U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
(Mark One)
                                   FORM 10-KSB

               X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES AND EXCHANGE ACT OF 1934 (Fee required)

For the fiscal year ended                                 Commission File Number
   December 31, 1996                                            33-82246
-------------------------                                 ----------------------

                        INTERVEST BANCSHARES CORPORATION
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in its Charter)

          Delaware                                        13-3699013
-------------------------------                       ---------------------
(State or Other Jurisdiction of                       (I.R.S. Employer No.)
Incorporation or Organization)

         10 Rockefeller Plaza, New York, New York                10020-1903
--------------------------------------------------------------------------------
         (Address of Principal Executive Offices)                (Zip Code)

                                 (212) 757-7300
                 Issuer's Telephone Number, Including Area Code

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None
                                ----------------
                                (Title of Class)

           Securities Register Pursuant to Section 12 (g) of the Act:

                                      None
                                ----------------
                                (Title of Class)

Indicate by check mark whether the Issuer (1) has filed all reports  required to
be filed by  Section  13 or 15(d) of the  Securities  and  Exchange  Act of 1934
during the  preceding 12 months (or for such shorter  period that the Issuer was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES X          NO  _____

Indicate by check mark 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  Issuer's  knowledge  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III to this Form 10-KSB or any  amendment to
this Form 10-KSB (X) .

The Issuer's  total  interest  income and total other income for its most recent
fiscal year was $6,381,000 and $106,000, respectively.



<PAGE>



The aggregate  market value of the Issuer's voting stock held by  non-affiliates
computed by reference to the price at which the stock was sold is $3,000,000.

As of March 15, 1997 there were 900,000  shares of the  Issuer's  Class A common
stock and 200,000 shares of the Issuer's Class B common stock outstanding.

Indicate by check mark whether the Issuer is utilizing  the  Transitional  Small
Business Format. YES ________     NO X .


<PAGE>

<TABLE>
<CAPTION>


                                TABLE OF CONTENTS



                                                      PART I

                                                                                                              Pages

<S>  <C>          <C>                                                                                            <C>
Item 1            Description of Business                                                                         4
Item 2            Description of Property                                                                         8
Item 3            Legal Proceedings                                                                               8
Item 4            Submission of Matters to a Vote of Security Holders                                             8



                                                      PART II

Item 5            Market for Common Equity and Related Stockholder Matters                                        8
Item 6            Management's Discussion and Analysis or Plan of Operations                                     10
Item 7            Financial Statements                                                                           32
Item 8            Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                                                            52



                                                     PART III

Item  9           Directors, Executive Officers, Promoters and Control Persons of the
                  Registrant; Compliance with Section 16(a) of the Exchange Act                                  52
Item 10           Executive Compensation                                                                         53
Item 11           Security Ownership of Certain Beneficial Owners and Management                                 55
Item 12           Certain Relationships and Related Transactions                                                 56
Item 13           Exhibits, Lists and Reports on Form 8-K                                                        58

SIGNATURES
</TABLE>





<PAGE>



                                     PART I

Item 1.  Description of Business

         Intervest  Bancshares  Corporation  (the "Company) is a registered bank
holding company incorporated under the laws of the State of Delaware on February
5, 1993.  The  principal  offices of the Company  are located at 10  Rockefeller
Plaza,  Suite 1015, New York, New York  10020-1903,  and its telephone number is
212-757-7300.  The  Company's  primary asset is Intervest  Bank (the "Bank"),  a
Florida  chartered  bank which is a member of the Federal  Reserve  System.  The
Company owns approximately 96% of the issued and outstanding shares of the Bank.
The  Company,  through its  controlling  ownership  of the Bank,  engages in the
business of commercial banking.  The Company engages in no substantial  business
activities other than mortgage  lending and activities  related to its ownership
of the Bank.

         The Bank was  originally  chartered in December,  1987.  It operated as
Countryside Bankers until 1994, when its name was changed to Intervest Bank. The
principal  executive offices of the Bank are located at 1875 Belcher Road North,
Clearwater,  Florida  34625,  and its  telephone  number is (813) 791- 6115.  In
addition to its  principal  office,  which is leased,  the Bank  operates  three
branch offices in Clearwater, Florida at 606 Chestnut Street, 2175 Nursery Road,
and 2575 Ulmerton  Road. It has also acquired  property at 6750 Gulfport  Blvd.,
South  Pasadena,  Florida  and  expects to open a fourth  branch  office at that
location in the summer of 1997.

         The Bank is subject to examination and comprehensive  regulation by the
Federal  Reserve  Board (the "FRB") and its  deposits are insured by the Federal
Deposit  Insurance  Corporation (the "FDIC") to the extent permitted by law. The
Bank is a member of the Federal Reserve System.  The Bank is also subject to the
supervision of and examination by the Florida Department of Banking and Finance.

         The Bank primarily focuses on providing  personalized  banking services
to businesses and individuals within the market area where its banking office is
located. Management believes that this local market strategy enables the Bank to
attract and retain low cost core deposits which provide substantially all of the
Bank's funding requirements.

         Deposit services include certificates of deposit, individual retirement
accounts  ("IRAs") and other time  deposits,  checking and other demand  deposit
accounts,  NOW  accounts,  savings  accounts  and  money  market  accounts.  The
transaction  accounts and time certificates are tailored to the principal market
areas at rates  competitive  to those in the  area.  All  deposit  accounts  are
insured by the FDIC up to the maximum limits permitted by law. The Bank solicits
these accounts from small businesses,  professional firms and households located
throughout its primary market area.

         The Bank also  offers  ATM cards  with  access  to  local,  state,  and
national networks, safe deposit boxes, wire transfers, direct deposit of payroll
and social security checks, and automatic drafts for various accounts.  The Bank
periodically  reviews the scope of the  products and services it offers so as to
assess whether  additional  products or services should,  consistent with market
opportunities  and available  resources,  be included in the Bank's products and
services.

         The Bank  conducts  commercial  and  consumer  banking  business  which
primarily  consists of attracting  deposits from the areas served by its banking


                                        4

<PAGE>



offices  and using  those  deposits,  together  with  funds  derived  from other
sources,  to originate a variety of  commercial,  consumer and real estate loans
(including  commercial loans  collateralized  by real estate).  Commercial loans
include  both  collateralized  and  uncollateralized  loans for working  capital
(including inventory and receivables), business expansion (including 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.

         The revenues of the Bank are  primarily  derived from  interest on, and
fees received in connection  with,  commercial real estate and other loans,  and
from interest and dividends from  securities,  and short-term  investments.  The
principal  sources of funds for the Bank's lending  activities are its deposits,
repayment  of loans,  the income  from and  maturity of  securities  and capital
contributions  from the  Company.  The  principal  expenses  of the Bank are the
interest paid on deposits and operating and general administrative expenses.

         As  is  the  case  with  banking  institutions  generally,  the  Bank's
operations  are  materially  and  significantly  influenced by general  economic
conditions and by related monetary and fiscal policies of financial  institution
regulatory  agencies,  including  the FRB,  the FDIC,  and the State of Florida.
Deposit flows and cost of funds 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 lendable funds) and in the origination of loans.

Market Area

         The Bank's  facilities  are  located in Pinellas  County,  which is the
Bank's primary market area. Pinellas County has an estimated resident population
of  approximately  850,000  people.  The Bank's  deposit  gathering  and lending
markets  are  concentrated  on  the  communities   surrounding  its  offices  in
Clearwater, 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.

Market for Services

         Management  believes  that the Bank's  principal  markets  are: (i) the
established and expanding  commercial market within the primary market area: and
(ii) the moderate and the affluent  residential market within the primary market
area. Moreover,  management believes that a community bank is well positioned to
establish these  relationships  with both  commercial  customers and households.
Management  believes that the Bank is well  positioned to take  advantage of its
market segment.

         Businesses  are  solicited  through the personal  efforts of the Bank's
directors  and  officers.  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, the Company expects that the Bank
will be able to make prudent lending  decisions  quickly and more equitably than
its competitors without compromising asset quality or the Bank's profitability.



                                        5

<PAGE>



Lending Activities

         The primary source of income generated by the Bank is from the interest
earned  from  both the  loan  and  securities  portfolios.  The  Bank  maintains
diversification when considering  investments and the granting of loan requests.
Emphasis is placed on the  borrower's  ability to generate  cash flow to support
its debt obligations and other cash related expenses. Lending activities include
commercial  and  consumer  loans and real  estate  loans.  Commercial  loans are
originated  for working  capital  funding.  Consumer loans include those for the
purchase of automobiles,  boats, home improvements and investments.  Real estate
loans include primarily the origination of loans for commercial property.  While
the Bank's lending activities include single-family  residential mortgages, such
lending activities are not emphasized.

         At December 31, 1996 the Bank's net loan  portfolio was $59.5  million,
representing  56.6% of its total  assets.  As of such date,  the loan  portfolio
consisted of 5.8% commercial  loans,  94.0%  real-estate  mortgage loans and .2%
consumer and other loans.

         Real Estate Mortgage Loans

         A portion of the Bank's real estate  mortgage loans are made to finance
the acquisition of single family  residences.  The Bank requires  mortgage title
insurance and hazard insurance in amounts deemed appropriate by Management.

         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 (including  inventory and receivables),  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 the Bank's
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 long-term assets.

         Unlike  residential  mortgage  loans,  which  generally are made on the
basis of the borrower's  ability to make repayment from his 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 his
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.



                                        6

<PAGE>



         Consumer Loans

         Consumer loans made by the Bank have included  automobiles,  recreation
vehicles,  boats,  second  mortgages,  home  improvements,  home equity lines of
credit,  personal  (collateralized  and  uncollateralized)  and deposit  account
collateralized loans. The terms of these loans periodically range from 36 to 180
months and vary based upon the kind of collateral and size of loan.

         Consumer loans  typically  have a short term and carry higher  interest
rates than that charged on other types of loans.  Installment loans, however, do
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.  Accordingly,
the  initial  determination  of the  borrower's  ability  to repay is of primary
importance in the underwriting of consumer loans.

         Loan Solicitation and Processing

         Loan   originations  are  derived  from  a  number  of  sources.   Loan
originations  can be  attributed  to  direct  solicitation  by the  Bank'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,  a
credit  report and  verifications  are  ordered to verify  specific  information
relating  to the loan  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 Bank.

Competition

         The  Bank  encounters  strong  competition  both in  making  loans  and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank  holding companies as well as an
increasing  level of  interstate  banking  have  created  a  highly  competitive
environment for commercial  banking in the Bank's primary market area. 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  operating in Pinellas  County and elsewhere.  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 Company's non-bank competitors are not subject to the same extensive
federal  regulations  that govern bank holding  companies and federally  insured
banks. See "Investment Considerations and Risk Factors-Competition."

         Management  believes that the Company and the Bank are well  positioned
to compete  successfully in its primary market area,  although no assurances can
be given.  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.   As  an  independent   community  bank
headquartered  in the Bank's primary market area,  management  believes that the
Bank's community  commitment and involvement in its primary market area, as well


                                        7

<PAGE>



as its commitment to quality,  personalized  banking services,  are factors that
contribute to the Bank's competitiveness.

Employees

         At December 31,  1996,  the Company and the Bank  together  employed 24
full-time  and 1 part-time  employees.  None of these  employees is covered by a
collective  bargaining  agreement  and the Company  believes  that its  employee
relations are good.

Item 2.  Description of Property

         The office of the Company is at 10  Rockefeller  Plaza,  New York,  New
York.   The  Bank  maintains  its  principal   office  in  leased   premises  of
approximately 6,800 square feet at 1875 Belcher Road North, Clearwater, Florida.
The Bank's office includes an outside  drive-through teller station. In addition
to its  principal  office,  the bank owns three  branch  offices in  Clearwater,
Florida.  One  branch is  located  at 606  Chestnut  Street.  This  facility  is
undergoing  extensive  reconstruction  and it is  expected to re-open in June of
1997 as a two-story  building of approximately  21,000 square feet with a drive-
through teller facility.  The Bank will occupy the ground floor as its principal
office and the upper floor will be available  for lease to  commercial  tenants.
Another  branch is located at 2175  Nursery  Road and  consists of a facility of
approximately  2,700  square feet and  likewise  includes  drive-through  teller
facilities.  The third  branch is  located  in a  three-story  building  at 2575
Ulmerton  Road. The branch office  occupies the ground floor,  which consists of
approximately   2,500  square  feet.  This  branch  office   likewise   includes
drive-through  teller  facilities.  The Bank  subleases  a portion of its office
space at its principal  office and leases a portion of available office space in
its branch office at 2575 Ulmerton Road to commercial tenants.  During 1996, the
Bank  acquired a former  bank  office  located at  Gulfport  Boulevard  in South
Pasadena, Florida, which consists of a one-story building of approximately 2,500
square  feet,  with a  drive-through  teller  facility.  The  building  will  be
renovated and it is anticipated that it will open as a branch office on or about
July of 1997.

Item 3.  Legal Proceedings

         The  Company  and the Bank are  periodically  parties  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  of real
property  loans,  and other issues incident to the Bank's  business.  Management
does not believe that there is any pending or threatened  proceeding against the
Company or the Bank which, if determined adversely, would have a material effect
on the business,  results of operations, or financial position of the Company or
the Bank.

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

         Not Applicable



                                        8

<PAGE>



                                     PART II

Item 5.  Market for Common Equity and Related Stockholders Matters

Market for Securities

         There is no established public trading market for the securities of the
Company, and it is not presently contemplated that the Company's securities will
be included in any  established  exchange.  The  Company  currently  has 900,000
shares of Class A common stock and 200,000 shares of Class B common stock issued
and outstanding. In addition, the Company has 1,019,110 shares of Class A common
stock and 100,000  shares of Class B Common Stock reserved for issuance upon the
exercise of warrants  issued or to be issued by the Company.  The 200,000 shares
of the Company's Class B common stock are convertible in some circumstances into
200,000  shares of the  Company's  Class A common  stock.  There  are  currently
approximately  90 holders of record of the Company's  Class A common stock;  and
three  shareholders of record of the Company's Class B common stock.  The shares
of Class B common  stock and the Shares of Class A common  stock into which they
are  convertible,  together with the 600,000  shares of the Company's  shares of
Class A common stock held of record by the three  initial  shareholders,  may be
sold pursuant to Securities and Exchange Commission Rule 144,  promulgated under
the Securities Act, if the conditions of Rule 144 are met.

Dividends

         Holders of the  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 therefor.  No dividends may be declared or paid with respect to shares
of Class B common stock until January 1, 2000.

         The 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
the Company's Stock.

         The Company's ability to pay dividends is generally limited to earnings
from the prior year,  although  retained earnings and dividends from the Bank to
the Company may also be used to pay dividends under certain  circumstances.  The
primary source of funds for dividends payable by the Company to its shareholders
is 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
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 Company.  In  particular,  under
federal banking law, the Bank may not declare a dividend that exceeds  undivided
profits.  In addition,  the approval of the Federal Reserve Bank of Atlanta (the
"Atlanta  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 Atlanta 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 Company under certain  circumstances.  The FRB not
only has established certain financial and capital  requirements that affect the


                                        9

<PAGE>



ability of the Bank to pay dividends,  but it has also the general  authority to
prohibit the Bank from  engaging in an unsafe or unsound  practice in conducting
its 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.

         Both the FRB and the Florida  Department of Banking and Finance,  which
regulate and supervise the Bank and the Company, 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  Company  to pay  cash  dividends  is
currently,  and in the future  could be further  influenced  by bank  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 Company,
the amount of cash on hand at the Company level,  outstanding debt  obligations,
if any, and the requirements imposed by regulatory authorities.

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

General

         The  Company's  principal  asset  is  its  ownership  of a  controlling
interest in the Bank.  Accordingly,  the  Company's  results of  operations  are
primarily  dependent  upon the  results  of  operations  of the  Bank.  The Bank
conducts a commercial  banking  business which  consists of attracting  deposits
from  the  general  public  and  applying  those  funds  to the  origination  of
commercial,   consumer  and  real  estate  loans  (including   commercial  loans
collateralized by real estate).  The Bank's  profitability  depends primarily on
net interest income,  which is the difference  between interest income generated
from  interest-earning  assets (i.e.,  loans and investments)  less the interest
expense incurred on  interest-bearing  liabilities (i.e.,  customer deposits and
borrowed  funds).  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
Bank's  interest-rate  spread, which is the difference between the average yield
earned  on  its  interest-earning  assets  and  the  average  rate  paid  on its
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, and to a lesser extent, the Bank's
profitability is affected by such factors as the level of noninterest income and
expenses,  the  provision  for  credit  losses,  and  the  effective  tax  rate.
Noninterest  income  consists  primarily  of loan and  other  fees.  Noninterest
expense  consists of  compensation  and benefits,  occupancy  related  expenses,
deposit insurance premiums paid to the FDIC, and other operating expenses.

         Since its  acquisition  of control of the Bank in 1993, the Company has
sought to strengthen  the operation of the Bank,  to improve asset  quality,  to
increase the loan portfolio and to decrease  nonperforming  loans.  During 1994,


                                       10

<PAGE>



the Company  completed a public  offering of 300,000 Units for gross proceeds of
$3,000,000  (the  "1994  Offering").  Each  Unit  consisted  of one share of the
Company's  common stock and one warrant to purchase an additional share of Class
A common stock.  The Company has issued  additional  warrants related to 384,800
shares of Class A common  stock to  officers,  directors,  and  employees of the
Company and the Bank, which are exercisable at a price of $10 per share.  During
1996,  a warrant to  purchase  shares of Class A Common  Stock was issued to the
Company's  Executive Vice President,  which is exercisable for 334,310 shares on
or before January 31, 2006 at $10 per share. The Company has reserved a total of
1,019,110  shares of Class A stock for issuance  upon  exercise of the Company's
warrants to purchase  shares of Class A Common Stock.  During 1996, the Board of
Directors  authorized  the issuance of a warrant to purchase  100,000  shares of
Class  B  Common  Stock  to  its  Executive  Vice  President.  That  warrant  is
exercisable at $10.00 per share on or before January 31, 2007.

         In November of 1994,  the Bank  acquired two bank  branches  located in
Clearwater,  Florida,  each of  which  includes  a single  free-standing  office
facility.  The aggregate  purchase price for the properties was  $1,077,000.  In
1995, the Bank acquired and opened a third branch office in Clearwater, Florida,
which is a three-story office building. The purchase price for that facility was
$850,000.  During 1996, the Bank also acquired a branch site in South  Pasadena,
Florida at a purchase  price of $187,700  and expects to open a branch  there in
the summer of 1997.  Management  believes that additional  capital is the key to
any expansion program and, to this end, it will continually  assess the need for
capital,  both at the Bank and the  Company  levels.  If it is  determined  that
additional  capital is necessary to support the operations of the Company or the
Bank or to support any  expansion or  acquisition  activities,  transactions  to
obtain additional  financing will be considered by the Company.  In that regard,
during 1995, the Company purchased 200,000 additional shares of the common stock
of the Bank at a purchase price of $5.00 per share,  for an aggregate  amount of
$1.0 million.  In connection  with that  transaction,  the Company was granted a
warrant,  exercisable  from time to time, in whole or in part, to purchase up to
200,000 additional shares at that price. The warrant expires December 31, 1999.

         The  Bank's  present  offices  are  located  in  Clearwater,   Florida.
Clearwater is located in Pinellas  County,  which is the most populous county in
the Tampa Bay area of Florida.  It  anticipates  an  additional  office in South
Pasadena,  which is also in Pinellas County.  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
approximately  2,200,000,  which reflects population  increases of approximately
45% between 1970 and 1980, and approximately 27% between 1980 and 1990. Pinellas
is the most densely populated county in Florida, with more than 2,800 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),  and this 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.

         The  economy of  Pinellas  County has  historically  been  tourist  and
retirement  oriented.  Pinellas County has recently  attracted a larger share of
new business,  particularly in the high technology industries.  Total per capita
personal income in Pinellas County increased from approximately  $15,000 in 1984
to  approximately   $22,700  in  1992.  Employment  in  the  region  reflects  a
broad-based  economy,   with  an  emphasis  on  the  retail  trade  and  service
industries.


                                       11

<PAGE>



         The  housing  market  in the  region  remains  stable  in the  view  of
management, although housing starts have slowed from the high levels experienced
during the 1970's.

         Clearwater is the county seat of Pinellas County and its second largest
city.  It  encompasses  approximately  32 square miles and has a  population  of
approximately 100,000.

         Management's  discussion and analysis of earnings and related financial
data are presented  herein to assist  investors in  understanding  the financial
condition and results of operations of the Company for the years ended  December
31,  1996 and  1995.  This  discussion  should be read in  conjunction  with the
consolidated  financial  statements and related  footnotes  presented  elsewhere
herein.

Results Of Operations

Comparison of Year Ended December 31, 1996 and 1995.

General

         Net  earnings  for the year  ended  December  31,  1996  were  $558,000
compared to $270,000 for the year ended December 31, 1995.  This increase in the
Company's net earnings was  primarily due to an increase in net interest  income
partially  offset by an  increase in other  expenses  and  provision  for income
taxes.

Interest Income and Expense

         Interest  income  increased by $2,191,000  from $4,190,000 for the year
ended  December  31, 1995 to  $6,381,000  for the year ended  December 31, 1996.
Interest income on loans increased  $1,746,000 due to an increase in the average
loan  portfolio  balance from $28.1 million for the year ended December 31, 1995
to $49.3  million  for 1996,  partially  offset by a  decrease  in the  weighted
average yield of 87 basis points.  Interest on securities increased $434,000 due
to an increase in the average  securities  balance from $16.8 million in 1995 to
$25.6  million in 1996,  partially  offset by a decrease  in average  yield from
6.44%  in 1995 to  5.92% in 1996.  Interest  on  other  interest-earning  assets
increased  $11,000  primarily  due to an increase  from $4.3  million in average
other interest-earning assets in 1995 to $4.7 million in 1996.

         Interest  expense  increased to $3,745,000  for the year ended December
31, 1996 from $2,225,000 for the year ended December 31, 1995.  Interest expense
on deposit accounts increased because of a $28.6 million increase in the average
balance,  although  there was a decrease of 6 basis points in the average  yield
paid on deposits for the year ended December 31, 1996 compared to 1995.

Provision for Loan Losses

         The provision for loan losses is charged to earnings to bring the total
allowance  to a  level  deemed  appropriate  by  management  and is  based  upon
historical  experience,  the volume and type of lending  conducted  by the Bank,
industry  standards,   the  amount  of  nonperforming  loans,  general  economic
conditions,  particularly  as they relate to the Bank's market areas,  and other
factors  related  to  the  collectability  of the  Bank's  loan  portfolio.  The
provision  increased  from  $233,000  for the year ended  December  31,  1995 to


                                       12

<PAGE>



$250,000 for the year ended December 31, 1996.  The ratio of net  charge-offs to
average loans  outstanding  was .001 at December 31, 1996 and 1995. The ratio of
allowance  for loan losses to  period-end  total loans was .013 at December  31,
1996 and .016 at  December  31,  1995.  At  December  31,  1996,  there  were no
non-performing  loans.  Management  believes that the allowance for loan loss of
$811,000 is adequate at December 31, 1996.

Other Income

         Total other income  increased  $17,000 for the year ended  December 31,
1996 compared to 1995.

Other Expenses

         Total other expenses increased $136,000 for the year ended December 31,
1996  when  compared  to  1995,   primarily  due  to  an  increase  in  employee
compensation  and  benefits,  partially  offset by a decrease in  occupancy  and
equipment  expenses  and federal  insurance  premiums.  The increase in employee
compensation  and benefits is primarily due to additional  personnel for the new
branches.  The decrease in occupancy and equipment expense is due to an increase
in income from the leasing of space in Company buildings to third parties.

Provision for Income Taxes

         In 1996 the provision for income taxes is $383,000, an effective income
tax rate of 40.7%, as compared to $136,000 and 33.5% respectively,  in 1995. The
increase is primarily due to an increase in net earnings of the holding company,
which are taxed at a higher state income tax rate than those of the Bank.

Net Interest Income

         Net interest income,  which  constitutes the principal source of income
for the Company,  represents the difference  between income on  interest-earning
assets and  interest  expense on  interest-bearing  liabilities.  The  principal
interest-earning  assets  are  investments  and  loans  made to  businesses  and
individuals.  Interest-bearing  liabilities  primarily consist of time deposits,
interest paying checking accounts ("NOW accounts"),  retail savings deposits and
money market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest-earning  assets.  Accordingly,  net interest income depends
upon  the  volume  of  the   average   interest-earning   assets   and   average
interest-bearing liabilities and the interest rates earned or paid on them.

         Net interest  income was  $2,636,000 for the Company for the year ended
December 31, 1996 compared with $1,965,000 for the year ended December 31, 1995.
This improvement in net interest income is primarily a result of a higher volume
of net interest-earning assets.


                                       13

<PAGE>




         The following tables set forth, for the periods indicated,  information
regarding  (i) the total dollar  amount of interest  and dividend  income of the
Company from interest-earning  assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing  liabilities and the
resultant average costs; (iii) net interest/dividend  income; (iv) interest rate
spread;  (v) net interest  margin.  Average  balances are based on average daily
balances.

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                    ------------------------------------------------------------------------
                                                  1996                               1995
                                    ------------------------------------------------------------------------
                                                       (Dollars in thousands)
                                                  Interest     Average               Interest        Average
                                      Average       and         Yield/     Average     and           Yield/
                                      Balance     Dividends      Rate      Balance   Dividends       Rate
                                      -------     ---------      ----      -------   ---------       ----

Interest-earning assets:
<S>    <C>                            <C>           <C>          <C>       <C>          <C>          <C>
  Loans(1)                            $49,266       4,624        9.39%     $28,052      2,878        10.26%
  Securities                           25,577       1,514        5.92%      16,775      1,080         6.44%
  Other interest-earning assets(2)      4,730         243        5.14%       4,266        232         5.44%
                                      -------        ----      -------     -------     -----

         Total interest-earning
             assets                    79,573       6,381        8.02%      49,093      4,190         8.53%
                                                   -------                              -----

Noninterest-earning assets              4,089                                4,007
                                        -----                                -----


         Total assets                 $83,662                               53,100
                                      =======                                =====

Interest-bearing liabilities:
   Demand, money market and
     NOW deposits                       8,432         310        3.68%       5,515        141         2.56%
   Savings                              1,470          62        4.22%         681         15         2.20%
   Certificates of deposit             59,437       3,371        5.67%      34,562      2,068         5.98%
   Other                                   34           2        5.88%          17          1         5.88%
                                       ------       -----        ----       ------      -----

         Total interest-bearing
            liabilities                69,373       3,745        5.40%      40,775      2,225         5.46%
                                                   -------                              -----

Noninterest-bearing liabilities         4,840                                3,356

Stockholders' equity                    9,449                                8,969
                                       -------                               -----


         Total liabilities and
            stockholders' equity      $83,662                              $53,100
                                      =======                              =======


Net interest/dividend income                      $ 2,636                             $ 1,965
                                                  =======                             =======


Interest rate spread(3)                                          2.62%                                3.07%
                                                                 =====                                =====

Net interest margin(4)                                           3.31%                                4.00%
                                                                 =====                                =====

Ratio of average interest-earning
   assets to average interest-
   bearing liabilities                   1.15                                 1.20
                                         ====                                 ====

</TABLE>

                                       14

<PAGE>




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

(1)      Includes nonaccrual loans.

(2)      Includes interest-bearing deposits.

(3)      Interest  rate spread  represents  the  difference  between the average
         yield   on   interest-earning   assets   and   the   average   cost  of
         interest-bearing liabilities.

(4)      Net  interest   margin  is  net  interest  income  divided  by  average
         interest-earning assets.


Rate/Volume Analysis

         The following table sets forth certain information regarding changes in
interest income and interest  expense of the Company for the periods  indicated.
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).

                                                       December 31,
                                                      1996 vs. 1995
                                                 --------------------------
                                                 Increase (Decrease) Due to
                                                 --------------------------
                                                               Rate/
                                             Rate    Volume    Volume    Total
                                             ----    ------    ------    -----
                                                  (Dollars in thousands)
Interest-earning assets:
   Loans                                    $(245)    2,176     (185)    1,746
   Securities                                 (87)      567      (46)      434
   Other interest-earning assets              (13)       25       (1)       11
                                            -----     -----    -----     -----

  Total                                     $(345)    2,768     (232)    2,191
                                            -----     -----    -----     -----

Interest-bearing liabilities:
   Demand, Money Market and NOW Deposits       62        74       33       169
   Savings                                     14        17       16        47
   Certificates of Deposit                   (107)    1,488      (78)    1,303
   Other Borrowings                          --           1     --           1
                                            -----     -----    -----     -----

  Total                                       (31)    1,580      (29)    1,520
                                            -----     -----    -----     -----

Net change in net interest income
   before provision for credit losses       $(314)    1,188     (203)      671
                                            =====     =====    =====     =====



Income Taxes

  At December 31, 1996,  the Company had net operating  loss  carryforwards  for
federal income tax purposes  available to offset future federal  taxable income.
They were in the aggregate amount of $826,000,  with specified portions expiring
in each year from 2004 through 2008. The  carryforwards are subject to an annual
limitation of $332,000.

  At the time of its  incorporation,  the  Company  adopted  the  provisions  of
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes," which requires it to take into account changes in tax rates when valuing
the deferred income tax amounts carried on its balance sheets.


                                       15

<PAGE>



Asset/Liability Management

  A principal objective of the Bank's asset/liability  management strategy is to
minimize  the Bank's  exposure  to changes in  interest  rates by  matching  the
maturity and repricing horizons of interest-earning  assets and interest-bearing
liabilities.  This  strategy is overseen in part  through the  direction  of the
Asset  and  Liability  Committee  of  the  Bank  (the  "ALCO  Committee")  which
establishes policies and monitors results to control interest rate sensitivity.

  As a part of the  Bank's  interest  rate  risk  management  policy,  the  ALCO
Committee  examines the extent to which its assets and liabilities are "interest
rate-sensitive"  and monitors the Bank's  interest  rate  sensitivity  "gap." An
asset or  liability  is  considered  to be  interest  rate-sensitive  if it will
reprice or mature within the time period analyzed, usually 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.  A gap is
considered  negative  when the  amount of  interest  rate-sensitive  liabilities
exceeds  interest  rate-sensitive  assets.  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 Bank'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.  Accordingly,  the ALCO  Committee  also  evaluates  how the repayment of
particular  assets and  liabilities  is impacted  by changes in interest  rates.
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 general market rates. In addition, certain
assets,  such as  adjustable  rate  mortgage  loans,  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,  prepayment  and early  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.

  Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations.  To this end, the ALCO
Committee reviews,  on a monthly basis, the maturity and repricing of assets and
liabilities.  The ALCO Committee has adopted a goal of achieving and maintaining
a six-month ratio between rate sensitive assets to rate sensitive liabilities of
 .80 to 1.20.

  Principal among the Bank's asset/liability  management strategies has been the
emphasis  on  managing  its  interest-rate  sensitive  liabilities  in a  manner
designed to attempt to reduce the Bank's  exposure during periods of fluctuating
interest  rates.  Management  believes  that the type and  amount of the  Bank's
interest rate-sensitive  liabilities may reduce the potential impact that a rise
in interest  rates might have on the Bank's net interest  income.  Additionally,
the Bank  maintains a "floor," or minimum rate, on many of its floating or prime
based loans. The "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.  Management  recognizes that floors allow the Bank to continue
to earn a higher rate when the floating rate falls below the established "floor"
rate.



                                       16

<PAGE>



  The following table sets forth certain  information  relating to the Company's
interest-earning  assets and  interest-bearing  liabilities at December 31, 1996
that are  estimated  to mature or are  scheduled  to  reprice  within the period
shown.

<TABLE>
<CAPTION>

                                                                                        More than         More than
                                                                                        One Year and      Five Years and
                                                       0-3              4-12            Less than         Less than
                                                     Months            Months           Five Years        Ten Years          Total
                                                     ------            ------           ----------        ---------          -----
                                                                           (Dollars in thousands)
<S>                                                   <C>             <C>                <C>               <C>              <C>
Mortgage and commercial loans (1):
   Commercial loans                                   $2,554            $382               $578           $-----            $3,514
   Commercial real estate loans                        5,941           9,617             38,581               59            54,198
   Residential mortgage loans                            238             547                400            1,599             2,784
   Consumer loans                                         57               8                 92             ---                157
                                                     -------           ------           -------           -------           ------

         Total loans                                   8,790           10,554            39,651            1,658            60,653
                                                       -----           ------            ------            -----            ------

Federal funds sold                                     3,452            ----               ----             ----             3,452
Interest-bearing deposits with banks                    ----            ----                 99             ----                99
Securities (2)(3)                                      4,492           3,650             26,365              203            34,710
                                                       -----           -----             ------              ---            ------

         Total rate-sensitive assets                  16,734          14,204             66,115            1,861            98,914
                                                      ======          ======             ======            =====            ======

Deposit accounts (2):
   Money market deposits                               7,507            -----            -----             -----             7,507
   NOW deposits                                        4,536            -----            -----             -----             4,536
   Savings deposits                                    4,742            -----            -----             -----             4,742
   Certificates of deposit                            11,826           30,994            30,613              828            74,261
                                                      ------           ------            ------              ---            ------

         Total rate-sensitive liabilities             28,611           30,994            30,613                             91,046
                                                      ======           ======            ======            =====            ======

GAP (repricing differences)                         $(11,877)         (16,790)           35,502            1,033             7,868
                                                     ---------         --------          ------            -----             -----

Cumulative GAP                                       (11,877)         (28,667)            6,835            7,868
                                                     --------          --------           -----            -----

Cumulative GAP/total assets                           (11.29)%         (27.25)%            6.50%            7.48%
                                                      =====          ========             =====             =====
</TABLE>

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

(1)      In preparing the table above, adjustable-rate loans are included in the
         period in which the interest  rates are next scheduled to adjust rather
         than in the  period in which the loans  mature.  Fixed  rate  loans are
         scheduled, including repayment, according to their maturities.

(2)      Money  market,   NOW,  and  savings  deposits  are  regarded  as  ready
         accessible withdrawable accounts. All other time deposits are scheduled
         through the maturity dates.  Securities are also scheduled  through the
         maturity dates.

(3)      Includes Federal Reserve Bank stock.



                                       17

<PAGE>



Financial Condition

Lending Activities

         A significant  source of income for the Company is the interest  earned
on loans.  At December 31, 1996, the Company's  total assets were $105.2 million
and its net loans were $59.5 million or 57% of total assets as compared to $68.9
million of total  assets at December 31,  1995,  and net loans of $36.5  million
representing 53% of the total assets at December 31, 1995.

         Lending activities are conducted pursuant to a written policy which has
been adopted by the Bank. Each loan officer has defined lending authority beyond
which loans,  depending upon their type and size,  must be reviewed and approved
by a loan committee comprised of certain directors of the Bank.

                                              LOAN PORTFOLIO ANALYSIS

         The following  table sets forth  information  concerning  the Company's
loan portfolio by type of loan at the dates indicated.

                                    At December 31, 1996   At December 31, 1995
                                    --------------------   --------------------
                                                    % of                  % of
                                   Amount           Total    Amount       Total
                                               (Dollars in thousands)

Commercial loans                $  3,514             5.8%   $  4,391       11.8%
Commercial real estate loans      54,198            89.4      29,719       79.7
Residential mortgage loans         2,784             4.6       3,046        8.2
Consumer loans                       157              .2         115         .3
                                  ------            ----      ------       ----

         Total loans              60,653           100.0%     37,271      100.0%
                                  ------            ----      ------       ----
Add (Deduct):
   Deferred loan fees               (343)                       (186)
   Unamortized discount             --                           (27)
                                  ------                      ------

         Loans, net             $ 60,310                   $  37,058
                                ========                   =========



                                       18

<PAGE>



         The following  table reflects the contractual  principal  repayments by
period of the Company's loan portfolio at December 31, 1996.

                                       Residential  Commercial
Years Ended    Commercial   Mortgage   Real Estate  Consumer
December 31,    Loans        Loans        Loans      Loans       Total
------------    -----        -----        -----      -----       -----
                             (Dollars in thousands)
1997           $2,872         362       4,012       96           7,342
1998              237         372       3,438       33           4,080
1999              156         300       6,962       12           7,430
2000-2001         184         582      17,502       16          18,284
2002-2003          65         437       4,279      ---           4,781
2004-2010         ---         731      18,005      ---          18,736
              -------         ---      ------      ---          ------
Total          $3,514      $2,784     $54,198     $157         $60,653
               ======      ======     =======     ====         =======


         Of the $53.3 million of loans due after 1997,  25.9% of such loans have
fixed interest rates and 74.1% have adjustable interest rates.


         The following table sets forth total loans originated and repaid during
the periods indicated.

                                               Year Ended    Year Ended
                                               December 31,  December 31,
                                                  1996          1995
                                                  ----          ----
                                                    (in thousands)

Originations:
         Commercial loans                        $    497          777
         Commercial real estate loans              30,802       18,709
         Consumer loans                               145          124
                                                 --------     --------

                  Total loans originated           31,444       19,610

         Principal reductions                      (8,082)      (5,174)
                                                 --------     --------

           Increase (decrease) in total loans    $ 23,362       14,436
                                                 ========     ========


Asset Quality

         Management   seeks  to  maintain  a  high  quality  of  assets  through
conservative underwriting and sound lending practices. The majority of the loans
in the Bank's  loan  portfolio  are  collateralized  by  commercial  real estate
mortgages. As of December 31, 1996,  approximately 89.4%, and as of December 31,
1995, approximately 79.7% of the total loan portfolio was collateralized by this
type of property.  The level of delinquent loans and foreclosed real estate also
is relevant to the credit quality of a loan portfolio.  As of December 31, 1996,
non-performing  assets totaled  $185,000,  while as of December 31, 1995,  there
were no non-performing assets.

                                       19

<PAGE>



         In an effort to maintain the quality of the loan  portfolio  management
seeks  to  minimize  higher  risk  types  of  lending.  In view of the  relative
significance  of real estate  related loans, a downturn in the value of the real
estate could have an adverse impact on the Company's profitability.  However, as
part of its loan portfolio management strategy, the Company typically limits its
loans  to a  maximum  of 75% of the  value  of the  underlying  real  estate  as
determined by an MAI appraisal. In addition, knowledgeable members of management
make physical  inspections of properties  being  considered for mortgage  loans.
Management  believes that such precautions  reduce the Company's exposure to the
risks  associated  with a  downturn  in  real  estate  values.  See  "Investment
Considerations and Risk Factors--Local Economic Conditions."

         Commercial loans also entail risks since repayment is usually dependent
upon the  successful  operation  of the  commercial  enterprise.  They  also are
subject to adverse  conditions  in the economy.  Commercial  loans are generally
riskier than mortgage loans because they are typically underwritten on the basis
of the  ability  to repay from the cash flow of a  business  rather  than on the
ability  of  the  borrower  or  guarantor  to  repay.  Further,  the  collateral
underlying  commercial loans may depreciate over time,  cannot be appraised with
as much  precision  as real  estate,  and may  fluctuate  in value  based on the
success of the business.

         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.  The  Company,  on a routine  basis,
monitors  these  concentrations  in order to make  necessary  adjustments in its
leading  practices that most clearly  reflect the economic  conditions,  loan to
deposit ratios,  and industry trends.  Concentrations  of loans in the following
categories constituted the total loan portfolio as of December 31, 1996:

                  Commercial loans                               5.8%
                  Real estate mortgage loans                    94.0%
                  Consumer and other loans                        .2%

         The Loan  Committee of the Board of Directors of the Bank  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.  In  addition,   management  of  the  Bank  has
established  a  review  process  with  the  objective  of  quickly  identifying,
evaluating,  and initiating  necessary corrective action for marginal loans. The
goal of the loan  review  process is to address  classified  and  non-performing
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.
See "Investment Considerations and Risk Factors-Supervision and Regulation."

Classification of Assets

         Generally,  interest on loans is accrued and  credited to income  based
upon the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan as non-accrual when principal
or  interest  is  past  due 90  days or  more  and  the  loan is not  adequately
collateralized,  or when in the opinion of management,  principal or interest is
not likely to be paid in accordance with the terms of the  obligation.  Consumer
installment  loans  will be  charged-off  after  90 days of  delinquency  unless
adequately  collateralized  and in the process of collection.  Loans will not be
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  charged  against
interest  income.  Subsequent  payments  received are applied to the outstanding
principal balance.


                                       20

<PAGE>



         Real estate  acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as foreclosed real estate.  At December 31,
1996, the Bank had foreclosed  real estate  totaling  $185,000.  Foreclosed real
estate is  recorded  at the lower of cost or fair value less  estimated  selling
costs,  and the  estimated  loss,  if any, is charged to the  allowance for loan
losses at the time it is transferred. Further allowances for losses are recorded
at the time management believes additional deterioration in value has occurred.

         The following table sets forth certain  information on nonaccrual loans
and foreclosed  real estate,  the ratio of such loans and foreclosed real estate
to  total  assets  as  of  the  dates  indicated,   and  certain  other  related
information.

                                                               At December 31,
                                                              1996       1995
                                                              ----       ----
                                                          (Dollars in thousands)

Nonaccrual loans:
     Residential mortgage loans                                --         --
     Commercial loans                                          --         --
     Consumer and other loans                                  --         --
                                                               ----    -------

         Total non-accrual loans                               --         --
                                                               ====    =======

         Total nonperforming loans                             --         --
                                                               ====    =======
Total nonperforming loans to
            total loans                                        --%        --%

         Total nonperforming loans to
            total assets                                       --         --
                                                               ----    -------

Foreclosed real estate:

   Real estate acquired by foreclosure or
     deed in lieu of foreclosure                               $185       --
                                                               ----    -------

         Total nonperforming loans and
            foreclosed real estate                             $185       --
                                                               ====    =======

         Total nonperforming loans and
            foreclosed real estate to total assets              .17%      --%
                                                               ====    =======

Loan Impairment and Losses

         On  January  1, 1995,  the  Company  adopted  Statements  of  Financial
Accounting  Standards  No. 114 and 118 ("SFAS  114 and 118").  These  Statements
address the  accounting  by  creditors  for  impairment  of certain  loans.  The
Statements generally require the Company to identify loans for which the Company
probably will not receive full repayment of principal and interest,  as impaired
loans. The Statements require that impaired loans be valued at the present value
of expected future cash flows, discounted at the loan's effective interest rate,
or at the  observable  market  price  of the  loan,  or the  fair  value  of the
underlying  collateral  if the loan is  collateral  dependent.  The  Company has
implemented  the  Statements by modifying its monthly  review of the adequacy of
the allowance for loan losses to also

                                       21

<PAGE>



identify and value impaired loans in accordance with guidance in the Statements.
The adoption of the Statements  did not have any material  effect on the results
of operations for the years ended December 31, 1996 and 1995.

         Management 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 and interest  amounts  contractually  due under
the loan agreement,  (ii) any delinquency in the principal and interest payments
other than minimum delays or shortfalls in payments, and (iii) other information
known by management  which would  indicate that full  repayment of the 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 of impairment.

         Management evaluates smaller balance,  homogeneous loans for impairment
and adequacy of allowance  for loan losses  collectively,  and  evaluates  other
loans  for  impairment  individually,  on  a  loan-by-loan  basis.  The  Company
evaluates the consumer loan portfolio  which are smaller  homogeneous  loans for
impairment on an aggregate  basis,  and 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 losses.  For all
commercial,  commercial real estate and residential  mortgage loans, the Company
evaluates loans for impairment on a loan-by-loan basis.

         The Company  evaluates  all  nonaccrual  loans as well as any  accruing
loans exhibiting  collateral or other credit  deficiencies for impairment.  With
respect to  impaired,  collateral-dependent  loans,  any portion of the recorded
investment in the loan that exceeds the fair value of the  collateral is charged
off.

         For  impairment  recognized  in  accordance  with SFAS 114 and 118, the
entire change in the present value of expected cash flows,  or the entire change
in estimated fair value of collateral for collateral dependent loans is reported
as a provision for loan losses in the same manner in which impairment  initially
was  recognized or as a reduction in the amount of the provision  that otherwise
would be reported.

         The  Company had no impaired  loans at December  31, 1996 or 1995.  The
average  recorded  investment in impaired loans during 1996 and 1995 was $31,000
and $5,000, respectively. No interest income on impaired loans was recognized in
1996 or 1995.

         Loans are  reported  at the  principal  amount  outstanding  net of the
allowance for loan losses and unamortized premiums,  discounts and deferred loan
origination fees and costs.

         The  allowance for loan losses is  established  through a provision for
loan losses charged to operations.  Loans are charged  against the allowance for
loan losses when management believes that the collectability of the principal is
unlikely.  Subsequent recoveries are added to the allowance. The allowance is an
amount that  management  believes  will be adequate  to absorb  possible  losses
inherent  in  existing  loans  and loan  commitments,  based on  evaluations  of
collectability and prior loss experience.  Management  evaluates the adequacy of
the  allowance  monthly,  or  more  frequently  if  considered  necessary.   The
evaluation  takes into  consideration  such factors as changes in the nature and
volume of the loan portfolio,  overall portfolio quality,  loan  concentrations,
specific  problem loans and  commitments,  and current and anticipated  economic
conditions that may affect the borrower's ability to repay.

         Management  continues to actively  monitor the Bank's asset quality and
to charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
uses the best information  available to make  determinations with respect to the
allowance  for loan  losses,  future  adjustments  may be  necessary if economic
conditions differ from the economic conditions in the assumptions used in

                                       22

<PAGE>



making the initial determinations. The Bank's allowance at December 31, 1995 was
$593,000, and the Bank increased its allowance for loan losses to $811,000 as of
December  31,  1996,  consistent  with  the  increase  in  the  loan  portfolio,
reflecting  management's  intent  to  maintain  reserves  at a level  management
believes   to   be   adequate.   See   "Investment   Considerations   and   Risk
Factors--Adequacy of Allowance for Loan Losses."

         The following table sets forth  information with respect to activity in
the Bank's allowance for loan losses during the periods indicated:

                                   Year Ended     Year Ended
                                   December 31,   December 31
                                      1996          1995
                                   ----------------------
                                   (Dollars in thousands)

Average loans outstanding, net        $49,266    $28,052
                                      -------    -------

Allowance at beginning of period          593        369
                                      -------    -------
Charge-offs:
   Real estate loans                       62       --
   Commercial loans                      --           23
   Consumer loans                           3          7
                                      -------    -------

         Total loans charged-off           65         30
                                      -------    -------

Recoveries                                 33         21
                                      -------    -------

   Net charge-offs                         32          9
                                      -------    -------

Provision for loan losses charged
   to operating expenses                  250        233
                                      -------    -------

Allowance at end of period            $   811    $   593
                                      =======    =======

Ratio of net charge-offs to
   average loans outstanding             .001       .001
                                      =======    =======

Ratio of allowance for loan losses
   to period-end total loans             .013       .016
                                      =======    =======

Ratio of allowance for loan losses
   to nonperforming loans                --         --
                                      =======    =======

Period end total loan                 $60,653    $37,271
                                      =======    =======




                                       23

<PAGE>



         The following table presents information  regarding the Company's total
allowance  for losses as well as the  allocation  of such amounts to the various
categories of loans:

                              At December 31, 1996   At December 31, 1995
                              --------------------   --------------------
                                     Loans to           Loans to
                                      Total              Total
                               Amount      Loans  Amount       Loans
                               ------      -----  ------       -----
                                       (Dollars in thousands)

Commercial loans                 $ 82       10.1%  $140       23.6%
Commercial real estate loans      677       83.5    378       63.7
Residential real estate loans      50        6.2     72       12.2
Consumer loans and other            2         .2      3         .5
                                 ----    -----     ----    -----

   Total allowance for
     loan losses                 $811      100.0%  $593      100.0%
                                 ====      =====   ====      =====


         The  allowance  for loan  losses  represented  1.3% of the total  loans
outstanding at December 31, 1996, compared with 1.6% at December 31, 1995.

Securities


         The  following  table  sets  forth  the  carrying  value of the  Bank's
securities portfolio as of the dates indicated:

                                  At December 31,
                                  ---------------
                                   1996      1995
                                   (in thousands)

Securities held to maturity:
  U.S. Treasury securities      $ 1,499    $ 2,265

Other U.S. Government and
  agency securities              33,008     17,365
                                -------    -------

                                $34,507    $19,630
                                =======    =======



                                       24

<PAGE>



    The  following   table  sets  forth,  by  maturity   distribution,   certain
information pertaining to the securities held-to maturity portfolio as follows:
<TABLE>
<CAPTION>


                                      One Year              After One Year      After Five Years
                                       Or Less              to Five Years         to Ten Years              Total
                              ----------------------     --------------------  ------------------   -------------------
                              Carrying       Average     Carrying     Average  Carrying   Average   Carrying    Average
                                Value         Yield      Value        Yield     Value      Yield     Value       Yield
                                                                (Dollars in Thousands)

<S>                            <C>            <C>      <C>            <C>      <C>         <C>     <C>            <C>
December 31, 1996:
   U.S. Treasury Securities    $   500        6.04% $      999        6.17%    $-----      ----%  $ 1,499         6.12%
   Other U.S. Government
     agency 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%
                               =======        ====     =======        ====     ======      ====    =======        ====



December 31, 1995:
   U.S. Treasury Securities    $ 2,265        5.21%    $-----          --%     $-----    -----%    $ 2,265        5.21%
   Other U.S. Government
       agency securities         8,856        6.11       7,503        6.01      1,006      5.86     17,365        6.05
                                 -----        ----       -----        ----      -----      ----     ------        ----

                               $11,121        5.93%    $ 7,503        6.01%    $1,006      5.86%   $19,630        5.95%
                               =======        ====     =======        ====     ======      ====    =======        ====

</TABLE>

Deposit Activities

      Deposits  are the major  source of the Bank's  funds for lending and other
investment purposes.  Deposits are attracted  principally from within the Bank's
primary  market  area  through  the  offering  of a  broad  variety  of  deposit
instruments including checking accounts, money market accounts,  regular savings
accounts,   term  certificate   accounts  (including  "jumbo"   certificates  in
denominations of $100,000 or more) and retirement savings plans.

      Maturity terms,  service fees and withdrawal  penalties are established by
the Bank on a periodic basis. The determination of rates and terms is predicated
on funds  acquisition  and liquidity  requirements,  rates paid by  competitors,
growth goals and federal regulations.

      Regulations  promulgated  by the  FDIC  pursuant  to the  Federal  Deposit
Insurance Company 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  insured
depository  institutions  having  the same type of  charter  in such  depository
institution's  normal market area. Under these  regulations,  "well capitalized"
depository  institutions  may accept,  renew, or roll such deposits over without
restriction,  "adequately capitalized" depository institutions may accept, renew
or roll such  deposits  over with a waiver  from the FDIC  (subject  to  certain
restrictions   on  payments  of  rates),   and   "undercapitalized"   depository
institutions  may not accept,  renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and  "undercapitalized"  will be the  same  as the  definitions  adopted  by the
agencies to implement the corrective action provisions of the 1991 Banking Law."
See  "Supervision and  Regulation--Impact  of the 1991 Banking Law." At December
31,  1996,  the  Bank  met the  definition  of a "well  capitalized"  depository
institution.

                                       25

<PAGE>




      The  following  table  shows  the   distribution  of,  and  certain  other
information relating to, the Bank's deposit accounts by type:
<TABLE>
<CAPTION>


                                       At December 31, 1996             At December 31, 1995
                                   -----------------------------   -------------------------
                                            % of                                              % of
                                      Amount         Deposits                     Amount                   Deposits
                                                              (Dollars in thousands)

<S>                                 <C>             <C>                              <C>                      <C>
Demand deposits                      $2,401           2.6                            $2,729                  4.7%
NOW deposits                          4,536           4.9                             2,705                   4.6
Money market deposits                 7,507           8.0                             3,518                   6.0
Savings deposits                      4,742           5.0                               595                   1.0
                                      -----           ---                            ------                   ---
        Subtotal                     19,186          20.5                             9,547                   16.3
                                     ------          ----                            ------                   ----

Certificate of deposits:
   3.00%-3.99%                          ---        ----                                  24                   ----
   4.00%-4.99%                        1,682           1.8                               255                     .4
   5.00%-5.99%                       53,507          57.3                            23,756                   40.5
   6.00%-6.99%                       13,307          14.2                            14,109                   24.2
   7.00%-7.99%                        5,765           6.2                            10,910                   18.6
                                     ------          ----                            ------                   ----

Total certificates
   of deposit (1)                    74,261          79.5                            49,054                   83.7
                                     ------          ----                            ------                   ----

Total deposit                       $93,447         100.0%                           58,601                   100.0%
                                    =======         ======                           ======                   ======
</TABLE>

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

(1)     Includes individual retirement accounts ("IRAs") totaling $5,434,000 and
        $3,464,000 at December 31, 1996 and 1995 respectively,  all of which are
        in the form of certificates of deposit.

                                       26

<PAGE>



        The  following  table shows the average  amount of and the average  rate
paid on each of the  following  deposit  account  categories  during the periods
indicated:
<TABLE>
<CAPTION>

                                                  Year Ended                                          Year Ended
                                                 December 31,                                        December 31,
                                                 ------------                                        ------------
                                                     1996                                                1995
                                          Average             Average                         Average           Average
                                          Balance             Yield                           Balance           Yield
                                          -------             -----                           -------           -----
                                                                     (Dollars in thousands)

<S>                                      <C>                  <C>                              <C>              <C>
Demand, money market
        & NOW                            $8,432               3.68%                             5,515           2.56%
Savings deposit                           1,470               4.22                                681           2.20
Certificates of deposit                  59,437               5.67                             34,562           5.98
Other                                        34               5.88                                 17           5.88
                                         ------               ----                             ------           ----

        Total deposits                  $69,373               5.40%                            40,775           5.46%
                                        =======               =====                            ======           =====

</TABLE>

        The Bank does not have a concentration  of deposits from any one source,
the loss of which would have a material adverse effect on the business of either
the Bank or the  Company.  Management  believes  that  substantially  all of the
Bank's  depositors  are residents in its primary market area. The Bank currently
does not accept brokered deposits.



                                       27

<PAGE>



        The following  tables  presents by various  interest rate categories the
amounts of  certificates  of deposit at December  31, 1996 and December 31, 1995
which mature during the periods indicated:
<TABLE>
<CAPTION>


                                                               Year Ending December 31,
                                           ------------------------------------------------------------------------
                                           1997            1998       1999      2000           2001           Total
                                           ----            ----       ----      ----           ----           -----

                                                               (dollars in thousands)

  <S>                                   <C>              <C>         <C>       <C>             <C>           <C>
December 31, 1996:
     4.00%-4.99%                        $ 1,636              46        ---       ---             ---          1,682
     5.00%-5.99%                         36,664          10,477        620     3,741           2,005         53,507
     6.00%-6.99%                          4,545             404        803       465           7,090         13,307
     7.00%-7.99%                         ----                62      1,831     3,631             241          5,765
                                       --------         -------      -----     -----          ------         ------


Total certificates of deposit           $42,845          10,989      3,254     7,837           9,336         74,261
                                        =======          ======      =====     =====           =====         ======


                                                               Year Ending December 31,
                                            ------------------------------------------------------------------------
                                           1996            1997       1998      1999            2000       Total
                                           ----            ----       ----      ----            ----       -----

                                                               (dollars in thousands)

  December 31, 1995:
     3.00%-3.99%                       $     24             ---        ---       ---             ---           24
     4.00%-4.99%                            189              66        ---       ---             ---          255
     5.00%-5.99%                         15,218           3,152      1,582        12           3,792       23,756
     6.00%-6.99%                          7,865           4,214        393       806             831       14,109
     7.00%-7.99%                          5,440             ---         61     1,751           3,658       10,910
                                         ------         -------     ------     -----           -----       ------

Total certificates of deposit           $28,736           7,432      2,036     2,569           8,281       49,054
                                        =======           =====      =====     =====           =====       ======


</TABLE>


                                       28

<PAGE>



Jumbo certificates ($100,000 and over) mature as follows:

                                At December 31,    At December 31,
                                ---------------    ----------------
                                        1996           1995
                                            (in thousands)

Due three months or less               $  733            630
Due over three months to six months     2,136            923
Due over six months to one year         2,566          2,048
Due over one year                       1,826          1,221
                                       -----          ------

                                       $7,261          4,822
                                       ======         ======


The  following  table sets forth the net  deposit  flows of the Bank  during the
periods indicated:

                                 Year Ended          Year Ended
                              December 31, 1996   December 31, 1995
                              -----------------   -----------------
                                          (in thousands)
Net increase (decrease) before
   interest credited               $31,168              26,343
Net interest credited              $ 3,678               2,166
                                   -------             -------

        Net deposit increase        34,846              28,509
                                   =======             =======


Liquidity and Capital Resources

        The  Company's  principal  sources of funds are those  generated  by the
Bank. The Bank's principal sources of funds are deposits, principal and interest
payments  on  loans,   maturities  and  interest  on  securities,   and  capital
contributions  from the  Company.  The  Company's  cash flow is  affected by its
operations,  investing activities,  and financing activities.  Net cash provided
from  operations  primarily  results  from net  earnings  adjusted  for  noncash
accounting entries.

        The  Bank  is  subject  to  various  regulatory   capital   requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material  effect on the Bank's  financial  statements.  Under  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines that involve quantitative  measures of the
Bank's assets,  liabilities,  and certain  off-balance-sheet items as calculated
under  regulatory   accounting   practices.   The  Bank's  capital  amounts  and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

        Quantitative  measures  established  by  regulation  to  ensure  capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the  regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.


                                       29

<PAGE>



        As of December 31, 1996, the most recent notification from the State and
Federal regulators categorized the Bank as well capitalized under the regulatory
framework for prompt  corrective  action.  To be categorized as well capitalized
the Bank must maintain minimum total risk-based,  Tier I risk-based,  and Tier I
leverage  ratios as set forth in the table.  There are no  conditions  or events
since  that  notification  that  management  believes  have  changed  the Bank's
category.
<TABLE>
<CAPTION>

                                                                                                            To be Well
                                                                                                          Capitalized under
                                                                                For Capital               Prompt Corrective
                                              Actual                         Adequacy Purposes:           Action Provisions:
                                              ------                         ------------------           ------------------
                                        Amount          Ratio             Amount            Ratio        Amount       Ratio
                                        ------          -----             ------            -----        ------       -----

                                                                          (dollars in thousands)
As of December 31, 1996:
        Total capital
<S>                                      <C>            <C>                <C>              <C>           <C>           <C>
        (to Risk Weighted Assets)        $8,051         11.90%             $5,412           8.00%         $6,765        10.0%
        Tier I Capital
        (to Risk Weighted Assets)         7,240         10.70%              2,706           4.00%          4,059         6.0%
        Tier I Capital
        (to Average Assets)               7,240          7.48%              3,871           4.00%          4,839         5.0%

As of December 31, 1995:
        Total capital
        (to Risk Weighted Assets)         7,272         16.11%              3,610           8.00%          4,512        10.0%
        Tier I Capital
        (to Risk Weighted Assets)         6,699         14.85%              1,805           4.00%          2,708         6.0%
        Tier I Capital
        (to Average Assets)               6,699         10.83%              2,475           4.00%          3,093         5.0%

</TABLE>


        Management  believes that additional capital is the key to any expansion
program and, to this end, it will continually assess the need for capital,  both
at the Bank and the holding company levels.  If it is determined that additional
capital is necessary to support the  operations of the Company or the Bank or to
support  any  expansion  or  acquisition  activities,   transactions  to  obtain
additional funds will be considered by the Company. In that regard, during 1995,
the Company  purchased  200,000 shares of common stock of the Bank at a purchase
price of $5.00 per share,  for an aggregate  purchase price of $1.0 million.  In
consideration for the Company's purchase, the Company was also granted a warrant
to  purchase  up  200,000  additional  shares  at a price  of $5.00  per  share,
exercisable from time to time, in whole or in part, until and including December
31, 1999.

Future Accounting Matters

        The FASB has issued Statement of Financial  Accounting Standards No. 125
("SFAS 125").  This Statement  provides  accounting and reporting  standards for
transfers  and  servicing  of  financial  assets as well as  extinguishments  of
liabilities.   This   Statement   also   provides   consistent   standards   for
distinguishing  transfers of financial assets that are sales from transfers that
are secured  borrowings.  SFAS 125 is effective  for  transfers and servicing of
financial assets as well as  extinguishments  of liabilities  occurring in 1997.
Management  does not  anticipate  SFAS 125 will  have a  material  impact on the
Company.



                                       30

<PAGE>



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.

Item 7.  Financial Statements

        The following financial statements are included herein:

Intervest Bancshares Corporation and Subsidiary

Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Earnings for the Years Ended December 31, 1996 and 1995 Statements
of  Stockholders'  Equity  for the  Years  Ended  December  31,  1996  and  1995
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995 Notes to
Financial Statements

     All schedules are omitted because of the absence of conditions  under which
they are  required  or because  the  required  information  is  included  in the
Financial Statements and related Notes.



                                       31

<PAGE>




                          Independent Auditors' Report



Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:

We have  audited  the  accompanying  consolidated  balance  sheets of  Intervest
Bancshares  Corporation  and Subsidiary  (the "Company") as of December 31, 1996
and 1995,  and the related  consolidated  statements of earnings,  stockholders'
equity, and cash flows for the years then ended. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 audits 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 present
fairly,  in all  material  respects,  the  financial  position of the Company at
December 31, 1996 and 1995, 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
Tampa, Florida
January 7, 1997










                                       32

<PAGE>

<TABLE>
<CAPTION>


                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

                           Consolidated Balance Sheets
                   ($ in thousands, except per share amounts)

                                                                 At December 31,
                                                                 ---------------
   Assets                                                       1996         1995
                                                                ----         ----

<S>                                                           <C>           <C>
Cash and due from banks                                       $  2,868       2,844
Federal funds sold                                               3,452       5,707
                                                              --------    --------

       Total cash and cash equivalents                           6,320       8,551

Interest-bearing deposits with banks                                99         298
Securities held to maturity                                     34,507      19,630
Loans receivable, net of allowance for loan losses of $811
   in 1996 and $593 in 1995                                     59,499      36,465
Accrued interest receivable                                        842         643
Premises and equipment, net                                      2,940       2,449
Restricted securities, Federal Reserve Bank stock, at cost         203         203
Foreclosed real estate                                             185        --
Deferred income tax asset                                          526         593
Other assets                                                        75         110
                                                              --------    --------

                                                              $105,196      68,942
                                                              ========    ========

   Liabilities and Stockholders' Equity

Liabilities:
   Demand deposits                                               2,401       2,729
   Savings and NOW deposits                                      9,278       3,300
   Money-market deposits                                         7,507       3,518
   Other time deposits                                          74,261      49,054
                                                              --------    --------

       Total deposits                                           93,447      58,601

Other liabilities                                                1,676         807
                                                              --------    --------

       Total liabilities                                        95,123      59,408
                                                              --------    --------

Minority interest                                                  326         345
                                                              --------    --------

Commitments (Notes 4 and 7)

Stockholders' Equity:
   Class A common stock - $1 par value, 2,600,000 shares
     authorized; 900,000 shares issued and outstanding             900         900
   Class B common stock - $1 par value, 400,000 shares
     authorized; 200,000 shares issued and outstanding             200         200
   Additional paid-in capital                                    7,655       7,655
   Retained earnings                                               992         434
                                                              --------    --------

       Total stockholders' equity                                9,747       9,189
                                                              --------    --------

                                                              $105,196      68,942
                                                              ========    ========



See Accompanying Notes to Consolidated Financial Statements.
</TABLE>

                                       33

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

                       Consolidated Statements of Earnings
                    ($ in thousands except per share amounts)

                                                   Year Ended December 31,
                                                   -----------------------
                                                    1996            1995
                                                    ----            ----
Interest income:
   Loans receivable                              $    4,624         2,878
   Securities held to maturity                        1,514         1,080
   Other interest earning assets                        243           232
                                                 ----------    ----------

        Total interest income                         6,381         4,190
                                                 ----------    ----------

Interest expense:
   Deposits                                           3,745         2,225
                                                 ----------    ----------

        Net interest income                           2,636         1,965

Provision for loan losses                               250           233
                                                 ----------    ----------

        Net interest income after
          provision for loan losses                   2,386         1,732
                                                 ----------    ----------

Noninterest income:
   Customer service charges                              89            82
   Other                                                 17             7
                                                 ----------    ----------

        Total noninterest income                        106            89
                                                 ----------    ----------

Noninterest expenses:
   Salaries and employee benefits                       739           577
   Occupancy and equipment                              342           379
   Advertising and promotion                              9            12
   Professional fees                                     88            81
   Deposit insurance premiums                             2            38
   General insurance                                     31            29
   Stationery, printing and supplies                     51            45
   Other                                                270           243
   Minority interest in subsidiary                       19            11
                                                 ----------    ----------

        Total noninterest expenses                    1,551         1,415
                                                 ----------    ----------

Earnings before income taxes                            941           406

Income taxes                                            383           136
                                                 ----------    ----------

        Net earnings                             $      558           270
                                                 ==========    ==========

Earnings per share                               $      .51           .25
                                                 ==========    ==========

Weighted-average number of shares outstanding     1,100,000     1,100,000
                                                  =========     =========








See Accompanying Notes to Consolidated Financial Statements

                                       34

<PAGE>

<TABLE>
<CAPTION>


                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

                 Consolidated Statements of Stockholders' Equity
                                 (In thousands)


                                                                              Unrealized
                                                                              Loss on
                                   Class A   Class B     Additional           Securities Total
                                   Common    Common      Paid-In    Retained  Available  Stockholders'
                                   Stock     Stock       Capital    Earnings  for Sale   Equity
                                   -----     -----       -------    --------  --------   ------

<S>                                 <C>          <C>     <C>          <C>      <C>       <C>
Balance, December 31, 1994          $  900       200     7,668        164       (48)     8,884

Net earnings                          --        --        --          270      --          270

Stock issuance cost                   --        --         (13)      --        --          (13)

Decrease in unrealized loss on
   securities available for sale      --        --        --         --          48         48
                                              ------    ------     ------    ------     ------

Balance, December 31, 1995             900       200     7,655        434      --        9,189

Net earnings                          --        --        --          558      --          558
                                    ------    ------    ------     ------    ------     ------

Balance, December 31, 1996          $  900       200     7,655        992      --        9,747
                                    ======       ===     =====        ===      ==        =====



See Accompanying Notes to Consolidated Financial Statements

                                       35
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                                 (In thousands)

                                                                     Year Ended December 31,
                                                                      1996         1995
                                                                      ----         ----
<S>                                                                <C>          <C>
Cash flows from operating activities:
  Net earnings                                                     $    558          270
  Adjustments to reconcile net earnings to net cash provided by
      operating activities:
        Depreciation                                                    176          170
        Provision for deferred income taxes                              67          127
        Decrease in other assets                                         35           35
        Increase in other liabilities                                   850           11
        Increase in accrued interest receivable                        (199)        (387)
        Net amortization of fees, premiums and discounts                271          (36)
        Provision for loan losses                                       250          233
                                                                   --------     --------

          Net cash provided by operating activities                   2,008          423
                                                                   --------     --------

Cash flows from investing activities:
  Purchase of Federal Reserve Bank stock                               --            (30)
  Purchase of securities held to maturity                           (30,025)     (22,703)
  Maturities of securities held to maturity                          15,050       11,900
  Net purchases of premises and equipment                              (667)      (1,286)
  Net increase in loans                                             (23,642)     (14,436)
  Purchase of interest-bearing deposits                                --           (298)
  Maturity of interest-bearing deposits                                 199          397
                                                                   --------     --------

        Net cash used in investing activities                       (39,085)     (26,456)
                                                                   --------     --------

Cash flows from financing activities:
  Net increase in demand, savings,
     NOW and money market deposits                                    9,639        1,894
  Net increase in time deposits                                      25,207       26,615
  Stock issuance costs                                                 --            (13)
                                                                   --------     --------

        Net cash provided by financing activities                    34,846       28,496
                                                                   --------     --------

        Net (decrease) increase in
          cash and cash equivalents                                  (2,231)       2,463

Cash and cash equivalents at beginning of year                        8,551        6,088
                                                                   --------     --------

Cash and cash equivalents at end of year                           $  6,320        8,551
                                                                   ========     ========

Supplemental  disclosure of cash flow  information:
     Cash paid during the period for:
        Interest                                                   $  3,678        2,166
                                                                   ========     ========

        Income taxes                                               $     17         --
                                                                   ========     ========

      Noncash transactions:
        Reclassification of loans
          to other real estate owned                               $    185         --
                                                                   ========     ========

        Unrealized gain on securities available for sale,
         net of income tax benefit                                 $   --            (48)
                                                                   ========     ========

        Reclassify securities from available for sale
         to held to maturity                                       $   --            750
                                                                   ========     ========




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, 1996 and 1995


(1)  Description  of Business  and Summary of  Significant  Accounting  Policies

General.   Intervest   Bancshares   Corporation  (the  "Holding   Company")  was
   incorporated  on February 5, 1993.  The  Holding  Company  owns 95.76% of the
   outstanding  common stock of Intervest  Bank (the "Bank")  (collectively  the
   "Company").  The Bank is a Florida  state-chartered  bank,  is insured by the
   Federal Deposit Insurance  Corporation and is a member of the Federal Reserve
   Bank. The Holding  Company's  primary  business is the operation of the Bank.
   The Bank provides a wide range of banking services to small and middle-market
   businesses  and  individuals  through  its four  banking  offices  located in
   Pinellas County, Florida.

Basis of Presentation. The accompanying consolidated financial statements of the
   Company  include  the  accounts  of the  Holding  Company  and the Bank.  All
   significant  intercompany  accounts and transactions  have been eliminated in
   consolidation.

    The  accounting and reporting  policies of the Company  conform to generally
    accepted  accounting  principles and to general practices within the banking
    industry.  The following  summarizes the more  significant of these policies
    and practices.

Estimates. The preparation of financial  statements in conformity with generally
   accepted  accounting  principles  requires  management to make  estimates and
   assumptions  that affect the reported  amounts of assets and  liabilities and
   disclosure of contingent  assets and liabilities at the date of the financial
   statements  and the  reported  amounts of revenues  and  expenses  during the
   reporting period. Actual results could differ from those estimates.

Cash and Cash  Equivalents.  For purposes of  presentation  in the  consolidated
   statements  of cash  flows,  cash and cash  equivalents  are defined as those
   amounts included in the  balance-sheet  captions "cash and due from banks and
   federal funds sold."

Securities  Held to  Maturity.  United  States  government  treasury  and agency
   securities for which the Company has the positive  intent and ability to hold
   to maturity are reported at cost,  adjusted for  amortization of premiums and
   accretion  of discounts  which are  recognized  in interest  income using the
   interest method over the period to maturity.

Loans Receivable. Loans receivable that management has the intent and ability to
   hold for the foreseeable  future or until maturity or pay-off are reported at
   their outstanding  principal adjusted for any charge-offs,  the allowance for
   loan losses, and any deferred fees or costs on originated loans.

    Loan origination fees and certain direct  origination  costs are capitalized
    and recognized as an adjustment of the yield of the related loan.

                                                                     (continued)








                                       37

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(1)  Description  of Business and Summary of  Significant  Accounting  Policies,
     Continued

Loans  Receivable,  Continued.  The accrual of  interest  on  impaired  loans is
   discontinued  when, in  management's  opinion,  the borrower may be unable to
   meet payments as they become due. When interest accrual is discontinued,  all
   unpaid  accrued  interest  is  reversed.   Interest  income  is  subsequently
   recognized only to the extent cash payments are received.

    The  allowance  for loan  losses is  increased  by  charges  to  income  and
    decreased  by  charge-offs  (net  of  recoveries).   Management's   periodic
    evaluation of the adequacy of the  allowance is based on the Company's  past
    loan loss  experience,  known and inherent risks in the  portfolio,  adverse
    situations  that may affect the borrower's  ability to repay,  the estimated
    value of any underlying collateral, and current economic conditions.

Foreclosed Real Estate.  Real estate properties acquired through, or in lieu of,
   loan  foreclosure are to be sold and are initially  recorded at fair value at
   the date of  foreclosure  establishing a new cost basis.  After  foreclosure,
   valuations  are  periodically  performed by management and the real estate is
   carried  at the lower of  carrying  amount or fair  value  less cost to sell.
   Revenue and expenses from  operations and changes in the valuation  allowance
   are included in the consolidated statement of earnings.

Income Taxes.  Deferred tax assets and  liabilities  are  reflected at currently
   enacted  income tax rates  applicable to the period in which the deferred tax
   assets or liabilities  are expected to be realized or settled.  As changes in
   tax laws or rates are  enacted,  deferred  tax  assets  and  liabilities  are
   adjusted through the provision for income taxes.

Premises  and  Equipment.  Land is  carried  at cost.  Premises,  furniture  and
   fixtures and equipment  are carried at cost,  less  accumulated  depreciation
   computed by the straight-line method.

Off-Balance-Sheet Financial Instruments.  In the ordinary course of business the
   Company has entered into  off-balance-sheet  financial instruments consisting
   of commitment to extend credit,  unused lines of credit and  stand-by-letters
   of credit.  Such  financial  instruments  are  recorded  in the  consolidated
   financial  statements  when they are funded or related  fees are  incurred or
   received.

Fair Values of Financial Instruments. The following methods and assumptions were
   used by the Company in estimating fair values of financial instruments:

Cash and Cash Equivalents and Interest-Bearing Deposits with Banks. The carrying
   amounts of cash and short-term instruments approximate their fair value.

Securities Held to  Maturity.  Fair values for  securities  held to maturity are
   based on quoted market prices.

Federal Reserve Bank Stock.  Book value for these securities  approximates  fair
   value.

                                                                     (continued)

                                       38

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(1) Description of Business and Summary of Significant Accounting Policies,
    Continued

Fair  Values  of  Financial  Instruments,   Continued.   Loans  Receivable.  For
   variable-rate loans that reprice frequently and have no significant change in
   credit  risk,  fair  values are based on  carrying  values.  Fair  values for
   fixed-rate mortgage (e.g.  one-to-four family  residential),  commercial real
   estate  and  commercial  loans  are  estimated  using  discounted  cash  flow
   analyses, using interest rates currently being offered for loans with similar
   terms to borrowers of similar credit quality.

Deposit Liabilities. The fair values disclosed for demand, NOW, money-market and
   savings deposits are, by definition, equal to the amount payable on demand at
   the  reporting  date  (that is,  their  carrying  amounts).  Fair  values for
   fixed-rate certificates of deposit are estimated using a discounted cash flow
   calculation   that  applies   interest  rates   currently  being  offered  on
   certificates to a schedule of aggregated  expected monthly maturities on time
   deposits.

Accrued Interest.  The carrying  amounts of accrued interest  approximate  their
   fair values.

Off-Balance-Sheet   Instruments.   Fair  values  for  off-balance-sheet  lending
   commitments  are  based  on fees  currently  charged  to enter  into  similar
   agreements, taking into account the remaining terms of the agreements and the
   counterparties' credit standing.

Advertising. The Company expenses all advertising as incurred.

Earnings Per Share.  Earnings per share of common stock has been computed on the
   basis of the  weighted-average  number of shares of common stock outstanding.
   The effect of outstanding warrants is not dilutive.

Future  Accounting  Requirements.  The FASB has issued  Statement  of  Financial
   Accounting Standards No. 125 ("SFAS 125"). This Statement provides accounting
   and reporting  standards  for transfers and servicing of financial  assets as
   well  as  extinguishments  of  liabilities.   This  Statement  also  provides
   consistent  standards for  distinguishing  transfers of financial assets that
   are sales from transfers that are secured  borrowings.  SFAS 125 is effective
   for transfers and servicing of financial assets as well as extinguishments of
   liabilities  occurring in 1997.  Management does not anticipate SFAS 125 will
   have a material impact on the Company.


                                                                     (continued)

                                       39

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(2)  Securities Held to Maturity
  Debt  securities  have been  classified  in the  consolidated  balance  sheets
  according to management's  intent. The carrying amount of securities and their
  approximate fair values are summarized as follows (in thousands):


                                                         Gross
                                Amortized Unrealized  Unrealized    Fair
                                   Cost       Gains      Losses    Value
                                   ----       -----      ------    -----
December 31, 1996:
     U.S. Treasury securities    $ 1,499          7       -         1,506
     U.S. Government and
         agency securities        33,008         44        105     32,947
                                 -------    -------    -------    -------

         Total                   $34,507         51        105     34,453
                                 =======    =======    =======    =======

December 31, 1995:
     U.S. Treasury securities      2,265       --            2      2,263
     U.S. Government and
         agency securities        17,365         70          3     17,432
                                 -------    -------    -------    -------

         Total                  $ 19,630         70          5     19,695
                                 =======    =======    =======    =======

    There were no sales of securities in 1996 or 1995.

    During 1995, the Company  transferred  $750,000 of securities from available
    for sale to held to maturity at market  value which  approximated  amortized
    book value.

    The scheduled maturities of securities held to maturity at December 31, 1996
    are summarized as follows (in thousands):

                                          Amortized    Fair
                                            Cost       Value
                                            ----       -----

Due in one year or less                   $ 8,642      8,647
Due after one year through five years      23,855     23,811
Due after five years through ten years      2,010      1,995
                                          -------    -------

    Total                                 $34,507     34,453
                                          =======     =======


                                                                     (continued)


                                       40

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(3)  Loans Receivable
     The components of loans in the  consolidated  balance sheets are summarized
     as follows (in thousands):
                                  At December 31,
                                  ---------------
                                 1996        1995
                                 ----        ----

 Commercial loans            $  3,514        4,391
 Commercial real estate        54,198       29,719
 Residential real estate        2,784        3,046
 Consumer loans                   157          115
                             --------     --------

                               60,653       37,271

 Deferred loan fees              (343)        (186)
 Unamortized discounts           --            (27)
 Allowance for loan losses       (811)        (593)
                             --------     --------

                             $ 59,499       36,465
                             ========     ========

    An  analysis  of the change in the  allowance  for loan  losses  follows (in
thousands):

                             Year Ended December 31,
                             -----------------------
                                1996       1995
                                ----       ----

Balance at beginning of year    $ 593       369
                                -----     -----

Loans charged-off                 (65)      (30)
Recoveries                         33        21
                                -----     -----

    Net loans charged-off         (32)       (9)
                                -----     -----

Provision for loan losses         250       233
                                -----     -----

Balance at end of year          $ 811       593
                                =====     =====

    The Company had no impaired  loans at December 31, 1996 or 1995. The average
    recorded  investment in impaired  loans during 1996 and 1995 was $31,000 and
    $5,000, respectively. No interest income on impaired loans was recognized in
    1996 or 1995.

                                                                     (continued)



                                       41

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(4) Premises and Equipment
    Premises and equipment is summarized as follows (in thousands):

                                                        At December 31,
                                                        ---------------
                                                      1996          1995
                                                      ----          ----

Land                                              $   729              729
Bank buildings                                      1,926            1,397
Leasehold improvements                                 61               61
Furniture and fixtures and equipment                  565              427
                                                  -------          -------

  Total, at cost                                    3,281            2,614

Less accumulated depreciation and amortization       (341)            (165)
                                                  -------          -------

  Net book value                                  $ 2,940            2,449
                                                  =======          =======

   In November, 1994 the Company purchased two properties which began operations
   as branch offices in March,  1995. In addition,  the Company acquired another
   property in 1995 which became  operational  as a branch  office in September,
   1995.

   On November  15,  1996,  the Company  entered into an agreement to purchase a
   property  for  $185,000  which  will be a branch  office of the  Bank.  It is
   anticipated that this branch office will open in June, 1997.

   Also, the Bank is currently making major renovations to its office located on
   Chestnut  Street,  Clearwater,  Florida which will be completed in May, 1997.
   The Bank will move its main office to this  location.  At December  31, 1996,
   the Bank has  remaining  purchase  commitments  of $523,000 to complete  this
   renovation.

   On September 26, 1986, the Bank entered into a lease agreement for the office
   located on Belcher  Road in  Clearwater,  Florida with a  corporation,  owned
   entirely  by certain of the Bank's  directors,  to lease the Bank's  premises
   (none of  which  are  directors,  officers  or  stockholders  of the  Holding
   Company,  Intervest  Bancshares  Corporation).  On January 1, 1989,  the Bank
   entered into a second lease with the same corporation for additional space in
   the same building.  In January,  1996, both of these leases were renegotiated
   for less space and a lower  rental  rate.  The lease is  accounted  for as an
   operating lease and will expire on October 31, 2007.

                                                                     (continued)


                                       42

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(4) Premises and Equipment, Continued
   The lease agreement contains escalation clauses based upon the consumer price
   index and contains  annual  adjustments  up to a maximum of 3% based upon the
   previous  year's  rental.  Rental  expense was  $163,000 and $167,000 for the
   years ended  December  31, 1996 and 1995,  respectively.  Approximate  future
   minimum  annual  rental  payments  under these  noncancellable  leases are as
   follows (in thousands):

         Year Ending
         December 31,        Amount
         ------------        ------

             1997           $   133
             1998                92
             1999                95
             2000                98
             2001               101
             Thereafter         671
                                ---

             Total          $ 1,190
                            =======

   The  Company  leases a portion of their  office  space in the  branch  office
   located on Ulmerton Road, Largo,  Florida and through 1996, its branch office
   located on Belcher Road, Clearwater,  Florida to other companies. Such leases
   begin to  expire  in  1998.  Rental  income  during  1996  and  1995  totaled
   approximately $159,000 and $35,000, respectively.  Approximate future minimum
   lease income under these leases is as follows (in thousands):

         Year Ending
         December 31,         Amount
         ------------         ------

             1997             $ 191
             1998               128
             1999                59
             2000                58
             2001                 2
                                ---

             Total            $ 438
                                ===

(5)  Deposits
   The  aggregate  amount of short-term  certificates  of deposit with a minimum
   denomination  of $100,000,  was  approximately  $7,261,000  and $4,822,000 at
   December 31, 1996 and 1995, respectively.


                                                                     (continued)







                                       43

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(5)  Deposits, Continued
   At December 31, 1996, the scheduled maturities of certificates of deposit are
   as follows (in thousands):

         Year Ending
         December 31,                  Amount
         ------------                  ------

               1997                   $42,845
               1998                    10,989
               1999                     3,254
               2000                     7,837
               2001 and thereafter      9,336
                                      -------

                                     $ 74,261
                                     ========

(6) Other Borrowings
   The Company has agreements with  correspondent  banks whereby the Company may
   borrow up to  $1,000,000 on an overnight  basis under a repurchase  agreement
   and up to $3,457,000 in federal funds.  There were no borrowings  under these
   agreements at December 31, 1996 or 1995.

(7) Financial Instruments
   The Company is a party to financial instruments with  off-balance-sheet  risk
   in the  normal  course  of  business  to  meet  the  financing  needs  of its
   customers.  These financial  instruments are 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  amount  recognized  in the
   consolidated balance sheet. 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 financial  instrument for commitments to extend credit and
   standby letters of credit 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 to a customer as long as
   there  is  no  violation  of  any  condition  established  in  the  contract.
   Commitments  generally  have  fixed  expiration  dates or  other  termination
   clauses and may require  payment of a fee. Since some of the  commitments are
   expected to expire without being drawn upon, the total commitment  amounts do
   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 management's credit evaluation of the counterparty.

   Standby letters of credit are conditional  commitments  issued by the Company
   to guarantee the performance of a customer to a third party.  The credit risk
   involved  in  issuing  letters  of  credit  is  essentially  the same as that
   involved in extending loans to customers.

                                                                     (continued)


                                       44

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(7)  Financial Instruments, Continued
   The estimated  fair values of the  Company's  financial  instruments  were as
follows (in thousands):
<TABLE>
<CAPTION>

                                              At December 31, 1996   At December 31, 1995
                                              --------------------   --------------------
                                               Carrying      Fair     Carrying     Fair
                                                Amount      Value      Amount     Value
                                                ------      -----      ------     -----
Financial assets:
<S>                                            <C>          <C>        <C>       <C>
     Cash and cash equivalents                 $ 6,320      6,320      8,551      8,551
     Investment securities held to maturity     34,507     34,453     19,630     19,695
     Loans receivable, net                      59,499     59,692     36,465     36,653
     Accrued interest receivable                   842        842        643        643
     Federal Reserve Bank stock                    203        203        203        203
     Interest-bearing deposits with bank            99         99        298        298

Financial liabilities-
     Deposit liabilities                        93,447     93,713     58,601     58,851
</TABLE>

    A summary of the notional  amounts of the Company's  financial  instruments,
    which  approximate  fair value,  with off balance sheet risk at December 31,
    1996 follows (in thousands):


Unfunded loan commitments at variable rates    $2,100
                                               ======

Available lines of credit                      $  909
                                               ======

Standby letters of credit                      $  100
                                               ======

(8)  Credit Risk
   The Company grants a majority of its loans to borrowers  throughout the State
   of  Florida.  Although  the  Company  has a  diversified  loan  portfolio,  a
   significant  portion of its  borrowers'  ability to honor their  contracts is
   dependent upon the economy of the State of Florida. In addition,  at December
   31, 1996, the Company's loan portfolio  contained a  concentration  of credit
   risk in retail shopping  centers,  apartment  buildings and office  buildings
   totaling $41,585,000.

(9) Income Taxes
   The provision for income taxes for the years ended December 31, 1996 and 1995
   consisted of the following (in thousands):

         Year Ended December 31, 1996:
                                Current Deferred Total
                                ----------------------

     Federal                     $244      63     307
     State                         72       4      76
                                 ----    ----    ----

         Total                   $316      67     383
                                 ====    ====    ====

Year Ended December 31, 1995:

     Federal                        9     108     117
     State                        --       19      19
                                 ----    ----    ----

         Total                   $  9     127     136
                                 ====    ====    ====

                                                                     (continued)

                                       45

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

(9) Income Taxes, Continued
     The reasons for the  differences  between the statutory  Federal income tax
     rate and the effective tax rate are summarized as follows:

                                              Year Ended December 31,
                                                  1996      1995
                                                  ----      ----

Tax provision at statutory rate                   34.0%     34.0%
Increase (decrease) in taxes resulting from:
    State taxes .                                  8.1       3.2
    Other                                         (1.4)     (3.7)
                                                  ----      ----

Income tax provision                              40.7%     33.5%
                                                  ====      ====

     The tax  effects of  temporary  differences  that give rise to  significant
     portions of the deferred tax assets  relate to the following at December 31
     (in thousands):

                                         1996        1995
                                         ----        ----
Net deferred tax assets:
    Allowance for loan losses           $ 185        95
    Depreciation                          (20)      (28)
    Deferred loan fees                     19        25
    Net operating loss carryforward       311       443
    Push-down accounting adjustments       31        56
    Other                                --           2
                                        -----     -----

        Net deferred tax assets         $ 526       593
                                        =====     =====

     At December 31, 1996,  the Company has the  following  net  operating  loss
     carryforwards relating to the operations of the Bank for federal income tax
     purposes available to offset future federal taxable income (in thousands):

               Expiration    Amount
               ----------    ------

                    2004    $149
                    2005      18
                    2006     358
                    2007     298
                    2008       3
                            ----

                            $826
                            ====

    The net operating loss  carryforwards are subject to an annual limitation of
    $332,000 due to the  ownership  change of the Bank when the Holding  Company
    purchased its controlling ownership interest.


                                                                     (continued)


                                       46

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(10)  Related Parties
    The Bank has entered into loan  transactions  with certain of its  directors
    and their  related  entities.  The activity for the year ended  December 31,
    1996 is as follows (in thousands):

                                           Amount
                                           ------

          Balance at beginning of year    $ 1,484
          Additions                         1,570
          Repayments                         (113)
                                          -------

          Balance at end of year          $ 2,941
                                          =======

There are no loans to  directors or officers of the Holding  Company,  Intervest
   Bancshares Corporation.

(11)  Employee Stock Option Plan of the Bank

Prior to 1993, an officer of the Bank had been granted options to acquire 11,000
   shares of the Bank's common stock. These options expire on December 31, 2001,
   and are  exercisable at $5 per share.  All such options were  exercisable and
   outstanding during the years ended December 31, 1996 and 1995.

(12)  Profit Sharing Plan

TheBank  sponsors a profit  sharing  plan  established  in  accordance  with the
   provisions of Section 401(k) of the Internal Revenue Code. The profit sharing
   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.  Expense
   relating to the Bank's  contributions  to the profit sharing plan included in
   the accompanying  consolidated financial statements was $12,181 for 1996. The
   Bank did not contribute to the profit sharing plan in 1995.

(13)  Common Stock Warrants of the Bank

In 1995, Intervest Bancshares Corporation purchased 200,000 shares of the Bank's
   common  stock at $5.00  per  share  and  received  warrants  to  purchase  an
   additional  200,000 shares of common stock at $5.00 par value. These warrants
   expire December 31, 1999.

(14)  Stockholders' Equity

TheBank, as a  state-chartered  bank, is limited in the amount of cash dividends
   that may be paid.  The amount of cash  dividends that may be paid is based on
   the Bank's net earnings of the current year combined with the Bank's retained
   net  earnings  of the  preceding  two  years,  as  defined  by state  banking
   regulations.  However, for any dividend  declaration,  the Bank must consider
   additional  factors  such as the  amount  of  current  period  net  earnings,
   liquidity,  asset quality,  capital adequacy and economic  conditions.  It is
   likely that these factors  would further limit the amount of dividends  which
   the Bank could declare.  In addition,  bank  regulators have the authority to
   prohibit  banks  from  paying  dividends  if they deem such  payment to be an
   unsafe or  unsound  practice.  The  ability  of the  Holding  Company  to pay
   dividends  could be affected by the amount of  dividends  the Bank is able to
   pay to the Holding Company.

                                                                     (continued)


                                       47

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(15)  Regulatory Matters

TheBank is subject to various  regulatory capital  requirements  administered by
   the federal banking  agencies.  Failure to meet minimum capital  requirements
   can initiate certain mandatory and possibly additional  discretionary actions
   by regulators that, if undertaken, could have a direct material effect on the
   Bank's  financial  statements.  Under  capital  adequacy  guidelines  and the
   regulatory  framework  for  prompt  corrective  action,  the Bank  must  meet
   specific capital guidelines that involve quantitative  measures of the Bank's
   assets, liabilities,  and certain off-balance-sheet items as calculated under
   regulatory   accounting   practices.   The   Bank's   capital   amounts   and
   classification  are also subject to qualitative  judgements by the regulators
   about components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
   require  the Bank to  maintain  minimum  amounts and ratios (set forth in the
   table below) of total and Tier I capital (as defined in the  regulations)  to
   risk-weighted  assets (as  defined),  and of Tier I capital  (as  defined) to
   average assets (as defined).  Management  believes,  as of December 31, 1996,
   that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 1996, the most recent notification from the State and Federal
   regulators  categorized  the Bank as well  capitalized  under the  regulatory
   framework for prompt corrective action. To be categorized as well capitalized
   the Bank must maintain minimum total risk-based,  Tier I risk-based, and Tier
   I  leverage  ratios as set forth in the  table.  There are no  conditions  or
   events since that  notification  that  management  believes  have changed the
   Bank's  category.  The  Bank's  actual  capital  amounts  and ratios are also
   presented in the table (dollars in thousands).

<TABLE>
<CAPTION>

                                                                                                   For Well
                                                                          For Capital             Capitalized
                                               Actual                 Adequacy Purposes:           Purposes:
                                       ---------------------        --------------------        --------------
                                       Amount          Ratio        Amount         Ratio        Amount   Ratio
                                       ------          -----        ------         -----        ------   -----

     As of December 31, 1996:
         Total capital (to Risk
<S>                                   <C>             <C>         <C>              <C>         <C>      <C>
         Weighted Assets)             $ 8,051         11.90%      $ 5,412          8.00%       $ 6,765  10.0%
         Tier I Capital (to Risk
         Weighted Assets)               7,240         10.70         2,706          4.00          4,059   6.0
         Tier I Capital
         (to Average Assets)            7,240          7.48         3,871          4.00          4,839   5.0

     As of December 31, 1995:
         Total capital (to Risk
         Weighted Assets)               7,272         16.11         3,610          8.00          4,512  10.0
         Tier I Capital (to Risk
         Weighted Assets)               6,699         14.85         1,805          4.00          2,708   6.0
         Tier I Capital
         (to Average Assets)            6,699         10.83         2,475          4.00          3,093   5.0
</TABLE>

                                                                     (continued)


                                       48

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(16)  Holding Company Financial Information
     The Holding  Company's  financial  information is as follows at and for the
     years ended December 31, 1996 and 1995 (in thousands):

                            Condensed Balance Sheets
                                                        At December 31,
                                                        ---------------
                                                        1996       1995
                                                        ----       ----
         Assets

     Cash                                              $   90       109
     Short-term securities                              1,158     1,039
                                                       ------    ------

         Cash and cash equivalents                      1,248     1,148

     Loans receivable                                   1,230     1,168
     Investment in subsidiary                           7,340     6,845
     Organizational costs, net                             32        61
     Other assets                                          17        25
                                                       ------    ------

         Total assets                                  $9,867     9,247
                                                       ======    ======

         Liabilities and Stockholders' Equity

     Liabilities                                          120        58
     Stockholders' equity                               9,747     9,189
                                                       ------    ------

         Total liabilities and stockholders' equity    $9,867     9,247
                                                       ======    ======

               Condensed Statements of Earnings

                                                      For the Year Ended
                                                         December 31,
                                                         ------------
                                                        1996      1995
                                                        ----      ----

Revenues                                               $  325       169
Expenses                                                  224       107
                                                       ------    ------

     Earnings before earnings of subsidiary               101        62
     Earnings of subsidiary                               457       208
                                                       ------    ------

     Net earnings                                      $  558       270
                                                       ======    ======

                                                                     (continued)


                                       49

<PAGE>



                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(16)  Holding Company Financial Information, Continued
<TABLE>
<CAPTION>


                       Condensed Statements of Cash Flows
                                                                 For the Year Ended
                                                                    December 31,
                                                                    ------------
                                                                 1996          1995
                                                                 ----          ----

<S>                                                            <C>          <C>
Cash flows from operating activities:
     Net earnings                                              $   558         270
     Adjustments to reconcile net earnings to net cash
         provided by (used in) operating activities:
             Equity in undistributed income of subsidiary         (457)       (208)
             Net decrease in organizational costs                   29          30
             Other                                                  53          90
             Decrease in minority interest                          19        --
                                                               -------     -------

                  Net cash provided by operating activities        202         182
                                                               -------     -------

Cash flows used in investing activities -
     Net increase in loans                                         (62)     (1,168)
                                                               -------     -------


Cash flows from financing activities-
     Purchase of common stock of subsidiary                        (40)     (1,000)
                                                               -------     -------

                  Net cash used in financing activities            (40)     (1,000)
                                                               -------     -------

Net increase (decrease) in cash and cash equivalents               100      (1,986)

Cash and cash equivalents at beginning of the year               1,148       3,134
                                                                ------     -------

Cash and cash equivalents at end of year                       $ 1,248       1,148
                                                               =======     =======
</TABLE>

(17)  Common Stock Recapitalization and Stock Warrants
    On July 19, 1994,  the  Company's  charter was amended to authorize  200,000
    shares of Class B Common  Stock,  200,000  shares of Preferred  Stock and to
    increase the authorized shares of Class A Common Stock to 2,600,000. At that
    time,  the Company  issued the 200,000 shares of Class B Common Stock to its
    then  stockholders  without  any change in total  stockholders'  equity.  On
    October 10, 1996, the Company's  charter was further amended to increase the
    authorized number of shares of Class B Common Stock to 400,000.

                                                                     (continued)


                                       50

<PAGE>


                 INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(17)  Common Stock Recapitalization and Stock Warrants, Continued

Both classes of 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 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
   Company. 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  dividends.  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.

At December 31, 1996, there were issued and outstanding  warrants related to the
   purchase  of  1,019,110  shares of Class A Common  Stock and the  Company has
   reserved  a total  of  1,019,110  shares  of its  Class A  Common  Stock  for
   issuance,  from  time to time,  upon  exercise  of these  warrants.  Of these
   warrants,  684,800 are exercisable at any time on or before December 31, 2001
   and  represent  the right to purchase  one share of Class A Common Stock at a
   purchase price of $10.00 per share (subject to adjustment in connection  with
   certain issuances of securities). The remaining warrant is exercisable at any
   time on or before  January  31,  2006 and  represents  the right to  purchase
   334,310  shares of Class A Common  Stock at a  purchase  price of $10.00  per
   share (subject to adjustment in connection  with certain future  issuances of
   securities).  As of December 31, 1996 none of the Company's warrants had been
   exercised.

During 1996, the Board of Directors authorized,  subject to regulatory approval,
   the issuance of a warrant to purchase  100,000 shares of Class B Common Stock
   to its Chairman of the Board. The warrant is exercisable at a price of $10.00
   per share at any time on or before January 31, 2007 (subject to adjustment in
   connection with certain future  issuances of securities).  A total of 100,000
   shares of the  Company's  Class B Common Stock has been reserved for issuance
   upon exercise of the foregoing warrant. It is expected that this warrant will
   be issued in February, 1997.

On January 1, 1996,  the  Company  adopted  Statement  of  Financial  Accounting
   Standards  No.  123,   "Accounting  for  Stock-Based   Compensation,"   which
   establishes  financial  accounting  and reporting  standards for  stock-based
   employee compensation plans. As permitted by this Statement,  the Company has
   elected to  continue  utilizing  the  intrinsic  value  method of  accounting
   defined in APB  Opinion  No. 25. Due to the  exercise  price of the  warrants
   approximating  the market value of the common stock at the date of grant,  no
   compensation  expense has been  recognized in the  consolidated  statement of
   operations.

Each warrant  entitles  the holder to purchase  one share of common  stock.  All
   warrants,  when issued,  were immediately  exercisable and the exercise price
   and  number  of  shares  for all  warrants  are  subject  to  adjustments  in
   connection with future issuance of securities.  No warrants were exercised or
   forfeited during 1996 or 1995.

Dueto the  adjustable  nature of the warrants  issued to purchase Class A common
   stock,  it was not  possible  to  reasonably  estimate  the fair value of the
   warrants, therefore the estimate of compensable cost was based on the current
   intrinsic value of the warrants as if the warrants were currently  exercised,
   which would result in no compensation cost.


                                       51

<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

        Lawrence G. Bergman,  age 52, serves as a Director,  Vice  President and
Secretary of the Company 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  Bank  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.

        Michael A. Callen, age 56, serves as a Director of the Company,  and has
served in such capacity since May,  1994. Mr Callen  received a Bachelor of Arts
degree from the University of Wisconsin in Economics and Russian. Mr. Callen has
been Senior Advisor,  The National  Commercial  Bank,  Jeddah,  Kingdom of Saudi
Arabia since May, 1993.  From the fall of 1992 through  February of 1993, he was
an Adjunct Professor of International  Banking at Columbia  University  Business
School.  From 1987 until February of 1992 he was a Director and Sector Executive
at  Citicorp/Citibank,  responsible  for corporate  banking  activities in North
America, Europe and Japan. He is also a Director of Intervest Corporation of New
York and AMBAC, Inc.

        Jerome Dansker, age 78, serves as Chairman of the Board of Directors and
Executive  Vice  President  of the  Company.  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 is also a Director and Chairman of the Loan Committee of the 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 46, serves as a Director, President and Treasurer
of the  Company,  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 Bank 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.

        Milton F. Gidge,  age 67,  serves as a Director of the Company,  and has
served in such  capacity  since March,  1994.  Mr. Gidge  received a Bachelor of
Business  Administration  degree in  Accounting  from Adelphi  University  and a
Masters  Degree in Banking  and  Finance  from New York  University.  Mr.  Gidge
retired in 1994 and, prior to his retirement, was a Director and Chairman-Credit
Policy of Lincoln Savings Bank,  F.S.B.  (headquartered in New York City). He is
also a Director of Intervest Corporation of New York, Interboro Mutual Indemnity
Insurance Company and Vicon Industries, Inc. Mr. Gidge was an officer of Lincoln
Savings Bank, F.S.B. for more than five years.


                                       52

<PAGE>



        William F.  Holly,  age 68,  serves as a Director of the Company and has
served in such capacity since March, 1994. Mr. Holly received a Bachelor of Arts
degree in Economics from Alfred  University.  Mr. Holly is Chairman of the Board
and CEO of Sage, Rutty & Co., Inc.,  members of the Boston Stock Exchange,  with
offices in Rochester, New York and Canandaigua, New York, and is also a Director
of Intervest  Corporation  of New York and a Trustee of Alfred  University.  Mr.
Holly has been an officer and director of Sage,  Rutty & Co., Inc. for more than
five years.

        David J. Willmott,  age 59, serves as a Director of the Company, and has
served in such capacity since March,  1994. Mr. Willmott is a graduate of Becker
Junior  College  and  attended  New York  University  Extension  and Long Island
University  Extension of  Southampton  College.  Mr.  Willmott is the Editor and
Publisher  of Suffolk Life  Newspapers,  which he founded more than 25 years ago
and is a Director of Intervest Corporation of New York.

        Wesley T. Wood,  age 54,  serves as a Director of the  Company,  and has
served in such  capacity  since  March,  1994.  Mr. Wood  received a Bachelor of
Science  degree  from New York  University,  School  of  Commerce.  Mr.  Wood is
President  of  Marketing  Capital   Corporation,   an  international   marketing
consulting and  investment  firm which he founded in 1973. He is also a Director
of  Intervest  Corporation  of New  York,  a  Director  of the  Center of Direct
Marketing  at New  York  University,  a member  of the  Marketing  Committee  at
Fairfield  University in Connecticut,  and a Trustee of St. Dominics R.C. Church
in Oyster Bay, New York.

        All of the  directors  of the  Company  have  been  elected  to serve as
directors until the next annual meeting of the Company's  shareholders.  Each of
the  officers of the Company has been  elected to serve as an officer  until the
next annual meeting of the Company's directors.

        Mr.  Bergman's  wife is the  sister  of Lowell S.  Dansker,  and  Jerome
Dansker is the father of Lowell S. Dansker and Mrs. Bergman.

Item 10.  Executive Compensation

        The  following  table sets forth all  compensation  paid during the last
three  years to the Bank's  chief  executive  officer.  No other  officer of the
Company or Bank had annual compensation in excess of $100,000.
<TABLE>
<CAPTION>


                                        SUMMARY COMPENSATION TABLE

                                                   Annual Compensation                            Long-Term Compensation
                                                                          Other Annual
Name and Principal         Year         Salary(1)         Bonuses         Compensation          Awards(2)           Pay-Outs
                           ----         ------            -------         ------------          ---------           --------
    Position
<S>                        <C>          <C>               <C>                <C>                <C>                 <C>
Keith A. Olsen,            1994         $87,500           $ 6,500            ----               ----                ----
  President

                           1995         $90,000           $10,000            ----               10,000

                           1996         $95,000           $10,000            ----               10,000
</TABLE>

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

(1)     All  compensation or enumeration  paid to employees is paid by the Bank.
        At the present time, there are no separate  employees of the Company and
        there is no compensation paid by the Company.

(2)     These represent warrants to purchase shares of Class A Common Stock.

                                       53

<PAGE>



        Directors of the Company are paid  director's  fees of $500 per meeting.
Directors of the Bank are paid director's fees of $100 per meeting.

        The Bank has a written  agreement with Mr. Keith A. Olsen. The agreement
provides for a four-year  term of employment at a base annual salary of not less
than $125,000. The agreement provides for the payment of one year severance upon
termination of employment.

Fringe Benefits

        The Bank maintains a 401(k) and Profit Sharing Plan which encourages the
accumulation  of savings for  participants'  retirement.  While the plan permits
401(k) matching contributions,  as well as employer profit-sharing contributions
in the discretion of the Bank, no such contributions have been made to date.

Stock Option Plan-Bank

        The Bank maintains a 1992 Stock Option Plan (the "Option  Plan"),  which
provides for the grant of options to key employees of the Bank. The Compensation
Committee  administers  the Option Plan and determines  those  employees to whom
options will be granted.  Up to 70,000 shares of common stock of the Bank may be
issued  pursuant to options  granted under the Option Plan, and no option may be
granted after April 16, 2002.

        The options  granted  pursuant  to the Option Plan are  non-transferable
other than by will or under the laws of descent  and  distribution.  The options
vest over 5 years  after the date of grant at the rate of 20% per year.  Options
may not be  exercised  more than 10 years after the date of grant.  The exercise
price of options  granted  under the  Option  Plan may not be less than the fair
market value of the common stock of the Bank on the date of grant.

        As of December 31, 1996,  no shares of common stock had been issued upon
the exercise of options  granted under the Option Plan,  and options to purchase
11,000  shares of common  stock at an  exercise  price of $5.00 were held by one
employee,  which  expires on December 31, 2001.  It is expected  that no further
options will be granted under the Option Plan.

Warrants

        At December 31, 1996, there were issued and outstanding warrants related
to the purchase of 1,019,110  shares of Class A Common Stock and the Company has
reserved a total of 1,019,110 shares of Class A Common Stock for issuance,  from
time to time,  upon exercise of these warrants.  Of these warrants,  684,800 are
exercisable  at any time on or before  December 31, 2001 and represent the right
to purchase one share of Class A Common Stock at a purchase  price of $10.00 per
share   (subject  to  adjustment  in  connection   with  certain   issuances  of
securities).  The  remaining  warrant  is  exercisable  at any time on or before
January 31, 2006 and represents the right to purchase  334,310 shares of Class A
Common Stock at a purchase  price of $10.00 per share  (subject to adjustment in
connection with certain future issuances of securities). As of December 31, 1996
none of the Company's warrants had been exercised.

        During 1996, the Board of Directors authorized the issuance of a warrant
to purchase 100,000 shares of Class B Common Stock to the Chairman of the Board.
The  warrant  is  exercisable  at a price of $10.00  per share at any time on or


                                       54

<PAGE>



before January 31, 2007 (subject to adjustment in connection with certain future
issuances of  securities).  A total of 100,000  shares of the Company's  Class B
Common  Stock has been  reserved  for issuance  upon  exercise of the  foregoing
warrant.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following  table sets forth  certain  information  regarding the  beneficial
ownership  of the  Company's  outstanding  common  stock as of March 15, 1997 by
directors and executive  officers of the Company,  and the other person who owns
more  than  5% of  the  issued  and  outstanding  shares.  Except  as  otherwise
indicated,  the persons named in the table have sole voting and investment power
with respect to all shares of common stock owned by them.
<TABLE>
<CAPTION>

                                               Class A Common Stock                             Class B Common Stock

Name and Address of
Beneficial Holder                       Number of Shares                  Percent of Class(Number of Shares         Percent of Class
-----------------                       ----------------                  ---------------- ----------------         ----------------

<S>                                       <C>                      <C>                       <C>                       <C>
Helene D. Bergman                           150,000                16.67%                     50,000                   16.67%
   201 East 62nd Street
   New York, New York 10021

Lawrence G. Bergman                         205,000(2)             20.21%                     50,000                   16.67%
   201 East 62nd Street
   New York, New York 10021

Lowell S. Dansker                           355,000(2)             36.17%                    100,000                   33.33%
   360 West 55th Street
   New York, New York 10019

Michael A. Callen                            30,000(3)              2.72%                          0                     0%
   Ryutat
   Jeddah, Saudi Arabia

Jerome Dansker                              335,000(4)             26.23%                    100,000                     33.33%
   860 Fifth Avenue
   New York, New York 10021

Milton F. Gidge                              21,000(5)              1.75%                          0                     0%
   43 Salem Ridge Drive
   Huntington, New York 11743

William F. Holly                             30,000(6)              2.70%                          0                     0%
   206 Edgemere Drive
   Rochester, New York 14612

David J. Wilmott                             63,000(7)              6.21%                          0                     0%
   West Way
   Southhampton, New York

Wesley T. Wood                               65,000(8)              6.42%                          0                     0%
   24 Timber Ridge Drive
   Oyster Bay, New York 11771

All directors and executive
   officers as a group                    1,254,000                85.98%                    200,000                   100%
                                          ---------

</TABLE>
                                       55

<PAGE>




-----------------------------
(1)      Percentages have been computed based upon the total outstanding  shares
         of the Company plus, for each person and the group,  shares that person
         or the group has the right to acquire pursuant to warrants.

(2)      Includes  55,000  shares  of Class A  common  stock  issuable  upon the
         exercise of warrants.

(3)      Includes  22,500  shares  of Class A  common  stock  issuable  upon the
         exercise of warrants.

(4)      The  335,000  shares  of Class A common  stock  are  issuable  upon the
         exercise of outstanding warrants.  The 100,000 shares of Class B Common
         Stock are issuable upon exercise of a warrant.

(5)      Includes  18,000  shares  of Class A  common  stock  issuable  upon the
         exercise of warrants.

(6)      Includes  22,500  shares  of Class A  common  stock  issuable  upon the
         exercise of warrants.

(7)      Includes  4,000  shares of Class A common stock owned by members of Mr.
         Willmott's  family,  as well as 35,000  shares of Class A common  stock
         which Mr.  Willmott has the right to acquire (and 4,000 shares of Class
         A common stock which family members have the right to acquire) upon the
         exercise of warrants.

(8)      Includes  40,000  shares of Class A common stock which Mr. Wood has the
         right to acquire upon the exercise of warrants.

Item 12.  Certain Relationships and Related Transactions

         The Bank has had,  and expects to have in the future,  various loan and
other banking  transactions  in the ordinary  course of business with directors,
and  executive  officers  (or  associates  of such  persons).  In the opinion of
management,  all such transactions:  (i) have been and will be made the ordinary
course of business,  (ii) have been and will be made on  substantially  the same
terms,  including  interest  rates and collateral on loans,  as those  generally
prevailing at the time for comparable  transactions with unrelated persons,  and
(iii) have not and will not involve more than the normal risk of  collectability
or present other unfavorable features.  The total dollar amount of extensions of
credit,  including unused lines of credit,  to directors and executive  officers
and any of their  associates  was $2.9 million as of December  31,  1996,  which
represented approximately 29.9% of total stockholders' equity.

         The holding  company,  as well as corporations  affiliated with certain
directors of the Company,  have in the past and may in the future participate in
mortgage loans originated by the Bank. Such  participations are on substantially
the same terms as would apply for comparable transactions with other persons and
the interest of the participants in the collateral  securing those loans is pari
passu with the Bank.

         Except for the lease  described  below and  outside of normal  customer
relationships,  none of the directors,  officers, or present shareholders of the
Company and no  corporations  or firms with which such  persons or entities  are
associated,  currently  maintains or has  maintained  since the beginning of the
last fiscal year, any  significant  business or personal  relationship  with the
Company  or the Bank,  other than such as arises by virtue of such  position  or
ownership interest in the Company or the Bank.

         The Bank leases certain office  facilities  from a corporation in which
Robert J. Carroll,  a director of the Bank, is an officer and in which he has an
ownership interest. See Note 4 to Notes to Consolidated Financial Statements.



                                       56

<PAGE>



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

(a)      The following exhibits are incorporated by reference herein:

Exhibit Number      Description of Exhibit
--------------      ----------------------

3.1                 Restated   Certificate  of  Incorporation  of  the  Company,
                    incorporated  by  reference  from the  Company  Registration
                    Statement  on Form  SB-2  (No.  33-82246),  filed  with  the
                    Commission on August 1, 1994 (the "Registration Statement"),
                    wherein such document is identified as Exhibit 3.1.

3.2                 Bylaws of the Company,  incorporated  by reference  from the
                    Registration Statement,  wherein such document is identified
                    as Exhibit 3.2.

4.1                 Form of  Certificate  for  Shares  of Class A Common  Stock,
                    incorporated  by reference from the Company's  Pre-Effective
                    Amendment No. 1 to 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 from Pre-Effective Amendment No. 1
                    to 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 from 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  is  included  as  Exhibit A to Exhibit  4.5
                    below.

4.5                 Form of Warrant  Agreement  between the Company and the Bank
                    of New York,  incorporated  by reference from  Pre-Effective
                    Amendment No. 1 to Registration  Statement on Form SB-2 (No.
                    33-82246), filed with the Commission on September 15, 1994.



                                       57

<PAGE>



4.6                 Amendment to Warrant  Agreement  between the Company and the
                    Bank  of  New  York,  incorporated  by  reference  from  the
                    Company's  Report on Form 10-K for the year  ended  December
                    31, 1995,  wherein such  document is  identified  as Exhibit
                    4.6.


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


                                       58

<PAGE>


                                   SIGNATURES

         PURSUANT to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 26th day of
March, 1997.

                                        INTERVEST BANCSHARES CORPORATION
                                        (Registrant)


                                        By:    /s/ Lowell S. Dansker
                                               ---------------------
                                                   Lowell S. Dansker, President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Registration  Statement  has been signed by the  following  persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

                                                   Title                                                Date
                                                   -----                                                ----
<S>                                                <C>                                              <C>
/s/ Lawrence G. Bergman                            Vice President,                                  3/26/97
--------------------------
Lawrence G. Bergman                                Secretary and Director

                                                   Director                                         __________________
--------------------------
Michael A. Callen

/s/ Jerome Dansker                                 Chairman of the Board,                           3/26/97
--------------------------
Jerome Dansker                                     Executive Vice President, Director

/s/ Lowell S. Dansker                              President, Treasurer and                         3/26/97
--------------------------
Lowell S. Dansker                                  Director (Principal Executive),
                                                   Financial and Accounting Officer)

                                                   Director                                         ___________________
--------------------------
Milton F. Gidge

/s/ William F. Holly                               Director                                         3/26/97
--------------------------
William F. Holly

                                                   Director                                         ___________________
--------------------------
David J. Willmott

/s/ Wesley T. Wood                                 Director                                         3/26/97
--------------------------
Wesley T. Wood



</TABLE>

                                       59

<PAGE>