000 of principal amount of
        Convertible  Subordinated  Debentures  (the  "Debentures")  in a  public
        offering.  The proceeds from the sale, net of underwriting discounts and
        other fees, amounted to approximately $6,500,000. The Debentures are due
        July 1, 2008 and are  convertible  at the  option of the  holders at any
        time prior to April 1, 2008, unless  previously  redeemed by the Holding
        Company,  into shares of Class A common stock of the Holding  Company at
        the  following  current  conversion  prices  per share:  $10.00  through
        December  31,  1999,  $12.50 in 2000;  $14.00  in 2001;  $15.00 in 2002;
        $16.00 in 2003;  $18.00 in 2004;  $21.00 in 2005; $24.00 in 2006; $27.00
        in 2007 and $30.00 from January 1, 2008 through April 1, 2008.


        The Holding  Company has the right to establish  conversion  prices that
        are  less  than  those  set  forth  above  for  such  periods  as it may
        determine.  On January 13, 1999,  the  conversion  prices were  adjusted
        downward  from  those set at the  original  offering  date to the prices
        shown above. The Holding Company also has the option at any time to call
        all or any part of the Debentures for payment and redeem the same at any
        time prior to maturity thereof.  The redemption price for the Debentures
        is (i) the face  amount plus a 2% premium if the date of  redemption  is
        prior to July 1,  1999,  (ii)  the  face  amount  plus a 1%  premium  if
        redemption occurs on or after July 1, 1999 and prior to July 1, 2000, or
        (iii) the face amount if the date of  redemption  is on or after July 1,
        2000.

                                      -44-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
7.      Convertible Debentures, Continued

        Interest  on the  Debentures  will  accrue and  compound  each  calendar
        quarter at 8%. All accrued  interest  is payable at the  maturity of the
        Debentures  whether  by  acceleration,   redemption  or  otherwise.  Any
        Debenture  holder may, on or before July 1 of each year  commencing July
        1, 2003, elect to be paid all accrued interest and to thereafter receive
        payments of interest quarterly.


8.      Other Borrowed Funds

        The Bank has agreements  with  correspondent  banks whereby the Bank may
        borrow up to $6,000,000 on an unsecured basis. There were no outstanding
        borrowings under these agreements at December 31, 1998 or 1997.

9.      Stockholders' Equity

        The Holding  Company's  Board of Directors is  authorized to issue up to
        300,000  shares  of  preferred  stock  of the  Holding  Company  without
        stockholder  approval.  The  powers,  preferences  and  rights,  and the
        qualifications,  limitations,  and restrictions thereof on any series of
        preferred  stock  issued is  determined  by the Board of  Directors.  At
        December  31, 1998 and 1997,  there was no  preferred  stock  issued and
        outstanding.

        Class A and B common stock have equal  voting  rights as to all matters,
        except that,  so long as at least 50,000  shares of Class B common stock
        remain issued and outstanding,  the holders of the outstanding shares of
        Class B common stock are entitled to vote for the election of two-thirds
        of the Board of Directors (rounded to the nearest whole number), and the
        holders of the  outstanding  shares of Class A common stock are entitled
        to vote for the remaining  Directors of the Holding Company.  The shares
        of Class B common stock are  convertible,  on a  share-for-share  basis,
        into  Class A  common  stock at any  time  after  January  1,  2000.  On
        September  18,  1997  the  Board of  Directors  of the  Holding  Company
        declared a 1.5 for 1 Class A and Class B common  stock split  payable in
        September  1997. All per share amounts reflect the effect of these stock
        splits.

10.     Asset and Dividend Restrictions

        The Bank is required under Federal Reserve Board regulations to maintain
        reserves, generally consisting of cash or noninterest-earning  accounts,
        against  its  transaction  accounts.  At  December  31,  1998 and  1997,
        balances maintained as reserves were not material.

        As a member of the  Federal  Reserve  Bank,  the Bank must  maintain  an
        investment in the capital stock of the Federal Reserve Bank. At December
        31, 1998 and 1997, such investment aggregated to $233,000.

        The payment of dividends by the Holding  Company and the Bank is subject
        to  various  regulatory  restrictions.   These  restrictions  take  into
        consideration  various  factors such as whether there are sufficient net
        earnings,  as defined,  liquidity,  asset quality,  capital adequacy and
        economic conditions.  Additionally, no dividends may be declared or paid
        with  respect to shares of Class B common  stock until  January 1, 2000,
        after which time the holders of Class A common  stock and Class B common
        stock will share ratably in any dividend.  The Holding Company has never
        paid  a  common  dividend  to  its  shareholders  and  currently  has no
        intentions of paying a common dividend.

                                      -45-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
11.     Profit Sharing Plan

        The Bank  sponsors a  tax-qualified,  profit  sharing plan in accordance
        with the provisions of Section 401(k) of the Internal  Revenue Code. The
        plan is available to all employees electing to participate after meeting
        certain length-of-service  requirements. The Bank's contributions to the
        profit sharing plan are discretionary and are determined annually. Total
        expense  related  to the  contributions  to  the  plan  included  in the
        accompanying  consolidated  financial statements  aggregated $22,220 and
        $21,377 for 1998 and 1997, respectively.

12.     Related Party Transactions

        The Bank has made loans to certain of its  directors  and their  related
        entities. The activity is as follows:


                         For the Year Ended December 31,
                         -------------------------------
($ in thousands)                  1998       1997
--------------------------------------------------------
Balance at beginning of year   $ 3,242    $ 2,941
Additions                          868        510
Repayments                        (177)      (209)
--------------------------------------------------------
Balance at end of year         $ 3,933    $ 3,242
--------------------------------------------------------


        There are no loans to directors or officers of the Holding Company.  The
        Bank participates  with Intervest  Corporation of New York (ICNY) in one
        mortgage  with a balance of  $237,000 at December  31,  1998,  and three
        mortgages at December 31, 1997 aggregating $1,310,000.  The shareholders
        of ICNY are shareholders, directors and officers of the Company.

13.     Common Stock Warrants

        The Holding Company has common stock warrants outstanding, which entitle
        the registered holders thereof to purchase one share of common stock for
        each warrant. All warrants are exercisable when issued, except for Class
        B common stock warrants issued in 1998. The Holding  Company's  warrants
        have been issued in connection with public stock offerings, to directors
        and  employees of the Bank and  directors of the Holding  Company and to
        outside third parties for performance of services.
<TABLE>
<CAPTION>

        Data concerning common stock warrants is summarized as follows:

                                                    Exercise Price Per Warrant    Total      Wtd-Avg
                                                    --------------------------    -----      -------
Class A Common Stock Warrants:        $     6.67    $    10.00      $14.00 (2)   Warrants    Exercise Price
-----------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>             <C>          <C>         <C> 
Outstanding at December 31,1996        1,528,665          --            --      1,528,665    $    6.67
   Granted in 1997 (1)                      --         949,183          --        949,183    $   10.00
   Granted in 1997                          --          16,500          --         16,500    $   10.00
                                       ---------------------------------------------------
Outstanding at December 31,1997        1,528,665       965,683          --      2,494,348    $    7.96
   Granted in 1998                          --              20       122,000      122,020    $   14.00
   Exercised in 1998                     (56,100)       (4,000)         --        (60,100)   $    6.89
------------------------------------------------------------------------------------------
Outstanding at December 31,1998        1,472,565       961,703       122,000    2,556,268    $    8.27
------------------------------------------------------------------------------------------
Remaining contractual life in years
    at December 31, 1998                     4.4           4.0           4.0         4.2
------------------------------------------------------------------------------------------

(1) These  warrants  entitle the holder to purchase  one share of Class A common
stock at a price of $10.00 per share through year-end 1999;  $11.50 per share in
2000; $12.50 per share in 2001 and $13.50 per share in 2002.

(2) These  warrants  entitle the holder to purchase  one share of Class A common
stock at a price of $14.00 per share through year-end 1999;  $15.00 per share in
2000; $16.00 per share in 2001 and $17.00 per share in 2002.
</TABLE>

                                      -46-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
13.       Common Stock Warrants, Continued

                                        Exercise Price
                                        --------------
                                            Per Warrant    Total         Wtd-Avg
                                            -----------    -----         -------
Class B Common Stock Warrants:        $  6.67   $ 10.00 Warrants  Exercise Price
--------------------------------------------------------------------------------
Outstanding at December 31,1996          --           --        --     $ --
   Granted in 1997                    150,000         --     150,000   $ 6.67
                                      ------------------------------
Outstanding at December 31,1997       150,000         --     150,000   $ 6.67
   Granted in 1998 (1)                   --         50,000    50,000   $10.00
--------------------------------------------------------------------
Outstanding at December 31,1998       150,000       50,000   200,000   $ 7.50
--------------------------------------------------------------------
Remaining contractual life in years
   at December 31, 1998                   8.1          9.1      8.3
--------------------------------------------------------------------------------



     (1)  At  December  31,  1998,  7,100 of  these  warrants  were  immediately
          exercisable.  An additional 7,100 warrants vest and become exercisable
          on each April 27th of 1999,  2000,  2001, 2002, 2003 and the remaining
          7,400 on April 27,  2004.  The  warrants,  which expire on January 31,
          2008, become fully vested earlier upon certain conditions.

        The Company uses the intrinsic  value-based  method prescribed under APB
        Opinion  No.  25,   "Accounting  for  Stock  Issued  to  Employees,"  in
        accounting  for its stock  warrants.  Under  this  method,  compensation
        expense  related to stock warrants is the excess,  if any, of the market
        price of the stock as of the grant date over the  exercise  price of the
        warrant.  The exercise price of the Class B warrants granted in 1998 was
        below  the  market  price of the  common  shares  at the date of  grant.
        Therefore,  in accordance with APB Opinion No. 25, approximately $43,000
        was  included  in salaries  and  employee  benefits  expense for 1998 in
        connection with the issuance of these warrants.  No compensation expense
        was recorded  related to the remaining  stock  warrants  granted in 1998
        because their  exercise  prices were the same as the market price of the
        common shares at the date of grant.

        Had  compensation  expense been  determined  based on the estimated fair
        value of the warrants at the grant date in accordance with SFAS No. 123,
        "Accounting  for Stock-Based  Compensation,"  the Company's net earnings
        and earnings per share would have been reduced to the pro forma  amounts
        as follows:

                                        For the Year Ended December 31,
                                        -------------------------------
($ in thousands, except per share amounts)        1998       1997
-----------------------------------------------------------------
Reported net earnings                        $   1,435   $    844
Pro forma net earnings (1)                   $   1,146   $    384
Reported basic earnings per share            $    0.58   $   0.49
Pro forma basic earnings per share           $    0.47   $   0.22
Reported diluted earnings per share          $    0.46   $   0.41
Pro forma diluted earnings per share         $    0.38   $   0.19
-----------------------------------------------------------------

     (1)  Pro forma net  earnings  for 1998 does not  reflect the full impact of
          calculating  compensation  expense  related to Class B stock  warrants
          granted in 1998, since the total expense  calculated under SFAS No.123
          is apportioned over the vesting period of those warrants.

        The per share  weighted-average  estimated  fair value of 172,000  stock
        warrants  granted to  employees  and  directors in 1998 was $3.63 on the
        date  of  grant  using  the  Black-Scholes   option-pricing  model.  The
        following weighted-average assumptions were used: no expected dividends;
        expected life of 2.9 years,  expected price volatility of 25% and a 5.5%
        risk-free interest rate. The per share  weighted-average  estimated fair
        value of 166,500  stock  warrants  granted to employees and directors in
        1997  was   $2.76  on  the  date  of  grant   based  on  the   following
        weighted-average  assumptions:  no expected dividends;  expected life of
        8.4 years,  no expected stock  volatility and a 6.0% risk-free  interest
        rate. The  assumptions are subjective in nature,  involve  uncertainties
        and  cannot  be  determined   with   precision.   

                                      -47-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
14.     Income Taxes

        The  Holding  Company and its  subsidiary  file a  consolidated  Federal
        income tax return on a calendar  year basis.  The Holding  Company files
        state  income tax returns in New York and New Jersey and  franchise  tax
        returns  in  Delaware.  The Bank  files a state  income  tax  return  in
        Florida.  At December  31,  1998,  the Company  had net  operating  loss
        carryforwards  (NOLs) of $163,000 relating to the operations of the Bank
        available to reduce future Federal  taxable  income.  The NOLs expire in
        2007 and 2008.

        At December 31, 1998 and 1997,  the Company had a net deferred tax asset
        of  $579,000  and  $485,000,  respectively.  The  asset  relates  to the
        unrealized benefit for: net temporary  differences between the financial
        statement  carrying amounts of existing assets and liabilities and their
        respective  tax bases  that will  result in future tax  deductions;  and
        unused operating loss  carryforwards.  In assessing the realizability of
        deferred tax assets, management considers whether it is more likely than
        not that some  portion or all of the  deferred  tax  assets  will not be
        realized.  The ultimate realization of such assets is dependent upon the
        generation  of  sufficient  taxable  income  during the periods in which
        those temporary differences become deductible.  Management believes that
        it is more likely than not that the Company's deferred tax asset will be
        realized and accordingly,  a valuation allowance for deferred tax assets
        was not maintained at any time during 1998 and 1997.

        The provision for income tax expense consisted of the following:

($ in thousands)                Current    Deferred    Total
--------------------------------------------------------------
Year Ended December 31, 1998:
   Federal                      $   815    $   (80)   $   735
   State and Local                  218        (14)       204
--------------------------------------------------------------
                                $ 1,033    $   (94)   $   939
--------------------------------------------------------------
Year Ended December 31, 1997:
   Federal                      $   377    $    35    $   412
   State and Local                   69          6         75
--------------------------------------------------------------
                                $   446    $    41    $   487
--------------------------------------------------------------



The components of deferred tax (benefit) expense are summarized as follows:

                                       For the
                              Year Ended December 31,
                              -----------------------
($ in thousands)                    1998     1997
-----------------------------------------------------
Allowance for loan loss reserves   $(185)   $(113)
Depreciation                         (38)      (1)
Deferred loan fees                     7        6
Net operating loss carryforwards     125      125
All other                             (3)      24
-----------------------------------------------------
                                   $ (94)   $  41
-----------------------------------------------------

                                      -48-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
14.     Income Taxes, Continued

        The tax effects of the temporary  differences  that give rise to the net
deferred tax asset are summarized as follows:


                                    At December 31,
                                    ---------------
($ in thousands)                      1998    1997
---------------------------------------------------
Deferred Tax Asset:
  Allowance for loan loss reserves   $ 483   $ 298
  Deferred loan fees                     6      13
  Net operating loss carryforwards      61     186
  Depreciation                          19      --
  All other                             10       7
                                   ----------------
Total gross deferred tax asset         579     504
Deferred Tax Liability:
  Depreciation                        --       (19)
---------------------------------------------------
Net deferred tax asset               $ 579   $ 485
---------------------------------------------------


        The reconciliation between the statutory Federal income tax rate and the
Company's effective tax rate (including state and local taxes) is as follows:

                                                               For the
                                                       Year Ended December 31,
                                                       -----------------------
($ in thousands)                                            1998    1997
--------------------------------------------------------------------------------
Tax provision at statutory rate                             34.0%   34.0%
Increase (decrease) in taxes resulting from:
   State and local income taxes, net of Federal benefit      5.6     3.8
   Other                                                  --        (1.2)
--------------------------------------------------------------------------------
                                                            39.6%   36.6%
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

15.     Earnings Per Share

        Net earnings applicable to common stock and the weighted-average  number
of shares  used for basic  and  diluted  earnings  per  share  computations  are
summarized as follows:

                                                                       For the Year Ended December 31,
                                                                       -------------------------------
($ in thousands, except share and per share amounts)                         1998         1997
--------------------------------------------------------------------------------------------------
<S>                                                                       <C>          <C>       
Basic earnings per share:
  Net earnings applicable to common stockholders                          $    1,435   $      844
  Average number of common shares outstanding                              2,457,113    1,712,292
--------------------------------------------------------------------------------------------------
Basic earnings per share amount                                           $     0.58   $     0.49
--------------------------------------------------------------------------------------------------
Diluted earnings per share:
  Net earnings applicable to common stockholders                          $    1,435   $      844
  Adjustment to net earnings from assumed conversion of debentures               172         --
                                                                          ------------------------
  Adjusted net earnings for diluted earnings per share computation        $    1,607   $      844
                                                                          ------------------------
  Average number of common shares outstanding:
  Common shares outstanding                                                2,457,113    1,712,292
      Potential dilutive shares resulting from exercise of warrants          630,457      360,167
      Potential dilutive shares resulting from conversion of debentures      385,946         --
                                                                          ------------------------
  Total average number of common shares outstanding used for dilution      3,473,516    2,072,459
--------------------------------------------------------------------------------------------------
Diluted earnings per share amount                                         $     0.46   $     0.41
--------------------------------------------------------------------------------------------------
</TABLE>

                                      -49-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
15.     Earnings Per Share, Continued

        A total of 122,000  common  stock  warrants  with an  exercise  price of
        $14.00  were not  included  in the  computation  of diluted EPS for 1998
        because their  exercise  price was greater than the average market price
        of the common shares during 1998. Warrants to purchase 989,083 shares of
        Class A common  stock at  $10.00  per  share  were not  included  in the
        computation  for diluted EPS for 1997  because  the  warrants'  exercise
        price approximated the market price of the stock.

16.     Contingencies

        As a  result  of  transactions  conducted  in  the  ordinary  course  of
        business,   the  Company  is  a  defendant  in  various  legal  actions.
        Management,  after  consultation  with legal counsel,  believes that the
        ultimate  liability,  if any,  arising from such legal  actions will not
        materially affect the Company's  financial  condition,  liquidity or its
        results of operations.

17.     Regulatory Matters

        The Holding Company and the Bank are subject to regulation,  examination
        and  supervision by the Federal  Reserve Bank. In addition,  the Bank is
        also subject to regulation,  examination  and supervision by the Florida
        Department  of Banking and Finance  and the  Federal  Deposit  Insurance
        Corporation.  The Bank is also  governed by  numerous  Federal and state
        laws  and  regulations,  including  the  FDIC  Improvement  Act of  1991
        (FDICIA).   Among  other  matters,   FDICIA   established  five  capital
        categories ranging from well capitalized to critically undercapitalized.
        Such  classifications  are used by the FDIC and  other  bank  regulatory
        agencies to  determine  various  matters,  including  prompt  corrective
        action and each institution's semi-annual FDIC deposit insurance premium
        assessments.

        As  of  December  31,  1998,  the  most  recent  notification  from  the
        regulators categorized the Bank as a well-capitalized  institution under
        the criteria of FDICIA,  which requires minimum Tier 1 leverage and Tier
        1 and total risk-based  capital ratios of 5%, 6% and 10%,  respectively.
        Management  believes  that  there are no  current  conditions  or events
        outstanding that would change the designation from well capitalized.
<TABLE>
<CAPTION>

        The tables  below  present  information  regarding  the  Bank's  capital
        adequacy.

                                                                  For Capital         For Well-Capitalized 
                                                                  -----------         -------------------- 
                                                  Actual          Adequacy Purposes   Purposes
                                                  ------          -----------------   --------
($ in thousands)                             Amount      Ratio    Amount      Ratio   Amount      Ratio
-----------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>     <C>          <C>    <C>          <C>   
As of December 31,1998:
   Total capital to risk-weighted assets    $12,046      11.15%  $ 8,644      8.00%  $10,805      10.00%
   Tier 1 capital to risk-weighted assets   $10,692       9.90   $ 4,322      4.00%  $ 6,483       6.00%
   Tier 1 capital to average assets         $10,692       6.04%  $ 7,086      4.00%  $ 8,857       5.00%
As of December 31,1997:
   Total capital to risk-weighted assets    $10,243      11.46%  $ 7,153      8.00%  $ 8,941      10.00%
   Tier 1 capital to risk-weighted assets   $ 9,125      10.21%  $ 3,577      4.00%  $ 5,365       6.00%
   Tier 1 capital to average assets         $ 9,125       6.53%  $ 5,591      4.00%  $ 6,988       5.00%
-----------------------------------------------------------------------------------------------------------
</TABLE>


                                      -50-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
18.     Off-Balance Sheet Financial Instruments

        The Company is party to financial  instruments  with  off-balance  sheet
        risk in the normal course of business to meet the financing needs of its
        customers. These financial instruments are in the form of commitments to
        extend 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  balance  sheets.  The contract
        amounts  of these  instruments  reflect  the extent of  involvement  the
        Company has in these financial  instruments.  The Company's  exposure to
        credit  loss in the event of  nonperformance  by the other  party to the
        off-balance   sheet   financial   instruments   is  represented  by  the
        contractual  amount  of those  instruments.  The  Company  uses the same
        credit  policies in making  commitments as it does for on-balance  sheet
        instruments.

        Commitments  to extend credit are agreements to lend funds to a customer
        as long as there is no violation  of any  condition  established  in the
        contract.  Such  commitments  generally have fixed  expiration  dates or
        other termination clauses and may require payment of fees. Since some of
        the  commitments  are expected to expire  without being drawn upon,  the
        total  commitment  amount  does not  necessarily  represent  future cash
        requirements. The Company evaluates each customer's credit worthiness on
        a  case-by-case  basis.  The amount of  collateral  obtained,  if deemed
        necessary  by  the  Company  upon  extension  of  credit,  is  based  on
        managementis  credit evaluation of the counterparty.  Standby letters of
        credit are  conditional  commitments  issued by the Company to guarantee
        the performance of a customer to a third party. The credit risk involved
        in issuing letters of credit is essentially the same as that involved in
        extending loans to customers.

        The following is a summary of the notional amounts of the Company's off-
        balance sheet financial instruments.


                             At December 31,
                             ---------------
($ in thousands)              1998     1997
--------------------------------------------
Unfunded loan commitments   $3,175   $2,950
Available lines of credit      628      527
Standby letters of credit    1,100      100
--------------------------------------------
                            $4,903   $3,577
--------------------------------------------


19.     Estimated Fair Value of Financial Instruments

        Fair  value  estimates  are made at a  specific  point in time  based on
        available information about each financial instrument.  Where available,
        quoted market  prices are used.  However,  a significant  portion of the
        Company's financial  instruments,  such as commercial real estate loans,
        do not have an active  marketplace  in which they can be readily sold or
        purchased to determine fair value.  Consequently,  fair value  estimates
        for such  instruments  are based on assumptions  made by management that
        include  the  financial  instrument's  credit risk  characteristics  and
        future estimated cash flows and prevailing  interest rates. As a result,
        these  fair  value   estimates  are   subjective   in  nature,   involve
        uncertainties and matters of significant judgment and therefore,  cannot
        be  determined   with   precision.   Accordingly,   changes  in  any  of
        management's assumptions could cause the fair value estimates to deviate
        substantially.  The  fair  value  estimates  also  do  not  reflect  any
        additional premium or discount that could result from offering for sale,
        at one time,  the Company's  entire  holdings of a particular  financial
        instrument,   nor  estimated   transaction  costs.   Further,   the  tax
        ramifications  related to the realization of unrealized gains and losses
        can have a  significant  effect on and have not been  considered  in the
        fair value  estimates.  Finally,  fair value estimates do not attempt to
        estimate  the  value  of  anticipated  future  business,  the  Company's
        customer  relationships,  branch  network,  and the value of assets  and
        liabilities that are not considered financial instruments,  such as core
        deposit intangibles and premises and equipment.

                                      -51-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
19.     Estimated Fair Value of Financial Instruments, Continued

        The  carrying  and  estimated  fair  values of the  Company's  financial
        instruments are summarized as follows:


                                                At December 31, 1998  At December 31, 1997
                                                --------------------  --------------------
                                                 Carrying     Fair     Carrying     Fair
($ in thousands)                                   Value      Value      Value      Value
------------------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>        <C>     
Financial Assets:
  Cash and cash equivalents                      $ 13,472   $ 13,472   $  9,176   $  9,176
  Securities held to maturity, net                 82,338     82,173     58,821     58,836
  Loans receivable, net                            96,074     96,139     75,652     75,658
  Federal reserve bank stock                          233        233        233        233
  Interest-bearing deposits                           199        199         99         99
  Accrued interest receivable                       1,800      1,800      1,327      1,327
Financial Liabilities:
  Deposit liabilities                             170,467    172,194    131,167    131,491
  Convertible debentures plus accrued interest      7,299      7,299       --         --
------------------------------------------------------------------------------------------
</TABLE>


        The  following  methods and  assumptions  were used to estimate the fair
        value of each class of financial instruments:

        Securities.  The estimated fair value of securities held to maturity are
        based on quoted market prices. The carrying value of the Federal Reserve
        Bank stock approximated fair value since these securities do not present
        credit concerns and are redeemable at cost.
       
        Loans  Receivable.  The estimated fair value of variable rate loans that
        reprice  frequently  and  have no  significant  change  in  credit  risk
        approximates  their carrying values.  For fixed-rate loans  (one-to-four
        family  residential,  commercial  real  estate  and  commercial  loans),
        estimated fair value is based on a discounted cash flow analysis,  using
        interest rates  currently  being offered for loans with similar terms to
        borrowers of similar credit quality.

        Management can make no assurance that its perception and  quantification
        of credit risk would be viewed in the same manner as that of a potential
        investor.  Therefore,  changes in any of management's  assumptions could
        cause the fair value estimates of loans to deviate substantially.

        Deposits.  The estimated fair value of deposits with no stated maturity,
        such as savings, money market, checking and  noninterest-bearing  demand
        deposit accounts  approximates  carrying value. The estimated fair value
        of  certificates  of deposit are based on the discounted  value of their
        contractual  cash flows.  The  discount  rate used in the present  value
        computation  was  estimated  by  comparison  to current  interest  rates
        offered by the Bank for  certificates of deposit with similar  remaining
        maturities.

        Convertible  Debentures.  The  estimated  fair value of the  convertible
        debentures and related  accrued  interest is based on a discounted  cash
        flow analysis.  The discount rate used in the present value  computation
        was  estimated  by  comparison  to  the  Holding  Company's  incremental
        borrowing  rates for a similar  arrangement.  Such rate was estimated to
        approximate the stated interest rate of the debentures.

        All Other Financial Assets and  Liabilities.  The carrying value of cash
        and due from banks,  Federal  funds  sold,  short-term  investments  and
        accrued  interest   receivable   approximated  fair  value  since  these
        instruments are payable on demand or have short-term maturities.

        Off-Balance  Sheet  Instruments.  The carrying amounts of commitments to
        lend at December 31, 1998 and 1997 were not significant and approximated
        estimated fair value.

                                      -52-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
20.     Holding Company Financial Information

                            Condensed Balance Sheets

                                                    At December 31,
                                                    ---------------
($ in thousands)                                    1998      1997
--------------------------------------------------------------------------------
ASSETS
Cash and due from banks                          $    44   $   223
Short-term investments                             4,123     7,276
                                                 --------------------
   Total cash and cash equivalents                 4,167     7,499
Interest-bearing deposits                            100        --
Loans receivable (net of allowance for loan
    loss reserves of $55 at December 31, 1998)    10,729       752
Investment in subsidiary                          11,081     9,399
Deferred debenture offering costs                    522        --
All other assets                                     544        25
--------------------------------------------------------------------------------
Total assets                                     $27,143   $17,675
--------------------------------------------------------------------------------

LIABILITIES
Convertible debentures                           $ 7,000   $    --
Accrued interest on convertible debentures           299        --
All other liabilities                                300        55
--------------------------------------------------------------------------------
Total liabilities                                  7,599        55
--------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY
Common stock and paid-in capital                  16,273    15,784
Retained earnings                                  3,271     1,836
--------------------------------------------------------------------------------
Total stockholders' equity                        19,544    17,620
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity       $27,143   $17,675
--------------------------------------------------------------------------------


                        Condensed Statements of Earnings
                                                For the Year Ended
                                                ------------------
                                                  December 31,
                                                  -------------
($ in thousands)                                  1998     1997
--------------------------------------------------------------------------------
Interest income                                  $  993    $  234
Interest expense                                    319        --
                                                 -------------------------------
Net interest income                                 674       234
Provision for loan loss reserves                     55        --
Noninterest income                                  109        30
Noninterest expense                                 197        98
                                                 -------------------------------
Earnings before income taxes                        531       166
Income taxes                                        245        74
                                                 -------------------------------
Net earnings before earnings of subsidiary          286        92
Earnings of subsidiary                            1,149       752
--------------------------------------------------------------------------------
Net earnings                                     $1,435    $  844
--------------------------------------------------------------------------------

                                      -53-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
20.     Holding Company Financial Information, Continued

                       Condensed Statements of Cash Flows

                                                                         For the Year Ended
                                                                         ------------------
                                                                             December 31,
                                                                             ------------
($ in thousands)                                                          1998        1997
--------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>     
OPERATING ACTIVITIES
Net earnings                                                          $  1,435    $    844
Adjustments to reconcile net earnings
   to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary                          (1,149)       (752)
Provision for loan loss reserves                                            55          --
Deferred income tax benefit                                                (45)         --
Compensation expense related to Class B warrants issued                     43          --
(Increase) decrease in accrued interest receivable and other assets       (410)         24
Accrued interest expense on debentures                                     299          --
All other                                                                   59         (75)
--------------------------------------------------------------------------------------------
Net cash provided by operating activities                                  287          41
--------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Increase in interest-earning deposits                                     (100)         --
Investment in preferred stock of subsidiary                               (500)         --
Investment in common stock of subsidiary                                    --      (1,000)
Net (increase) decrease in loans receivable                            (10,032)        478
--------------------------------------------------------------------------------------------
Net cash used by investing activities                                  (10,632)       (522)
--------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Net increase in mortgage escrow funds                                      142          12
Proceeds from sale of convertible debentures                             6,457          --
Proceeds from exercise of common stock warrants                            414          --
Proceeds from issuance of common stock, net of issuance costs               --       6,720
--------------------------------------------------------------------------------------------
Net cash provided by financing activities                                7,013       6,732
--------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash equivalents                    (3,332)      6,251

Cash and cash equivalents at beginning of year                           7,499       1,248

--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                              $  4,167    $  7,499
--------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
   Income taxes                                                       $    200    $    150
Noncash transactions:
   Compensation related to warrants                                         43          --
   Interest on convertible debentures                                      299          --
   Issuance of common stock in exchange for common
     stock of minority stockholders of subsidiary                           --         309
--------------------------------------------------------------------------------------------
</TABLE>

                                      -54-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
21.     Quarterly Financial Data (Unaudited)

        The following is a summary of the consolidated statements of earnings by
        quarter:

                                          For the Year Ended December 31, 1998
                                          ------------------------------------
                                           First    Second   Third    Fourth
($ in thousands, except per share amounts) Quarter  Quarter  Quarter  Quarter
--------------------------------------------------------------------------------
Interest and dividend income               $2,892   $3,075   $3,420   $3,547
Interest expense                            1,838    1,975    2,192    2,292
                                          --------------------------------------
Net interest and dividend income            1,054    1,100    1,228    1,255
Provision for loan loss reserves              100      130      127      122
                                          --------------------------------------
Net interest and dividend income after
    provision for loan loss reserves          954      970    1,101    1,133
Noninterest income                             65       85       71      128
Noninterest expense                           509      527      518      579
                                          --------------------------------------
Earnings before income taxes                  510      528      654      682
Income taxes                                  202      203      261      273
--------------------------------------------------------------------------------
Net earnings                               $  308   $  325   $  393   $  409
--------------------------------------------------------------------------------
Basic earnings per share                   $  .13   $  .13   $  .16   $  .16
Diluted earnings per share                 $  .09   $  .10   $  .13   $  .14
--------------------------------------------------------------------------------



                                           For the Year Ended December 31, 1997
                                           ------------------------------------
                                             First   Second   Third    Fourth
($ in thousands, except per share amounts)  Quarter  Quarter  Quarter  Quarter
--------------------------------------------------------------------------------
Interest and dividend income                $2,085   $2,219   $2,337   $2,706
Interest expense                             1,309    1,379    1,480    1,726
                                          --------------------------------------
Net interest and dividend income               776      840      857      980
Provision for loan loss reserves                92       92       82       86
                                          --------------------------------------
Net interest and dividend income after
    provision for loan loss reserves           684      748      775      894
Noninterest income                              31       37       28       40
Noninterest expense                            461      479      467      499
                                          --------------------------------------
Earnings before income taxes                   254      306      336      435
Income taxes                                    94      119      121      153
--------------------------------------------------------------------------------
Net earnings                                $  160   $  187   $  215   $  282
--------------------------------------------------------------------------------
Basic earnings per share                    $  .10   $  .11   $  .13   $  .15
Diluted earnings per share                  $  .09   $  .09   $  .11   $  .12
--------------------------------------------------------------------------------

                                      -55-
<PAGE>

                Intervest Bancshares Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                 For the Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------
22.     Year 2000 Issue

        The  Company  is aware  of the  many  areas  affected  by the Year  2000
        computer  issue,  as  addressed  by the Federal  Financial  Institutions
        Examination  Council in its  interagency  statement,  which  provided an
        outline for institutions to effectively manage the Year 2000 challenges.
        The Board of  Directors  has approved a Year 2000 plan,  which  includes
        multiple phases,  tasks to be completed and target dates for completion.
        Issues  addressed  therein include  awareness,  assessment,  renovation,
        validation, implementation, testing and contingency planning.

        The Company has formed a Year 2000  committee  that is charged  with the
        oversight of  completing  the Year 2000 project on a timely  basis.  The
        Company has completed its awareness,  assessment  and renovation  phases
        and is actively involved in validating and implementing its plan. At the
        present time, the Company is into its testing phase and anticipates that
        this  phase  will be  substantially  completed  by March 31,  1999.  The
        Company has determined that the costs of making modifications to correct
        any Year 2000  issues  will not  materially  affect  reported  operating
        results.

        The Company  recognizes the importance of determining that its borrowers
        are  facing  the  Year  2000  problem  in  a  timely   manner  to  avoid
        deterioration  of the  loan  portfolio  solely  due to this  issue.  All
        material relationships have been identified and questionnaires have been
        completed to assess the inherent risks.  Deposit customers have received
        statement  stuffers  and  informational  material  in this  regard.  The
        Company  plans to work on a  one-on-one  basis with any borrower who has
        been identified as having high Year 2000 risk exposure.

        Although  management  believes that the Company will not incur  material
        costs  associated  with the Year 2000 issue,  there can be no assurances
        that all hardware  and  software  that the Company will use will be Year
        2000  compliant.  Management  cannot  predict  the  amount of  financial
        difficulties  it may incur due to  customers  and vendors  inability  to
        perform  according to their  agreements  with the Company or the effects
        that other third parties may cause as a result of this issue. Therefore,
        there can be no assurance that the failure or delay of others to address
        the Year 2000 issue or that the costs  involved in such process will not
        have a material  adverse  effect on the  Company's  business,  financial
        condition, and results of operations.

        The Company's  contingency  plans  relative to Year 2000 issues have not
        been  finalized.  These  plans are  evolving  as the  testing of systems
        proceeds.  During the testing phase,  management will determine if it is
        necessary to develop a "worst case scenario"  contingency plan. Based on
        testing  results to date, the Company's  mission  critical  systems have
        been deemed to be Year 2000 compliant and, therefore, a contingency plan
        has not been developed  with respect to those  systems.  With regards to
        non-mission critical internal systems,  the Company's  contingency plans
        are  to  replace  those   systems  that  test  as  being   noncompliant.
        Alternatively,  some  systems  could be handled  manually  on an interim
        basis. Should outside service providers not be able to provide compliant
        systems,  the Company will terminate those relationships and transfer to
        Year  2000  compliant  vendors.  It is  anticipated  that the  Company's
        deposit  customers  will have  increased  demands for cash in the latter
        part  of  1999  and  correspondingly,  the  Company  will  maintain  its
        liquidity levels to meet any increased demand.

                                      -56-
<PAGE>

Item 8. Changes  In  and  Disagreements   with  Accountants  on  Accounting  and
        Financial Disclosure

None
                                    PART III

Item 9.  Directors,  Executive  Officers,  Promoters  and  Control  Persons;
         Compliance with Section 16(a) of the Exchange Act

a.  Directors.  The  information  required by this item is  contained  under the
section  entitled  "Election of Directors" in the Company's  Proxy Statement for
its 1999 Annual Meeting (the "Proxy  Statement") and is  incorporated  herein by
reference.

b.   Executive Officers.  The following information is furnished with respect to
     executive officers and key employees of the Company.

                Jerome  Dansker,  age 80,  serves  as  Chairman  of the Board of
Directors and Executive Vice President of Intervest Bancshares  Corporation . He
has served as Executive Vice  President  since 1994 and as Chairman of the Board
since 1996. Mr. Dansker  received a Bachelor of Science degree from the New York
University School of Commerce,  Accounts and Finance,  a Law degree from the New
York University School of Law, and is admitted to practice as an attorney in the
State of New York. Mr. Dansker also serves as Chairman of the Board of Directors
and Chairman of the Loan Committee of Intervest  National Bank, In Organization.
He is also a Director and Chairman of the Loan  Committee of the Intervest  Bank
and is  Chairman of the Board of  Directors  and  Executive  Vice  President  of

Intervest  Corporation of New York.  During the past five years, Mr. Dansker has
been  actively  involved  in the  ownership  and  operation  of real  estate and
mortgage investments.

                Lowell S. Dansker,  age 48, serves as a Director,  President and
Treasurer  of the  Intervest  Bancshares  Corporation,  and has  served  in such
capacities  since the Company was organized.  Mr. Dansker received a Bachelor of
Science in Business  Administration  from Babson College,  a Law degree from the
University of Akron School of Law, and is admitted to practice as an attorney in
New York,  Ohio,  Florida and the  District  of  Columbia.  Mr.  Dansker is also
Co-Chairman  of the Board of Directors and a member of the Loan Committee of the
Intervest  Bank,  a  Director,  Chief  Executive  Officer and member of the Loan
Committee of Intervest National Bank, In Organization, and a Director, President
and Treasurer of Intervest  Corporation of New York. During the past five years,
Mr.  Dansker has been  actively  involved in the ownership and operation of real
estate and mortgage investments.

                                      -57-
<PAGE>
                Lawrence  G.  Bergman,  age  54,  serves  as  a  Director,  Vice
President and Secretary of the Intervest  Bancshares  Corporation and has served
in such  capacities  since the company was  organized.  Mr.  Bergman  received a
Bachelor of Science degree and a Master of Engineering  (Electrical) degree from
Cornell  University  and a Master of Science in Engineering  and a Ph.D.  degree
from The Johns Hopkins University.  Mr. Bergman is also Co-Chairman of the Board
of Directors  and a member of the Loan  Committee of the  Intervest  Bank. He is
also a Director  and a member of the Loan  Committee of the  Intervest  National
Bank, In Organization, and a Director, Vice-President and Secretary of Intervest
Corporation  of New York.  During  the past  five  years  Mr.  Bergman  has been
actively  involved in the  ownership  and  operation of real estate and mortgage
investments.

                Keith A. Olsen,  age 45,  serves as President of Intervest  Bank
and has served in such  capacity  since  1994.  Prior to that,  Mr.  Olsen was a
Senior Vice  President  of  Intervest  Bank since 1991.  Mr.  Olsen  received an
Associates  Degree from St.  Petersburg Junior College and a Bachelors Degree in
Business Administration and Finance from the University of Florida, Gainesville.
He is also a graduate  of the  Florida  School of Banking of the  University  of
Florida,  Gainesville,  the National  School of Rea Estate Finance of Ohio State
University  and the Graduate  School of Banking of the South of Louisiana  State
University. Mr. Olsen has been a banker for more than 15 years and has served as
a senior bank officer for more than 10 years.

                Petra H. Coover,  age 52, serves as Vice  President of Intervest
Bank and has served in such  capacity  since 1994.  Ms.  Coover  received a B.A.
degree in business administration from Eckerd College. She has also attended The
National School of Real Estate Finance of Ohio State University,  the Commercial
Lending School of the University of South Florida and the International Business
Institute in the  Netherlands.  Ms. Coover has been a bank officer for more than
14 years.

                                      -58-
<PAGE>

                Charlotte H. Grant, age 60, serves as Vice President and Cashier
of Intervest  Bank and has served in that  capacity  since July 1998.  Ms. Grant
received  her  Bachelors  degree from the  University  of South  Florida and her
Masters  Degree from the  University of Tampa.  Ms. Grant is a Certified  Public
Accountant. Prior to joining Intervest Bank, Ms. Grant served as Chief Financial
Officer of First Community Bank of America from October 1987 to July 1998 and as
an Accountant in Practice with the firm of Hacker,  Johnson, Cohen and Grieb, PA
(the  Company's  auditors)  from 1993 to 1997.  Prior to that,  Ms.  Grant was a
Manager of Financial Reporting for First Florida Bank.

                Raymond C.  Sullivan,  age 52, has been an employee of Intervest
Bancshares  Corporation since March 1998. He serves as President and Director of
Intervest National Bank, In Organization,  and has served in that capacity since
March 1999. Mr. Sullivan received an MBA degree from Fordham University, an M.S.
degree from City College of New York and a B.A. degree from St. Francis College.
Mr.  Sullivan also has a Certificate  in Advanced  Graduate  Study in Accounting
from Pace  University  and is a graduate of the  National  School of Finance and
Management.  Mr.  Sullivan  has over 27 years of  banking  experience.  Prior to
joining  Intervest  Bancshares  Corporation,  Mr.  Sullivan  was the  Operations
Manager of the New York Agency  Office of Banco  Mercantile,  C.A.  from 1994 to
1997, a Senior  Associate at LoBue  Associates,  Inc. from 1992 to 1993,  and an
Executive  Vice  President,  Chief  Operations  Officer and  Director of Central
Federal Savings Bank from 1985 to 1992.

                John J.  Arvonio,  age 36,  has been an  employee  of  Intervest
Bancshares Corporation since April 1998. He serves as Vice President, Controller
and Corporate  Secretary of Intervest  National Bank, In  Organization,  and has
served in that capacity  since  inception of the bank.  Mr.  Arvonio  received a
B.B.A.  degree  from Iona  College  and is a Certified  Public  Accountant.  Mr.
Arvonio  has  10  years  of  banking  experience.  Prior  to  joining  Intervest
Bancshares Corporation,  Mr. Arvonio served as Second Vice President,  Technical
Advisor and Assistant Controller for The Greater New York Savings Bank from 1992
to 1997.  Prior to that, Mr. Arvonio was Manager of Financial  Reporting for the
Leasing and Investment Banking Divisions of Citicorp.

c.  Compliance with Section 16(a).  Information  contained in the section of the
Proxy  Statement   entitled  "Section  16(a)  Beneficial   Ownership   Reporting
Compliance" is incorporated herein by reference.

Item 10.  Executive Compensation

The information  contained in the section entitled  "Executive  Compensation" of
the Proxy Statement is incorporated herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The information contained in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement is incorporated  herein
by reference.

Item 12.  Certain Relationships and Related Transactions

The information  contained in the section entitled  "Certain  Relationships  and
Related   Transactions"  of  the  Proxy  Statement  is  incorporated  herein  by
reference.

                                      -59-
<PAGE>
Item 13.  Exhibits, Lists and Reports on Form 8-K

 a.  The following exhibits are incorporated by reference herein:

Exhibit No.             Description of Exhibit
-----------             ----------------------

3.1                  Restated  Certificate  of  Incorporation  of  the  Company,
                     incorporated   by  reference  to  Amendment   No.1  to  the
                     Company's   Registration   Statement   on  Form   SB-2  (No
                     333-33419),   filed  with  the   Securities   and  Exchange
                     Commission  (the  "Commission")  on September 22, 1997 (the
                     "Registration   Statement"),   wherein  such   document  is
                     identified as exhibit 3.1.

3.2                  Bylaws of the  Company,  incorporated  by  reference to the
                     Registration   Statement,   where  in  such   document   is
                     identified as Exhibit 3.1.

4.1                  Form of  Certificate  for  Shares of Class A common  stock,
                     incorporated  by reference to the  Company's  Pre-Effective
                     Amendment No.1 to the  Registration  Statement on Form SB-2
                     (No. 33-82246),  filed with the Commission on September 15,
                     1994.

4.2                  Form of  Certificate  for  Shares of Class B Common  stock,
                     incorporated  by reference to the  Company's  Pre-Effective
                     Amendment No.1 to the  Registration  Statement on Form SB-2
                     (No. 33-82246),  filed with the Commission on September 15,
                     1994.

4.3                  Form of Warrant issued to Mr. Jerome Dansker,  incorporated
                     by reference to the  Company's  Report on Form 10-K for the
                     year ended  December  31,1995,  wherein  such  document  is
                     identified as Exhibit 4.2.

4.4                  Form of Warrant for Class A Common stock,  incorporated  by
                     reference  to  the  Registration  Statement,  wherein  such
                     document is identified as Exhibit 4.3.

4.5                  Form of Warrant  Agreement between the Company and the Bank
                     of New York,  incorporated by reference to the Registration
                     Statement,  wherein such  document is identified as Exhibit
                     4.4.

4.6                  Form of  Indenture  between the Company and the Bank of New
                     York,  as  Trustee,   incorporated   by  reference  to  the
                     Company's  Registration  Statement on Form SB-2 (333-50113)
                     filed with the Commission on April 15,1998.

12                   Statement  re:  computation  of ratios of earnings to fixed
                     charges.

23                   Consent of Independent Accountants.

27                   Financial Data Schedule (For SEC purposes only).

                                      -60-
<PAGE>

b. No  reports  on Form 8-K were  filed  during  the last  quarter of the period
covered by this report.

<TABLE>
<CAPTION>

                                   Signatures

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the date indicated.

INTERVEST BANCSHARES CORPORATION
(Registrant)

<S>                                                             <C>             <C> 
By: /s/ Lowell S. Dansker                                       Date:           March 12, 1999
--------------------------------------                                          -----------------
           Lowell S. Dansker, President

                Pursuant to the  requirements of the Securities  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the registrant and in the capacities and on the date indicated.

Chairman of the Board, Executive Vice President and Director:

By: /s/ Jerome Dansker                                          Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Jerome Dansker

President, Treasurer and Director
(Principal Executive, Financial and Accounting Officer):

By: /s/ Lowell S. Dansker                                      Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Lowell S. Dansker

Vice President, Secretary and Director:

By: /s/ Lawrence G. Bergman                                     Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Lawrence G. Bergman

Directors:
By: /s/ Michael A. Callen                                       Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Michael A. Callen

By: /s/ Milton F. Gidge                                         Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Milton F. Gidge

By: /s/ William F. Holly                                        Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           William F. Holly

By: /s/ Edward J. Merz                                          Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Edward J. Merz

By: /s/ David J. Willmott                                       Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           David J. Willmott

By: /s/ Wesley T. Wood                                          Date:           March 12, 1999
-----------------------------------                                  ----------------------------
           Wesley T. Wood
</TABLE>

                                      -61-