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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                        Commission File Number 000-23377

                        INTERVEST BANCSHARES CORPORATION
             (Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act): Yes _ No_.

As of February 25, 2003 there were 4,348,087 shares of the Registrant's  Class A
common stock and 355,000 shares of the Registrant's  Class B common stock issued
and  outstanding.  The  aggregate  market  value  of  1,765,437  shares  of  the
Registrant's Class A common stock on February 25, 2003, which excludes 2,582,650
shares held by affiliates as a group,  was  $19,137,337.  This value is based on
the average bid and asked price of $10.84 per share on February  25, 2003 of the
Class A common stock on the NASDAQ Small Cap Market.

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

Portions of the Proxy Statement for the 2003 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
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<PAGE>

                Intervest Bancshares Corporation and Subsidiaries

                         2002 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

 PART I

                                                                            Page
                                                                            ----

 Item 1   Description of Business ...........................................  2

 Item 2   Description of Properties ......................................... 12

 Item 3   Legal Proceedings ................................................. 13

 Item 4   Submission of Matters to a Vote of Security Holders................ 13

 Item 4A  Executive Officers and Other Key Employees......................... 13

 PART II

 Item 5   Market for Common Equity and Related Stockholder Matters........... 15

 Item 6   Selected Consolidated Financial and Other Data..................... 16

 Item 7   Management's Discussion and Analysis of Financial Condition
               and Results of Operations .................................... 17

 Item7A Quantitative and Qualitative Disclosures About Market Risk........... 34

 Item 8   Financial Statements and Supplementary Data........................ 34

 Item 9   Changes In and Disagreements with Accountants on
               Accounting and Financial Disclosure .......................... 66

 PART III

 Item 10  Directors and Executive Officers .................................. 66

 Item 11  Executive Compensation ............................................ 66

 Item 12  Security Ownership of Certain Beneficial Owners and Management..... 66

 Item 13  Certain Relationships and Related Transactions..................... 66

 Item 14  Controls and Procedures............................................ 66

 PART IV

 Item 15  Exhibits, Financial Statements Schedules and Reports on Form 8-K... 66

 Signatures ................................................................. 68

 Certification .............................................................. 69



                                       1
<PAGE>

                                     PART I
Item 1. Description of Business

General

Private Securities Litigation Reform Act Safe Harbor Statement
--------------------------------------------------------------

The  Company is making  this  statement  in order to satisfy  the "Safe  Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements  contained  in this  report on Form 10-K that are not  statements  of
historical fact may include forward-looking  statements that involve a number of
risks and  uncertainties.  Such  forward-looking  statements  are made  based on
management's  expectations  and beliefs  concerning  future events impacting the
Company and are subject to  uncertainties  and factors relating to the Company's
operations and economic  environment,  all of which are difficult to predict and
many of which are beyond the control of the  Company,  that could  cause  actual
results of the Company to differ  materially from those matters  expressed in or
implied by  forward-looking  statements.  The following  factors are among those
that could cause actual results to differ  materially  from the  forward-looking
statements:  changes in general economic, market and regulatory conditions;  the
development  of an  interest  rate  environment  that may  adversely  affect the
Company's  interest rate spread,  other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.

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

Intervest  Bancshares  Corporation  is a registered  bank  holding  company (the
"Holding Company") incorporated in 1993 under the laws of the State of Delaware.
Its principal office is located at 10 Rockefeller  Plaza,  Suite 1015, New York,
New York 10020, and its telephone number is 212-218-2800.  The Holding Company's
Class A common stock is listed on the NASDAQ SmallCap Market (Symbol:  IBCA). At
December 31, 2002,  the Holding  Company owned 100% of the  outstanding  capital
stock of Intervest National Bank (the "Bank"),  Intervest  Mortgage  Corporation
(whose  name was changed  from  Intervest  Corporation  of New York in 2002) and
Intervest   Statutory  Trust  I  (hereafter  referred  to  collectively  as  the
"Company,"  on a  consolidated  basis).  On July 20, 2001,  Intervest  Bank (the
Holding Company's other wholly owned banking  subsidiary prior to that date) was
merged into Intervest  National Bank. The merger was treated as a reorganization
and accounted for at historical cost similar to the pooling-of-interests  method
of  accounting.   Under  this  method  of  accounting,   the  recorded   assets,
liabilities,  shareholders'  equity,  income  and  expenses  of both  banks were
combined and recorded at their historical cost amounts.

At December 31, 2002,  the Company had total  assets of  $685,979,000,  cash and
security  investments of $179,651,000,  net loans of  $489,912,000,  deposits of
$505,958,000,  debentures  and related  interest  payable of  $113,302,000,  and
stockholders'  equity of $53,126,000,  compared to total assets of $512,622,000,
cash and  security  investments  of  $130,662,000,  net  loans of  $368,526,000,
deposits  of   $362,437,000,   debentures  and  related   interest   payable  of
$99,910,000, and stockholders' equity of $40,395,000 at December 31, 2001.

The Holding Company's primary business is the operation of its subsidiaries.  It
does not  engage in any  other  substantial  business  activities  other  than a
limited amount of real estate mortgage  lending.  From time to time, the Holding
Company has sold  debentures to raise funds for working  capital  purposes.  The
Holding  Company is subject to examination and regulation by the Federal Reserve
Board.

In December 2002, Intervest Bancshares  Corporation entered into an agreement to
acquire  Intervest  Securities  Corporation,  an  affiliated  entity  that  is a
broker/dealer  registered  in nine states and is an NASD and SIPC  member  firm.
Intervest Securities Corporation  participates as a selected dealer from time to
time  in  offerings  of debt  securities  of the  Company,  primarily  those  of
Intervest Mortgage Corporation. Pursuant to this agreement, Intervest Bancshares
Corporation  will  acquire  all of the  capital  stock of  Intervest  Securities
Corporation  for  30,000  shares of its Class B common  stock that will be newly
issued  for  this  transaction.  At  December  31,  2002,  Intervest  Securities
Corporation's  net assets  amounted to  approximately  $200,000 and consisted of
cash.  The  transaction  is  subject  to the  approval  of both the NASD and the
Federal  Reserve  Bank of New York (FRB) and is  expected  to close in the first
quarter of 2003.  Intervest  Securities  Corporation  will become a wholly owned
subsidiary  of  Intervest  Bancshares  Corporation.   In  connection  with  this
transaction,  Intervest  Bancshares  Corporation  filed an election with and was
approved by the FRB to become a financial  holding  company  under  Regulation Y
effective  January 23, 2003. The Company has also  previously  announced that it


                                       2
<PAGE>

intends to explore  further  growth  through the  acquisition  of other banks or
thrifts.   It  will  consider   acquisition  of  banks/thrifts  with  operations
compatible  with its own, with a view towards  consolidating  selected  lines of
business,  operations  and support  functions  in order to achieve  economies of
scale, greater efficiency and operational  consistency.  The Company anticipates
that any such  banks/thrifts  would be located in the eastern United States. The
Company emphasizes that it has not entered into any agreements or identified any
institutions  for  acquisition  and  there  can be no  assurances  that any such
acquisitions will be successfully completed.

Intervest National Bank
-----------------------

Intervest National Bank is a nationally chartered bank that has its headquarters
and full-service  banking office at One Rockefeller Plaza, in New York City, and
a total of five full-service banking offices in Pinellas County,  Florida - four
in Clearwater and one in South Pasadena.

At  December  31,  2002,  the Bank had total  assets of  $581,435,000,  cash and
security  investments of $163,167,000,  net loans of  $407,128,000,  deposits of
$517,209,000 and stockholder's  equity of $51,936,000,  compared to total assets
of $421,152,000,  cash and security  investments of  $116,387,000,  net loans of
$296,255,000,  deposits of $365,978,000 and stockholder's equity of $46,749,000,
at December 31, 2001.

The Bank  provides a wide range of banking  services to small and  middle-market
businesses and individuals.  It conducts a personalized  commercial and consumer
banking  business  and  attracts  deposits  from the areas served by its banking
offices.  The  Bank  also  provides  internet  banking  through  its  web  site:
www.intervestnatbank.com,  which can attract  deposit  customers  from within as
well as outside its primary  market  areas.  The  deposits,  together with funds
derived  from other  sources,  are used to  originate a variety of real  estate,
commercial and consumer loans and to purchase  investment  securities.  The Bank
emphasizes  multifamily  residential and commercial real estate lending and also
offers commercial and consumer loans.

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

Deposit  flows and the rates paid thereon are  influenced  by interest  rates on
competing  investments  available  to  depositors  and general  market  rates of
interest.  Lending  activities  are  affected  by the demand for real estate and
other  types of loans,  interest  rates at which such  loans may be offered  and
other factors affecting the availability of funds to lend. The Bank faces strong
competition in the attraction of deposits and in the  origination of loans.  The
Bank's deposits are insured by the Federal Deposit Insurance  Corporation (FDIC)
to the extent permitted by law.

As is the case with banking  institutions  generally,  the Bank's operations are
significantly  influenced by general economic conditions and by related monetary
and fiscal policies of banking regulatory agencies,  including the FRB and FDIC.
The Bank is also subject to the  supervision,  regulation and examination of the
Office of the Comptroller of the Currency of the United States of America (OCC).
In June 2001,  the OCC  terminated a Memorandum of  Understanding  with the Bank
that was in  effect  since  June  2000.  The  memorandum  was a  formal  written
agreement  whereby,  among other  things,  the Bank had been required to review,
revise,  develop and implement  various  policies and procedures with respect to
its lending and credit underwriting.  Management  implemented various actions in
order for the Bank to be in full compliance with the memorandum.

Intervest Mortgage Corporation
------------------------------

Intervest  Mortgage  Corporation  is in the business of  investing  primarily in
commercial  and  multifamily  real  estate  mortgage  loans on income  producing
properties, such as office and commercial properties and multifamily residential
apartment  buildings.  It also makes loans on other types of properties  and may
resell mortgages.  Intervest  Mortgage  Corporation is located at 10 Rockefeller
Plaza in New York City.

Intervest Mortgage  Corporation was acquired by the Holding Company on March 10,
2000.  In the  acquisition,  all of the  outstanding  capital stock of Intervest
Mortgage  Corporation  was  acquired in  exchange  for  1,250,000  shares of the


                                       3
<PAGE>

Holding  Company's  Class A  common  stock.  Former  shareholders  of  Intervest
Mortgage   Corporation   are  officers  and  directors  of  Intervest   Mortgage
Corporation  and the Holding  Company.  The  acquisition  was  accounted  for at
historical cost similar to the pooling-of-interests method of accounting.  Under
this method of  accounting,  the  recorded  assets,  liabilities,  shareholders'
equity,  income and  expenses of both  companies  were  combined and recorded at
their historical cost amounts.

At  December  31,  2002,  Intervest  Mortgage  Corporation  had total  assets of
$97,311,000,  net loans of $73,499,000,  debentures and related interest payable
of  $84,751,000,  and  stockholder's  equity of  $11,413,000,  compared to total
assets of $83,083,000, net loans of $62,665,000, debentures and related interest
payable of $72,113,000,  and stockholder's equity of $9,847,000, at December 31,
2001.

Intervest Mortgage Corporation's  operations are significantly influenced by the
movement  of interest  rates and by general  economic  conditions,  particularly
those in the New York City  metropolitan  area where most of the properties that
secure its mortgage loans are concentrated.

Intervest Statutory Trust I
---------------------------

Intervest  Statutory  Trust I was formed in December 2001 in connection with the
issuance of $15,000,000 of capital securities. It is not authorized and does not
conduct  any trade or  business,  and was  formed  for the sole  purpose  of the
issuance,  sale and administration of the capital securities.  See note 9 to the
consolidated   financial  statements  for  further  discussion  of  the  capital
securities.

Market Area

The primary  market area of the Bank's New York office is  considered  to be the
New York City  metropolitan  region,  and Manhattan in  particular.  The primary
market area of the Bank's Florida  offices is considered to be Pinellas  County,
which is the most populous county in the Tampa Bay area of Florida. The area has
many more seasonal residents. The Tampa Bay area is located on the West Coast of
Florida, midway up the Florida peninsula. The major cities in the area are Tampa
(Hillsborough  County) and St. Petersburg and Clearwater  (Pinellas County). The
Bank's deposit gathering and lending markets are concentrated in the communities
surrounding  its offices.  Management  believes that all the Bank's  offices are
located in areas serving small and mid-sized  businesses  and serving middle and
upper income communities.  The Bank's deposit-gathering market also includes its
web  site on the  internet:  www.intervestnatbank.com,  which  attracts  deposit
customers from both within and outside the Bank's primary market areas.

Intervest  Mortgage  Corporation's  lending activities have been concentrated in
the New York City  metropolitan  region.  It also makes  loans in other  states,
including Connecticut,  Florida, Georgia,  Maryland, New Jersey, North Carolina,
Pennsylvania, Virginia and Washington D.C.

Competition

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

Competition among financial institutions is based upon interest rates offered on
deposit  accounts,  interest rates charged on loans and other credit and service
charges,  the quality and scope of the services  rendered,  the  convenience  of
banking facilities and, in the case of loans to commercial  borrowers,  relative
lending limits.  Management  believes that a community bank is better positioned
to establish  personalized banking  relationships with both commercial customers
and individual  households.  The Bank's community  commitment and involvement in


                                       4
<PAGE>

its primary market areas, as well as its commitment to quality and  personalized
banking  services are factors  that  contribute  to the Bank's  competitiveness.
Management  believes  a  locally-based  bank is  often  perceived  by the  local
business  community as possessing a clearer  understanding of local commerce and
their  needs.  Consequently,  management  believes  that the  Bank  can  compete
successfully  in its primary  market areas by making prudent  lending  decisions
quickly and more efficiently than its competitors,  without  compromising  asset
quality or profitability,  although no assurances can be given that such factors
will assure success.  In addition,  management  believes a personalized  service
approach enables the Bank to attract and retain core deposits.

In making its  investments,  Intervest  Mortgage  Corporation  also  experiences
significant  competition  from  banks,  insurance  companies,  savings  and loan
associations,  mortgage bankers,  pension funds, real estate investment  trusts,
limited  partnerships  and other  lenders and  investors  engaged in  purchasing
mortgages or making real property investments with investment objectives similar
in whole or part to its own. An increase  in the general  availability  of funds
may increase  competition  in the making of  investments  in mortgages  and real
property, and may reduce the yields available therefrom.

Asset Quality

The Bank  seeks to  maintain  a high  level of asset  quality  when  considering
investments in securities and the  originations of loans. In originating  loans,
the Bank places  emphasis  on the  borrower's  ability to generate  cash flow to
support its debt obligations and other cash related expenses. The Bank's lending
activities  are  conducted  pursuant to written  policies  and  defined  lending
limits.  Depending  on their type and size,  certain  loans must be reviewed and
approved  by a Loan  Committee  comprised  of  certain  members  of the Board of
Directors prior to being  originated.  As part of its loan portfolio  management
strategy,  loan-to-value ratios (the ratio that the original principal amount of
the loan  bears to the lower of the  purchase  price or  appraised  value of the
property  securing the loan at the time of origination) on new loans  originated
by the Bank  typically do not exceed 80%. In addition,  physical  inspections of
properties  being considered for mortgage loans are made as part of the approval
process.

The  Bank's  Loan  Committee,  as  well as its  senior  management  and  lending
officers,   concentrate   their   efforts  and  resources  on  loan  review  and
underwriting  procedures.  Internal controls include ongoing reviews of loans to
monitor documentation and ensure the existence and valuations of collateral. The
Bank  also  has in  place  a  review  process  with  the  objective  of  quickly
identifying,  evaluating and  initiating  necessary  corrective  actions for any
problem loans.

Intervest  Mortgage  Corporation  does not have formal  policies  regarding  the
percentage of its assets that may be invested in any single  mortgage,  the type
of  mortgage  loans and  investments  it can make,  the  geographic  location of
properties  collateralizing  those  mortgages  and  limits  as to  loan-to-value
ratios.  Intervest Mortgage Corporation also does not have a Loan Committee or a
formal loan approval process.

At December 31, 2002, the Company did not have any nonaccrual or impaired loans.
At  December  31,  2001,  the Bank had one  commercial  real  estate loan with a
principal balance of $1,243,000 classified as nonperforming and impaired. In the
second  quarter of 2002,  the  property  collateralizing  this loan was acquired
through  foreclosure and transferred to Foreclosed Real Estate at estimated fair
value less  estimated  selling costs. A loan charge off of $150,000 was recorded
against the allowance for loan loss reserves in connection with this transfer.

There can be no  assurance  that a downturn  in real estate  values,  as well as
other economic factors, would not have an adverse impact on the Company's future
level of nonperforming assets and profitability.

Lending Activities

The Company's  lending  activities  include real estate loans and commercial and
consumer loans. Real estate loans include primarily the origination of loans for
commercial  and  multifamily  properties.  While the Bank's  lending  activities
include  single-family   residential  mortgages,   such  lending  has  not  been
emphasized.  Commercial loans include loans to businesses originated for working
capital  needs.  Consumer  loans include those for the purchase of  automobiles,
boats,  home  improvements and investments.  At December 31, 2002, the Company's
loan  portfolio,  net of deferred fees,  amounted to  $489,912,000,  compared to
$368,526,000 at December 31, 2001.



                                       5
<PAGE>

Commercial and Multifamily Real Estate Mortgage Lending
-------------------------------------------------------

Almost all of the Company's current loan portfolio is comprised of loans secured
by commercial and  multifamily  real estate,  including  rental and  cooperative
apartment buildings, office buildings and shopping centers.

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

Mortgage loans on commercial and multifamily  properties are normally originated
for terms of no more than 20 years,  many with variable  interest rates that are
based on the prime rate.  Additionally,  many loans have an interest  rate floor
which resets upward along with any increase in the loan's  interest  rate.  This
feature reduces the loan's interest rate exposure to declining interest rates.

Mortgage loans on commercial and multifamily  properties  typically  provide for
periodic  payments of interest and  principal  during the term of the  mortgage,
with  the  remaining  principal  balance  and any  accrued  interest  due at the
maturity  date. The majority of the mortgages  owned by the Company  provide for
balloon payments at maturity,  which means that a substantial part or the entire
original principal amount is due in one lump sum payment at maturity. If the net
revenue from the property is not  sufficient  to make all debt service  payments
due on the mortgage  or, if at maturity or the due date of any balloon  payment,
the owner of the  property  fails to raise the  funds (by  refinancing,  sale or
otherwise) to make the lump sum payment, the Company could sustain a loss on its
investment in the mortgage loan. The Company's  mortgage loans are generally not
personal  obligations  of the  borrower  and are not  insured or  guaranteed  by
governmental agencies.

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

The Bank offers a variety of  commercial  loan  services  including  term loans,
lines of credit and equipment financing.  Short-to-medium term commercial loans,
both collateralized and  uncollateralized,  are made available to businesses for
working  capital needs  (including  those secured by inventory,  receivables and
other assets),  business  expansion  (including  acquisitions of real estate and
improvements), and the purchase of equipment and machinery. Commercial loans are
typically  underwritten on the basis of the borrower's ability to make repayment
from the  cash  flow of  their  business  and are  generally  collateralized  as
discussed  above.  As a result,  the  availability of funds for the repayment of
commercial loans may be  substantially  dependent on the success of the business
itself.  Further, the collateral  underlying the loans may depreciate over time,
cannot be appraised with as much precision as residential  real estate,  and may
fluctuate in value based on the success of the business.

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

The Bank offers consumer loans including those for: the purchase of automobiles,
recreation vehicles and boats; second mortgages; home improvements;  home equity
lines of credit; and personal loans (both collateralized and  uncollateralized).
Consumer  loans  typically  have a shorter term and carry higher  interest rates
than other types of loans. In addition,  consumer loans have 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 the loan  from  personal
income  sources,  since the  collateral  may be of reduced  value at the time of
collection.

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

Loan originations are derived from the following:  advertising in newspapers and
trade  journals;   referrals  from  mortgage  brokers;  existing  customers  and
borrowers;  walk-in customers;  and through direct solicitation by the Company's
officers.

The Company's underwriting  procedures normally require the following:  physical
inspections by management of properties  being  considered  for mortgage  loans;
mortgage title  insurance;  hazard  insurance;  and an appraisal of the property
securing the loan to determine the property's  adequacy as collateral  performed
by an appraiser  approved by the  Company.  In  addition,  the Company  analyzes
relevant  real  property  and  financial  factors,  which in  certain  cases may


                                       6
<PAGE>

include:  the  condition  and  use  of  the  subject  property;  the  property's
income-producing  capacity; and the quality,  experience and creditworthiness of
the property's owner.

For commercial and consumer  loans,  upon receipt of a loan  application  from a
prospective  borrower,  a credit report and other  verifications are obtained to
substantiate specific information relating to the applicant's  employment income
and credit standing.

Real Estate Investing Activities

The Company,  from time to time, may purchase equity  interests in real property
or it may  acquire  such an equity  interest  pursuant to a  foreclosure  upon a
mortgage in the normal course of business. With respect to such equity interests
in real estate,  the Company may acquire and retain title to  properties  either
directly  or through a  subsidiary.  While no such  transactions  are  presently
pending,  the Company  would  consider the  expansion  of its  business  through
investments  in or  acquisitions  of other  companies  engaged in real estate or
mortgage  business  activities.  While  the  Company  has  not  previously  made
acquisitions  of real  property  (other than  purchases in  connection  with the
operation  of its  offices  or  properties  acquired  through  foreclosure)  its
management has had  substantial  experience in the acquisition and management of
properties and, in particular, multifamily residential properties.

Investment Activities

The Bank's  investment  policies and strategies are reviewed and approved by its
Board of  Directors  and  Investment  Committee.  The Company  has  historically
purchased  securities that are issued directly by the U.S.  government or one of
its agencies.  Accordingly,  the  Company's  investments  in securities  carry a
significantly lower credit risk than its loan portfolio. To manage interest rate
risk, the Company  normally  purchases  securities that have adjustable rates or
securities  with fixed  rates that have short- to  intermediate-maturity  terms.
From time to time, a securities  available-for-sale  portfolio may be maintained
to  provide   flexibility  for  implementing  asset  and  liability   management
strategies. The Company does not engage in trading activities.

Securities held to maturity totaled  $145,694,000 at December 31, 2002, compared
to  $99,157,000  at December 31, 2001.  Securities  available  for sale amounted
$6,192,000  at  December  31,  2001.  There  were no  securities  classified  as
available for sale at December 31, 2002.

The  Company  also  invests  in  various  money  market  instruments,  including
overnight  and  term  federal  funds,   short-term  bank  commercial  paper  and
certificate of deposits.  These instruments are used to temporarily invest funds
resulting from  deposit-gathering  activities,  normal cash flow from operations
and sales of debentures.  Cash and  short-term  investments at December 31, 2002
amounted to $30,849,000, compared to $24,409,000 at December 31, 2001.

Sources of Funds

The Bank's primary  sources of funds consist of the following:  retail  deposits
obtained  through  its  branch  offices  and  through  the  mail;  amortization,
satisfactions and repayments of loans;  maturities and calls of securities;  and
cash generated by operating activities.  In addition,  the Bank has from time to
time received capital contributions from the Holding Company.

Deposit   accounts  are  solicited  from   individuals,   small  businesses  and
professional  firms located  throughout  the Bank's primary market areas through
the offering of a broad variety of deposit services.  The Bank also uses its web
site on the internet: www.intervestnatbank.com, which attracts deposit customers
from both within and outside its primary  market  areas.  At December  31, 2002,
consolidated deposit liabilities totaled $505,958,000,  compared to $362,437,000
at December 31, 2001.

Deposit  services  include the  following:  certificates  of deposit  (including
denominations of $100,000 or more); individual retirement accounts (IRAs); other
time deposits;  checking and other demand deposit accounts;  negotiable order of
withdrawal (NOW) accounts; savings accounts; and money market accounts. Interest
rates  offered by the Bank on deposit  accounts  are normally  competitive  with
those in the principal market areas of the Bank. In addition,  the determination
of rates and terms also  considers  the Bank's  liquidity  requirements,  growth
goals, capital levels and federal regulations.  Maturity terms, service fees and
withdrawal  penalties on deposit  products are reviewed and  established  by the
Bank on a periodic basis.



                                       7
<PAGE>

The Bank offers internet  banking  services,  ATM services with access to local,
state and  national  networks,  wire  transfers,  direct  deposit of payroll and
social security checks and automated drafts for various  accounts.  In addition,
the Bank  offers  safe  deposit  boxes to its  customers  in  Florida.  The Bank
periodically  reviews the scope of the banking  products  and services it offers
consistent with market opportunities and available resources.

The Bank  purchases  federal  funds  from time to time to manage  its  liquidity
needs. At December 31, 2002 and 2001, there were no such funds outstanding,  and
such funding has not been emphasized. The Bank has agreements with correspondent
banks whereby it may borrow up to $8,000,000 on an unsecured  basis.  There were
no outstanding borrowings under these agreements at December 31, 2002 or 2001.

Intervest  Mortgage   Corporation's   principal  sources  of  funds  consist  of
borrowings  (through the sale of its debentures),  mortgage  repayments and cash
flow  generated  from  operations.  At December  31,  2002,  Intervest  Mortgage
Corporation had debentures  outstanding of $74,000,000,  compared to $63,000,000
at December 31, 2001. The Holding  Company has also sold  debentures for working
capital  purposes.   The  Holding  Company's   debentures   outstanding  totaled
$10,430,000 at December 31, 2002 and December 31, 2001.

On December 18, 2001, the Holding Company's wholly-owned  subsidiary,  Intervest
Statutory Trust I, sold 9.875% Trust Preferred  Securities due December 18, 2031
to third party  investors  in the  aggregate  principal  amount of  $15,000,000,
referred to in this report as the Capital Securities.  The net proceeds from the
sale, as well as the initial  capital  contribution of $464,000 from the Holding
Company,  were  reinvested by the Trust into the Holding Company in exchange for
$15,464,000 of the Holding Company's 9.875% Junior Subordinated  Debentures (the
"Junior  Subordinated  Debentures")  due December 18, 2031. The Holding  Company
then invested  $15,000,000 as a capital contribution in the Bank. The sole asset
of the Trust, the obligor on the Capital Securities,  is the Junior Subordinated
Debentures. For a further discussion of all the debentures, including conversion
prices  and  redemption  premiums,  see  note 7 and  note 9 to the  consolidated
financial statements.

Employees

At December 31, 2002, the Company  employed 57 full-time  equivalent  employees.
The Company provides various benefit plans,  including group life,  health and a
401(k) Plan. The employees are not covered by a collective  bargaining agreement
and the Company considers its employee relations are good.

Federal and State Taxation

The Company and its subsidiaries  file a consolidated  federal income tax return
and  combined  state and city income tax returns in New York.  The Company  also
files a state  income tax return in New  Jersey  and a  franchise  tax return in
Delaware.  The Bank also files a state  income tax return in Florida.  Intervest
Mortgage Corporation files state income tax returns in various other states. All
the returns are filed on a calendar year basis.

Consolidated returns have the effect of eliminating intercompany  distributions,
including dividends, from the computation of consolidated taxable income for the
taxable year in which the distributions  occur. In accordance with an income tax
sharing  agreement,  income tax charges or credits are, for financial  reporting
purposes,  allocated to the Holding Company and its subsidiaries on the basis of
their  respective  taxable  income or taxable loss included in the  consolidated
income tax return.

Banks and bank holding  companies  are subject to federal and state income taxes
in the same  manner as other  corporations.  Florida  taxes banks under the same
provisions as other corporations, while New York State and New York City taxable
income is calculated under  applicable  sections of the Internal Revenue Code of
1986, as amended (the "Code"), with some modifications required by state law.

Although the Bank's federal income tax liability is determined  under provisions
of the Code,  which is applicable to all taxpayers,  Sections 581 through 597 of
the Code apply specifically to financial institutions.  The two primary areas in
which the  treatment of  financial  institutions  differs from the  treatment of
other  corporations under the Code are in the areas of bond gains and losses and
bad debt  deductions.  Bond gains and losses generated from the sale or exchange
of portfolio  instruments  are generally  treated for financial  institutions as
ordinary  gains and  losses as  opposed  to  capital  gains and losses for other
corporations,  as the  Code  considers  bond  portfolios  held  by  banks  to be


                                       8
<PAGE>

inventory in a trade or business rather than capital assets. Banks are allowed a
statutory method for calculating a reserve for bad debt deductions. Based on its
asset size, a bank is permitted to maintain a bad debt reserve  calculated on an
experience  method,  based on  chargeoffs  and  recoveries  for the  current and
preceding five years,  or a  "grandfathered"  base year reserve,  if larger.  In
2002,  due to its asset size,  the Bank no longer  qualifies for this method and
began using the direct  write-off method in computing its bad debt deduction for
tax purposes.

Investment in Subsidiaries

The  following  table  provides  information  regarding  the  Holding  Company's
subsidiaries:

<TABLE>
                                                    At December 31, 2002
                                                    --------------------                     Subsidiaries
($ in thousands)                            % of                       Equity in             Earnings for the
                                            Voting        Total        Underlying            Year Ended December 31,
Subsidiary                                  Stock     Investment       Net Assets            2002         2001         2000
------------------------------              -----     ----------       ----------            ----         ----        -----
<S>                                         <C>        <C>              <C>                 <C>          <C>          <C>
Intervest National Bank                     100%       $51,936          $51,936             $6,459       $3,404       $2,619
Intervest Mortgage Corporation              100%       $11,413          $11,413             $1,567       $   577      $  129
Intervest Statutory Trust I                 100%       $   464          $   464             $    -       $     -      $    -
</TABLE>

Effective  December 2001, the Bank began paying a monthly  dividend of $125,000,
or $1,500,000 annually, to the Holding Company in order to provide funds for the
debt service on the Capital  Securities (the proceeds of which were  contributed
to the  Bank  as  capital).  In  2000,  Intervest  Mortgage  Corporation  paid a
$3,000,000 dividend to the Holding Company,  which was reinvested in the Bank as
a capital contribution.

Supervision and Regulation

Bank holding  companies and banks are  extensively  regulated under both federal
and state laws and regulations that are intended to protect  depositors.  To the
extent  that  the  following  information  describes  statutory  and  regulatory
provisions,  it is qualified  in its  entirety by  reference  to the  particular
statutory  and  regulatory  provisions.  Any  change  in the  applicable  law or
regulation  may have a material  effect on the  business  and  prospects  of the
Holding Company and its subsidiaries.

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

As a bank holding company  registered under the Bank Holding Company Act of 1956
(BHCA),  the Holding Company is subject to the regulation and supervision of the
FRB. The Holding  Company is required to file with the FRB periodic  reports and
other   information   regarding  its  business   operations  and  those  of  its
subsidiaries.  The Holding Company has also been approved by the FRB to become a
financial holding company.

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

The FRB  monitors  the  capital  adequacy  of bank  holding  companies  and uses
risk-based  capital adequacy  guidelines to evaluate bank holding companies on a
consolidated basis. The guidelines require a ratio of Tier 1 or Core Capital, as
defined in the guidelines,  to total  risk-weighted  assets of at least 4% and a
ratio of total capital to  risk-weighted  assets of at least 8%. At December 31,
2002, the Company's  consolidated ratio of total capital to risk-weighted assets
was 13.06% and its risk-based  Tier 1 capital ratio was 12.21%.  At December 31,
2001, the same ratios were 14.11% and 12.89%, respectively.  The guidelines also
require a ratio of Tier 1 capital to adjusted  total average  assets of not less


                                       9
<PAGE>

than 3%. The  Company's  consolidated  leverage  ratio at December  31, 2002 and
2001, was 9.88% and 10.67%, respectively.

The  federal  banking  agencies'  risk-based  and  leverage  ratios are  minimum
supervisory  ratios  generally  applicable  to banking  organizations  that meet
certain  specified  criteria,  assuming  that they have the  highest  regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital  positions well above the minimum  ratios.  The FRB guidelines also
provide  that  banking  organizations  experiencing  internal  growth  or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.  In addition,  the regulations of the FRB provide that  concentration of
credit risk and certain risk arising from nontraditional  activities, as well as
an  institution's  ability to manage these risks,  are  important  factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.

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

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

The Bank is a nationally  chartered banking  corporation subject to supervision,
examination  and regulation of the FRB, FDIC and OCC. These  regulators have the
power to: enjoin "unsafe or unsound  practices;"  require  affirmative action to
correct any  conditions  resulting  from any  violation  or  practice;  issue an
administrative  order that can be  judicially  enforced;  direct an  increase in
capital;  restrict the growth of a bank;  assess civil monetary  penalties;  and
remove officers and directors.

The  operations  of the Bank are subject to numerous  statutes and  regulations.
Such statutes and  regulations  relate to required  reserves  against  deposits,
investments, loans, mergers and consolidations,  issuance of securities, payment
of  dividends,  establishment  of  branches,  and other  aspects  of the  Bank's
operations.  Various consumer laws and regulations also affect the operations of
the Bank,  including state usury laws,  laws relating to  fiduciaries,  consumer
credit and equal credit, and fair credit reporting.

The Bank is subject  to  Sections  23A and 23B of the  Federal  Reserve  Act and
Regulation W  thereunder,  which  govern  certain  transactions,  such as loans,
extensions of credit,  investments  and purchases of assets between member banks
and  their  affiliates,   including  their  parent  holding   companies.   These
restrictions  limit the transfer of funds to the Holding  Company in the form of
loans,  extensions of credit,  investment or purchases of assets  ("Transfers"),
and they require  that the Bank's  transactions  with the Holding  Company be on
terms no less  favorable to the Bank than  comparable  transactions  between the
Bank and unrelated  third parties.  Transfers by the Bank to the Holding Company
are limited in amount to 10% of the Bank's capital and surplus, and transfers to
all  affiliates  are limited in the  aggregate to 20% of the Bank's  capital and
surplus.  Furthermore,  such loans and  extensions of credit are also subject to
various  collateral  requirements.  These regulations and restrictions may limit
the Holding  Company's ability to obtain funds from the Bank for its cash needs,
including  funds for  acquisitions,  and the payment of dividends,  interest and
operating expenses.

The Bank is prohibited from engaging in certain tying arrangements in connection
with any  extension  of  credit,  lease or sale of  property  or  furnishing  of
services.  For example,  the Bank may not generally require a customer to obtain
other  services  from the Bank or the Holding  Company,  and may not require the
customer  to  promise  not to  obtain  other  services  from a  competitor  as a
condition  to an  extension  of  credit.  The Bank is also  subject  to  certain
restrictions  imposed by the  Federal  Reserve  Act on  extensions  of credit to
executive officers, directors, principal stockholders or any related interest of
such persons.  Extensions of credit (i) must be made on  substantially  the same
terms  (including  interest  rates and  collateral)  as,  and  following  credit
underwriting procedures that are not less stringent than those prevailing at the
time for, comparable transactions with persons not covered above and who are not
employees  and (ii) must not involve  more than the normal risk of  repayment or
present other unfavorable  features.  In addition,  extensions of credit to such
persons  beyond limits set by FRB  regulations  must be approved by the Board of


                                       10
<PAGE>

Directors.  The Bank is also subject to certain lending limits and  restrictions
on overdrafts to such persons.  A violation of these  restrictions may result in
the  assessment  of  substantial  civil  monetary  penalties  on the Bank or any
officer, director,  employee, agent or other person participating in the conduct
of the affairs of the Bank or the imposition of a cease and desist order.

Applicable law provides the federal  banking  agencies with broad powers to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of those powers  depends upon whether the  institution in question is
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically  undercapitalized." Under federal regulations,
a bank is considered "well capitalized" if it has (i) a total risk-based capital
ratio  of 10% or  greater,  (ii) a Tier  1  risk-based  capital  ratio  of 6% or
greater,  (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as one that has (i)
a total  risk-based  capital  ratio of 8% or greater,  (ii) a Tier 1  risk-based
capital ratio of 4% or greater,  and (iii) a leverage ratio of 4% or greater (or
3% or greater in the case of a bank with a composite CAMELS rating of 1). A bank
is considered (a)  "undercapitalized  " if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based  capitalized  ratio of less than
4%, or (iii) a leverage  ratio of less than 4% (or 3% in the case of a bank with
a composite CAMELS rating of 1); (b) "significantly  undercapitalized" if a bank
has  (i) a  total  risk-based  capital  ratio  of less  than  6%,  (ii) a Tier 1
risk-based  capital ratio of less than 3% or (iii) a leverage ratio of less than
3%,  and (c)  "critically  undercapitalized"  if a bank has a ratio of  tangible
equity to total  assets equal to or less than 2%. At December 31, 2002 and 2001,
the Bank met the definition of a well-capitalized institution.

The deposits of the Bank are insured by the FDIC through the Bank Insurance Fund
(the "BIF") to the extent provided by law. Under the FDIC's risk-based insurance
system, BIF-insured institutions are currently assessed premiums of between zero
and $0.27 per $100 of eligible deposits, depending upon the institutions capital
position  and  other   supervisory   factors.   Legislation  also  provides  for
assessments  against BIF insured  institutions  that will be used to pay certain
financing  corporation  ("FICO")  obligations.  In addition to any BIF insurance
assessments,  BIF-insured  banks  are  expected  to make  payments  for the FICO
obligations  currently  equal  to an  estimated  $0.0168  per  $100 of  eligible
deposits each year. The assessment is determined quarterly.

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

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

The federal  regulators  have adopted  regulations  and  examination  procedures
promoting the safety and soundness of individual  institutions  by  specifically
addressing,  among other things: (i) internal controls;  information systems and


                                       11
<PAGE>

internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate  exposure;  (v) asset growth;  (vi) ratio of classified  assets to
capital;  (vii) minimum earnings; and (viii) compensation and benefits standards
for management officials.

The FRB, OCC and other federal banking agencies have broad  enforcement  powers,
including the power to terminate deposit insurance, and impose substantial fines
and other civil and criminal  penalties and appoint a  conservator  or receiver.
Failure to comply with applicable laws,  regulations and supervisory  agreements
could  subject  the  Holding  Company  or its  banking  subsidiary,  as  well as
officers,   directors   and  other   institution-affiliated   parties  of  these
organizations,  to  administrative  sanctions  and  potentially  civil  monetary
penalties.

Interstate Banking and Other Recent Legislation
-----------------------------------------------

The  Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act  of  1994
facilitates the interstate expansion and consolidation of banking  organizations
by permitting bank holding companies that are adequately capitalized and managed
to acquire  banks  located in states  outside  their home states  regardless  of
whether such  acquisitions  are authorized  under the law of the host state. The
Act also permits  interstate  mergers of banks,  with some  limitations  and the
establishment  of new branches on an interstate  basis provided that such action
is authorized by the law of the host state. The  Gramm-Leach-Bliley  Act of 1999
permits banks,  securities  firms and insurance  companies to affiliate  under a
common holding company structure. In addition to allowing new forms of financial
services  combinations,  this Act clarifies how financial services conglomerates
will  be  regulated  by  the  different  federal  and  state   regulators.   The
Gramm-Leach-Bliley  Act amended the BHCA and expanded the permissible activities
of  certain  qualifying  bank  holding  companies,  known as  financial  holding
companies.  In addition to engaging in banking and activities closely related to
banking,  as determined by the FRB by  regulation  or order,  financial  holding
companies may engage in activities that are financial in nature or incidental to
financial  activities that are complementary to a financial  activity and do not
pose a substantial  risk to the safety and soundness of depository  institutions
or the  financial  system  generally.  Under  the  Gramm-Leach-Bliley  Act,  all
financial  institutions,  including  the Company and the Bank,  were required to
develop privacy policies,  restrict the sharing of non-public customer data with
nonaffiliated  parties at the customer's request,  and establish  procedures and
practices to protect customer data from unauthorized access.

Under the International Money Laundering Abatement and Anti-Terrorism  Financing
Act of 2001  (adopted  as  Title  III of the USA  PATRIOT  Act),  all  financial
institutions  are  subject  to  additional   requirements  to  collect  customer
information,  monitor  transactions  and report certain  information to U.S. law
enforcement  agencies concerning  customers and their transactions.  In general,
accounts  maintained by or on behalf of "non-United  States persons," as defined
in the Act, are subject to particular scrutiny. Correspondent accounts for or on
behalf of foreign banks with profiles that raise  money-laundering  concerns are
subject to even greater scrutiny, and correspondent accounts for or on behalf of
foreign  banks with no physical  presence in any country are barred  altogether.
Additional requirements are imposed by this Act on financial  institutions,  all
with  a  view  towards   encouraging   information   sharing   among   financial
institutions,  regulators and law enforcement agencies.  Financial  institutions
are also  required  to adopt  and  implement  "anti-money-laundering  programs."
Additional legislative and regulatory proposals have been made and others can be
expected.  These include proposals designed to improve the overall the financial
stability of the United States banking system,  and to provide for other changes
in the bank  regulatory  structure,  including  proposals  to reduce  regulatory
burdens  on banking  organizations  and to expand  the  nature of  products  and
services  banks and bank  holding  companies  may offer.  It is not  possible to
predict  whether  or in what form these  proposals  may be adopted in the future
and, if adopted, what their effect will be on the Company.

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

The  commercial  banking  business in which the Company  engages is affected not
only by general economic  conditions,  but also by the monetary  policies of the
FRB.  Changes in the discount  rate on member bank  borrowing,  availability  of
borrowing at the "discount  window," open market  operations,  the imposition of
changes in reserve  requirements  against  member banks'  deposits and assets of
foreign  branches  and the  imposition  of and  changes in reserve  requirements
against  certain  borrowings  by  banks  and  their  affiliates  are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying  combinations to influence  overall growth and  distributions of


                                       12
<PAGE>

bank loans,  investments  and deposits,  and this use may affect  interest rates
charged on loans or paid on deposits.  The monetary policies of the FRB have had
a  significant  effect on the  operating  results  of  commercial  banks and are
expected  to continue to do so in the  future.  The  monetary  policies of these
agencies are influenced by various factors,  including inflation,  unemployment,
short-term and long-term changes in the  international  trade balance and in the
fiscal policies of the United States  Government.  Future monetary  policies and
the effect of such  policies on the future  business and earnings of the Company
cannot be predicted.

Item 2.   Description of Properties

The office of the Holding Company and Intervest Mortgage  Corporation is located
in leased  premises  (of  approximately  5,000 sq. ft.) on the tenth floor of 10
Rockefeller Plaza, New York, N.Y, 10020. The lease expires in September 2004.

The Bank's  headquarters and banking office is located in leased premises on the
third floor of One Rockefeller  Plaza, New York, N.Y, 10020. The office consists
of approximately  7,000 sq. ft. and has been leased through May 2008. The Bank's
principal office in Florida is located at 625 Court Street, Clearwater, Florida,
33756. In addition,  the Bank operates an additional four branch offices;  three
of which are in Clearwater,  Florida,  at 1875 Belcher Road North,  2175 Nursery
Road and 2575 Ulmerton Road, and one is at 6750 Gulfport Blvd,  South  Pasadena,
Florida.  With the exception of the Belcher Road office, which is leased through
June 2007, the Bank owns all its offices in Florida.

The  Bank's  office  at  625  Court  Street  consists  of a  two-story  building
containing  approximately  22,000  sq. ft. The Bank  occupies  the ground  floor
(approximately  8,500 sq.  ft.) and leases the 2nd floor to a single  commercial
tenant.  The branch office at 1875 Belcher Road is a two-story building in which
the Bank  leases  approximately  5,100 sq. ft. on the ground  floor.  The branch
office at 2175 Nursery  Road is a one-story  building  containing  approximately
2,700 sq. ft., which is entirely occupied by the Bank. The branch office at 2575
Ulmerton Road is a three-story building containing  approximately 17,000 sq. ft.
The Bank occupies the ground floor  (approximately 2,500 sq. ft.) and leases the
upper floors to commercial tenants.  The branch office at 6750 Gulfport Blvd. is
a one-story building  containing  approximately 2,800 sq. ft., which is entirely
occupied by the Bank. In addition,  each of the Bank's Florida  offices  include
drive-through teller facilities. The Bank also owns a two-story building located
on property  contiguous  to its Court  Street  office in Florida.  The  building
contains  approximately  12,000 sq. ft. and is leased to commercial  tenants. In
2002, the Bank acquired  property  across from its Court Street branch office in
Florida. This property, which has an office building that contains approximately
1,400 sq.ft. and is leased to one commercial tenant, was purchased  primarily to
provide additional parking for the Court Street branch.

Item 3.   Legal Proceedings

The  Company  is  periodically  a  party  to  or  otherwise  involved  in  legal
proceedings arising in the normal course of business,  such as claims to enforce
liens,  claims  involving the making and servicing of mortgage loans,  and other
issues  incident to the  Company's  business.  Management  does not believe that
there is any pending or threatened  proceeding  against the Company,  which,  if
determined adversely,  would have a material effect on the business,  results of
operations, or financial position of the Company.

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

No matter  was  submitted  during the  fourth  quarter of the fiscal  year ended
December 31,  2002,  to a vote of security  holders of the Company,  through the
solicitation of proxies or otherwise.

Item 4A.  Executive Officers and Other Key Employees

         Jerome  Dansker,  age 84,  serves as Chairman of the Board of Directors
and Executive Vice President of Intervest Bancshares Corporation.  He has served
as Executive Vice President  since 1994 and as Chairman of the Board since 1996.
Mr. Dansker  received a Bachelor of Science degree from the New York  University
School  of  Commerce,  Accounts  and  Finance,  a Law  degree  from the New York
University  School of Law,  and is  admitted  to  practice as an attorney in the
State of New York. Mr. Dansker also serves as Chairman of the Board of Directors


                                       13
<PAGE>

and  Chairman of the Loan  Committee  of  Intervest  National  Bank.  He is also
Chairman of the Board of Directors  and  Executive  Vice  President of Intervest
Mortgage Corporation.

         Lowell  S.  Dansker,  age  52,  serves  as a  Director,  President  and
Treasurer of Intervest Bancshares  Corporation and has served in such capacities
since   1993.   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 also serves as Chief Executive
Officer, Director and a member of the Loan Committee of Intervest National Bank.
He  is  also  a  Director,   President  and  Treasurer  of  Intervest   Mortgage
Corporation.

         Lawrence G. Bergman,  age 58, serves as a Director,  Vice President and
Secretary of Intervest Bancshares  Corporation and has served in such capacities
since 1993.  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
also  serves as a  Director  and a member  of the Loan  Committee  of  Intervest
National Bank. He is also a Director,  Vice-President and Secretary of Intervest
Mortgage Corporation.

         Keith A. Olsen, age 49, serves as President of the Florida Division and
as a Director of Intervest National Bank and has served in such capacities since
July 2001.  Prior to that,  Mr. Olsen was the  President of Intervest  Bank from
1994 until it merged into Intervest  National Bank in July 2001.  Prior to that,
he was Senior Vice President of Intervest Bank since 1991. Mr. Olsen received an
Associates  degree from St.  Petersburg Junior College and a Bachelors degree in
Business Administration and Finance from the University of Florida, Gainesville.
He is also a graduate  of the  Florida  School of Banking of the  University  of
Florida,  Gainesville,  the National School of Real Estate Finance of Ohio State
University  and the Graduate  School of Banking of the South of Louisiana  State
University.  Mr. Olsen has been in banking for more than 15 years and has served
as a senior bank officer for more than 10 years.

         Raymond C.  Sullivan,  age 56, serves as President and as a Director of
Intervest  National  Bank and has served in such  capacities  since  April 1999.
Prior to that, Mr. Sullivan was an employee of Intervest Bancshares  Corporation
from March 1998 to March 1999. Mr. Sullivan  received an MBA degree from Fordham
University,  an M.S. degree from City College of New York and a B.A. degree from
St. Francis  College.  Mr. Sullivan also has a Certificate in Advanced  Graduate
Study in  Accounting  from Pace  University  and is a graduate  of the  National
School of Finance  and  Management.  Mr.  Sullivan  has over 27 years of banking
experience.  Prior to joining  the  Company,  Mr.  Sullivan  was the  Operations
Manager of the New York Agency  Office of Banco  Mercantile,  C.A.  from 1994 to
1997, a Senior  Associate at LoBue  Associates,  Inc. from 1992 to 1993,  and an
Executive  Vice  President,  Chief  Operations  Officer and  Director of Central
Federal Savings Bank from 1985 to 1992.

         John J.  Arvonio,  age 40,  serves  as  Senior  Vice  President,  Chief
Financial  Officer and  Secretary of Intervest  National  Bank and has served in
such capacities  since September 2000. Prior to that, Mr. Arvonio served as Vice
President, Controller and Secretary of Intervest National Bank since April 1999.
Prior to that, Mr. Arvonio was an employee of Intervest  Bancshares  Corporation
from April 1998 to March 1999.  Mr. Arvonio  received a B.B.A.  degree from Iona
College and is a Certified Public  Accountant.  Mr. Arvonio has over 14 years of
banking experience.  Prior to joining the Company,  Mr. Arvonio served as Second
Vice President,  Technical Advisor and Assistant  Controller for The Greater New
York Savings Bank from 1992 to 1997. Prior to that, Mr. Arvonio was a Manager of
Financial Reporting for the Leasing and Investment Banking Divisions of Citibank
from 1989 to 1992, and a Senior Auditor for Ernst & Young from 1985 to 1989.



                                       14
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market for Securities

The  Holding  Company's  Class A common  stock is quoted on the NASDAQ  SmallCap
Market under the symbol: IBCA. There is no public-trading market for the Holding
Company's Class B common stock.

At December 31, 2002,  there were  4,348,087  and 355,000  shares of Class A and
Class B common stock outstanding, respectively. At December 31, 2002, there were
approximately 800 holders of record of the Class A common stock,  which includes
persons or  entities  that hold their  stock in nominee  form or in street  name
through various  brokerage  firms. At December 31, 2002, there were four holders
of record of Class B common stock.

The high and low sales prices,  which  represent  actual sales  transactions  as
reported by the  NASDAQ,  for the Class A common  stock by calendar  quarter for
2002 and 2001 are as follows:

                                  2002                             2001
                                  ----                             ----
                            High         Low                 High         Low
     First quarter         $ 9.99      $  7.20             $  6.50      $  3.75
     Second quarter        $11.05      $  8.79             $  7.28      $  5.30
     Third quarter         $11.50      $  7.46             $  7.75      $  5.25
     Fourth quarter        $11.25      $  8.99             $  8.65      $  6.25

Dividends

Class A and Class B common  stockholders are entitled to receive  dividends when
and if declared by the Board of Directors  out of funds  legally  available  for
such  purposes.  The Holding  Company has not paid any  dividends on its capital
stock and currently is not contemplating the payment of a dividend.

The Holding  Company's ability to pay dividends is generally limited to earnings
from  the  prior  year,  although  retained  earnings  and  dividends  from  its
subsidiaries may also be used to pay dividends under certain circumstances.  The
primary  source of funds for  dividends  payable by the  Holding  Company to its
shareholders  is the dividends  received from its  subsidiaries.  The payment of
dividends  by  a  subsidiary  to  the  Holding  Company  is  determined  by  the
subsidiary's  Board of  Directors  and is  dependent  upon a number of  factors,
including the subsidiary's capital requirements, regulatory limitations, results
of operations and financial condition.

There are also various  legal  limitations  with  respect to the Bank  supplying
funds to the Holding Company. In particular, under federal banking law, the Bank
may not declare a dividend  that exceeds  undivided  profits.  In addition,  the
approval  of the FRB and OCC is required  if the total  amount of all  dividends
declared  in any  calendar  year  exceeds  the Bank's net profits for that year,
combined with its retained net profits for the preceding two years. The FRB also
has the  authority  to limit  further the payment of dividends by the Bank under
certain  circumstances.  In addition,  federal banking laws prohibit or restrict
the  Bank  from   extending   credit  to  the  Holding   Company  under  certain
circumstances.  The FRB and OCC have established  certain  financial and capital
requirements that affect the ability of banks to pay dividends and also have the
general authority to prohibit banks from engaging in unsafe or unsound practices
in conducting business.  Depending upon the financial condition of the Bank, the
payment  of cash  dividends  could be  deemed  to  constitute  such an unsafe or
unsound practice.

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 a holding company's capital needs, asset
quality and overall financial condition.


                                       15
<PAGE>



Item 6.   Selected Consolidated Financial and Other Data

<TABLE>

------------------------------------------------------------------------------------------------------------------------------------
                                                                             At or For The Year Ended December 31,
                                                          --------------------------------------------------------------------------
($ in thousands, except per share data)                        2002           2001            2000           1999           1998
------------------------------------------------------------------------------------------------------------------------------------
Financial Condition Data:
<S>                                                       <C>            <C>             <C>            <C>            <C>
Total assets ..........................................   $   685,979    $   512,622     $   416,927    $   340,481    $   300,080
Cash and cash equivalents .............................        30,849         24,409          42,938         32,095         40,977
Securities available for sale .........................             -          6,192          74,789              -              -
Securities held to maturity, net ......................       145,694         99,157          20,970         83,132         82,338
Loans receivable, net of deferred fees ................       489,912        368,526         266,326        212,937        164,986
Deposits ..............................................       505,958        362,437         300,241        201,080        170,420
Federal funds purchased ...............................             -              -               -          6,955              -
Debentures and related accrued interest payable .......       113,302         99,910          72,813         92,422         93,090
Stockholders' equity ..................................        53,126         40,395          36,228         33,604         31,112
Nonaccrual loans ......................................             -          1,243               -              -              -
Foreclosed real estate ................................         1,081              -               -              -              -
Allowance for loan loss reserves ......................         4,611          3,380           2,768          2,493          1,662
Loan chargeoffs .......................................           150              -               -              -              -
Loan recoveries .......................................           107              -               -              1             10
------------------------------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income ..........................   $    43,479    $    35,462     $    31,908    $    25,501    $    24,647
Interest expense ......................................        26,325         24,714          23,325         18,419         17,669
                                                          --------------------------------------------------------------------------
Net interest and dividend income ......................        17,154         10,748           8,583          7,082          6,978
Provision for loan loss reserves ......................         1,274            612             275            830            479
                                                          --------------------------------------------------------------------------
Net interest and dividend income after
     provision for loan loss reserves .................        15,880         10,136           8,308          6,252          6,499
Noninterest income ....................................         2,218          1,655             983            900            700
Noninterest expenses ..................................         6,479          5,303           4,568          4,059          3,077
                                                          --------------------------------------------------------------------------
Earnings before income taxes, extraordinary item
     and change in accounting principle ...............        11,619          6,488           4,723          3,093          4,122
Provision for income taxes ............................         4,713          2,710           1,909          1,198          1,740
                                                          --------------------------------------------------------------------------
Earnings before extraordinary item and
     change in accounting principle ...................         6,906          3,778           2,814          1,895          2,382
Extraordinary item, net of tax (1) ....................             -              -            (206)             -              -
Cumulative effect of accounting change, net of tax (2)              -              -               -           (128)             -
                                                          --------------------------------------------------------------------------
Net earnings ..........................................   $     6,906    $     3,778     $     2,608    $     1,767    $     2,382
------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share ..............................   $      1.71    $      0.97     $      0.67    $      0.47    $      0.64
Diluted earnings per share ............................          1.37           0.97            0.67           0.44           0.54
Common book value per share ...........................         11.30          10.36            9.29           8.76           8.33
Dividends per share ...................................             -              -               -              -              -
------------------------------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding .............................     4,703,087      3,899,629       3,899,629      3,836,879      3,734,515
Average common shares used to calculate:
     Basic earnings per share .........................     4,043,619      3,899,629       3,884,560      3,760,293      3,707,113
     Diluted earnings per share .......................     5,348,121      3,899,629       3,884,560      4,020,118      4,723,516
Adjusted net earnings for diluted earnings per share ..   $     7,342    $     3,778     $     2,608    $     1,767    $     2,554
Full-service banking offices ..........................             6              6               6              6              5
Return on average assets ..............................          1.13%          0.85%           0.69%          0.57%          0.87%
Return on average equity ..............................         15.56%          9.94%           7.48%          5.48%          8.05%
Loans, net of unearned income to deposits .............         96.83%         101.7%          88.70%        105.90%         96.81%
Allowance for loan losses to total net loans ..........          0.94%          0.92%           1.04%          1.17%          1.01%
Average stockholders' equity to average total assets ..          7.27%          8.50%           9.18%         10.37%         10.82%
Stockholders' equity to total assets ..................          7.74%          7.88%           8.69%          9.87%         10.37%
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Represents a charge, net of taxes, from the early retirement of debentures.
(2)  Represents  a charge,  net of taxes,  from the  adoption  of  Statement  of
     Position 98-5, "Reporting on the Costs of Start-Up Activities."
</FN>
</TABLE>

                                       16
<PAGE>

Item 7.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations

General

Management's  discussion  and  analysis of  financial  condition  and results of
operations  that follows  should be read in  conjunction  with the  Consolidated
Financial Statements and Notes included in this report on Form 10-K.

Intervest Bancshares Corporation has three wholly owned subsidiaries - Intervest
National  Bank,  Intervest  Mortgage  Corporation  (formerly  known as Intervest
Corporation of New York) and Intervest  Statutory Trust I (hereafter referred to
collectively  as the "Company" on a consolidated  basis).  Intervest  Bancshares
Corporation  and Intervest  National Bank may be referred to individually as the
"Holding Company" and the "Bank," respectively.

The Holding Company's primary business is the operation of its subsidiaries.  It
does not  engage in any  other  substantial  business  activities  other  than a
limited amount of real estate mortgage  lending.  The Holding Company also sells
debentures to raise funds for working capital purposes.

The Bank is a nationally chartered, full-service commercial bank that opened for
business  on April 1,  1999.  On July 20,  2001,  Intervest  Bank  (the  Holding
Company's other wholly owned banking  subsidiary prior to this date) merged into
Intervest National Bank. Intervest Bank was a Florida state chartered commercial
bank. The merger was treated as a reorganization and accounted for at historical
cost similar to the pooling-of-interests method of accounting. Under this method
of accounting,  the recorded assets,  liabilities,  shareholders' equity, income
and expenses of both banks were combined and recorded at their  historical  cost
amounts.  Intervest National Bank has its headquarters and full-service  banking
office in Rockefeller  Center in New York City, and a total of five full-service
banking  offices in Pinellas  County,  Florida - four in  Clearwater  and one in
South Pasadena. The Bank conducts a personalized commercial and consumer banking
business and attracts deposits from the areas served by its banking offices.  It
also   provides    internet    banking    services   through   its   web   site:
www.intervestnatbank.com,  which can attract deposit  customers from outside its
primary  market  areas.  The  deposits,  together  with funds derived from other
sources, are used to originate a variety of real estate, commercial and consumer
loans and to purchase investment securities. The Bank emphasizes multifamily and
commercial real estate lending.

Intervest  Mortgage  Corporation  is a mortgage  investment  company  located in
Rockefeller  Center in New York City. It is engaged in the real estate business,
including the origination and purchase of real estate mortgage loans, consisting
of first  mortgage,  junior mortgage and wraparound  mortgage loans.  Its wholly
owned  subsidiaries,  Intervest  Distribution  Corporation and Intervest  Realty
Servicing  Corporation  are  nonoperating  entities that provide  administrative
services to Intervest Mortgage  Corporation.  In March 2000, the Holding Company
acquired all the outstanding capital stock of Intervest Mortgage  Corporation in
exchange for 1,250,000 shares of the Holding  Company's Class A common stock. As
a result of the  acquisition,  Intervest  Mortgage  Corporation  became a wholly
owned  subsidiary  of the Holding  Company.  Former  shareholders  of  Intervest
Mortgage  Corporation are officers and directors of both the Holding Company and
Intervest  Mortgage  Corporation.  The  acquisition  was also  accounted  for at
historical cost similar to the pooling-of-interests method of accounting.

Intervest  Statutory  Trust I was formed in December 2001 in connection with the
issuance of  $15,000,000  of Capital  Securities.  See the  discussion  entitled
"Debentures  Payable and Accrued  Interest  Payable on Debentures"  that follows
later in this report for a further discussion.

The Company's  profitability depends primarily on its net interest income, which
is the difference  between interest income  generated from its  interest-earning
assets and the interest  expense incurred on its  interest-bearing  liabilities.
Net interest  income is dependent upon the  interest-rate  spread,  which is the
difference between the average yield earned on  interest-earning  assets and the
average rate paid on interest-bearing  liabilities. When interest-earning assets
approximate or exceed interest-bearing  liabilities,  any positive interest rate
spread will generate net interest  income.  The interest rate spread is impacted
by interest rates, deposit flows and loan demand.

The Company's  profitability  is also  affected by the level of its  noninterest
income and expenses,  the provision  for loan loss  reserves,  and its effective
income tax rate. Noninterest income consists primarily of loan and other banking
fees.  Noninterest expense consists of compensation and benefits,  occupancy and
equipment  related  expenses,  data processing  expenses,  advertising  expense,

                                       17
<PAGE>

deposit  insurance  premiums  and  other  operating   expenses.   The  Company's
profitability is also significantly affected by general economic and competitive
conditions, changes in market interest rates, government policies and actions of
regulatory authorities.  Since the properties underlying the Company's mortgages
are  concentrated  in the New York  City  area and the  State  of  Florida,  the
economic  conditions  in those  areas can also  have an impact on the  Company's
operations.

Comparison of Results of Operations for the Years Ended December 31, 2002 and
2001.

General
-------

Consolidated  net earnings for 2002  increased 83% to  $6,906,000,  or $1.37 per
fully diluted share,  from  $3,778,000,  or $0.97 per fully diluted  share,  for
2001. Net earnings for 2002 represent the highest level of earnings  reported by
the Company  since its  inception  in 1993.  The growth in earnings was due to a
$6,406,000  increase in net interest and dividend income and a $563,000 increase
in  noninterest  income,  partially  offset  by a  $2,003,000  increase  in  the
provision for income taxes, a $1,176,000 increase in noninterest expenses, and a
$662,000  increase in the  provision for loan loss  reserves.  The fully diluted
earnings per share computation in 2002 included a higher number of common shares
resulting from common stock warrants and convertible debentures outstanding that
became dilutive during the year.  Return on average assets and equity  increased
to 1.13% and 15.56%, respectively, for 2002, up from 0.85% and 9.94% for 2001.

Selected information regarding results of operations for 2002 follows:

<TABLE>
                                                    Intervest     Intervest    Intervest                      Inter-
                                                     National      Mortgage    Statutory       Holding       Company
($ in thousands)                                         Bank   Corporation      Trust I       Company      Balances    Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>          <C>           <C>           <C>             <C>
Interest and dividend income                         $ 34,197      $  8,420     $  1,527      $    988      $ (1,653)       $ 43,479
Interest expense                                       17,514         6,288        1,481         2,695        (1,653)         26,325
                                                     -------------------------------------------------------------------------------
Net interest and dividend income expense               16,683         2,132           46        (1,707)            -          17,154
Provision (credit) for loan loss reserves               1,193            83            -            (2)            -           1,274
Noninterest income                                      1,723         2,057            -           205        (1,767)          2,218
Noninterest expenses                                    6,324         1,332           46           544        (1,767)          6,479
                                                     -------------------------------------------------------------------------------
Earnings (loss) before taxes                           10,889         2,774            -        (2,044)            -          11,619
Provision (credit) for income taxes                     4,430         1,207            -          (924)            -           4,713
------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                  $  6,459      $  1,567          $ -      $ (1,120)        $   -        $  6,906
------------------------------------------------------------------------------------------------------------------------------------
Intercompany dividends (paid) received (1)           $ (1,500)         $  -          $ -      $  1,500         $   -            $  -
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  The Bank pays a monthly  dividend of  $125,000  to the  Holding  Company in
     order   to   provide   funds   for  the   debt   service   on  the   Junior
     Debentures-Capital  Securities,  the  amount  of which is  included  in the
     interest expense line in the table. The proceeds of the capital  securities
     were contributed to the Bank as capital in December 2001.
</FN>
</TABLE>

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

Net interest and dividend income is the Company's primary source of earnings and
is   influenced   primarily   by  the   amount,   distribution   and   repricing
characteristics of its interest-earning assets and interest-bearing  liabilities
as well as by the relative levels and movements of interest rates.

Net  interest  and  dividend  income  increased  to  $17,154,000  in 2002,  from
$10,748,000 in 2001. The increase was  attributable to growth of $160,969,000 in
average  interest-earning assets and an increase in the net interest margin from
2.47% in 2001, to 2.88% in 2002. The growth in average earning assets was due to
$124,093,000  in new  mortgage  loans and a net  increase in security  and other
short-term investments aggregating  $36,876,000.  These increases were funded by
$125,002,000 of deposit growth,  $27,875,000 of additional  borrowed funds and a
$6,395,000 increase in stockholders' equity.

The increase in the margin was due to the cost of funds  decreasing  at a faster
pace than the yield earned on  interest-earning  assets in a declining  interest
rate environment. The yield on interest-earning assets decreased 86 basis points
to  7.29%  in  2002  due to  lower  rates  on  new  mortgage  loans  originated,
prepayments  of  higher-yielding  loans and lower yields  earned on security and
other  short-term  investments  (including the effect of early calls of security
investments  by the issuers with the resulting  proceeds being invested in lower
yielding  securities).  The cost of funds decreased 146 basis points to 4.81% in
2002,  primarily due to lower rates paid on deposit  accounts and rate decreases


                                       18
<PAGE>

on floating-rate  debentures.  The  floating-rate  debentures are indexed to the
JPMorgan Chase Bank prime rate,  which  decreased by a total of 525 basis points
from January 2001 to December 2002.

The following  table provides  information on average  assets,  liabilities  and
stockholders' equity;  yields earned on interest-earning  assets; and rates paid
on  interest-bearing  liabilities  for 2002 and 2001. The yields and rates shown
are based on a computation of  income/expense  (including any related fee income
or   expense)    for   each   year    divided   by   average    interest-earning
assets/interest-bearing  liabilities  during  each year.  Average  balances  are
derived mainly from daily balances.  Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each year.

<TABLE>
                                                                           For the Year Ended December 31,
                                                                           --------------------------------
                                                                   2002                                    2001
                                                       -------------------------------         --------------------------------
                                                       Average     Interest     Yield/         Average     Interest    Yield/
 ($ in thousands)                                      Balance     Inc./Exp.    Rate           Balance     Inc./Exp.   Rate
 ------------------------------------------------------------------------------------------------------------------------------

       Assets
 Interest-earning assets:
<S>                                                    <C>          <C>         <C>            <C>          <C>        <C>
    Loans                                              $439,241     $39,273     8.94%          $315,148     $30,187    9.58%
    Securities                                          142,840       3,964     2.78             75,117       3,423    4.56
    Other interest-earning assets                        14,001         242     1.73             44,848       1,852    4.13
 ------------------------------------------------------------------------------------------------------------------------------
 Total interest-earning assets                          596,082     $43,479     7.29%           435,113     $35,462    8.15%
------------------------------------------------------------------------------------------------------------------------------
 Noninterest-earning assets                              14,586                                  11,973
------------------------------------------------------------------------------------------------------------------------------
 Total assets                                          $610,668                                $447,086
------------------------------------------------------------------------------------------------------------------------------
       Liabilities and Stockholders' Equity
 Interest-bearing liabilities:
    Interest checking  deposits                        $  9,521     $   221     2.32%          $  8,089     $   238    2.94%
    Savings deposits                                     29,221         762     2.61             19,629         778    3.96
    Money market deposits                               119,582       3,082     2.58             65,581       2,640    4.03
    Certificates of deposit                             282,720      13,304     4.71            222,743      13,423    6.03
------------------------------------------------------------------------------------------------------------------------------
    Total deposit accounts                              441,044      17,369     3.94            316,042      17,079    5.40
------------------------------------------------------------------------------------------------------------------------------
    Federal funds purchased                                 116           2     1.87                  -           -       -
    Debentures and accrued interest payable              90,777       7,440     8.20             77,671       7,577    9.76
    Junior debentures - capital securities               15,000       1,497     9.98                586          58    9.90
    Note payable                                            239          17     7.00                  -           -       -
------------------------------------------------------------------------------------------------------------------------------
    Total borrowed funds                                106,132       8,956     8.44             78,257       7,635    9.76
------------------------------------------------------------------------------------------------------------------------------
 Total interest-bearing liabilities                     547,176     $26,325     4.81%           394,299     $24,714    6.27%
------------------------------------------------------------------------------------------------------------------------------
 Noninterest-bearing deposits                             5,277                                   6,338
 Noninterest-bearing liabilities                         13,831                                   8,460
 Stockholders' equity                                    44,384                                  37,989
------------------------------------------------------------------------------------------------------------------------------
 Total liabilities and stockholders' equity            $610,668                                $447,086
------------------------------------------------------------------------------------------------------------------------------
 Net interest and dividend income/spread                            $17,154     2.48%                       $10,748    1.88%
------------------------------------------------------------------------------------------------------------------------------
 Net interest-earning assets/margin                    $ 48,906                 2.88%          $ 40,814                2.47%
------------------------------------------------------------------------------------------------------------------------------
 Ratio of total interest-earning assets
    to total interest-bearing liabilities                 1.09x                                   1.10x
------------------------------------------------------------------------------------------------------------------------------
 Other Ratios:
   Return on average assets                               1.13%                                   0.85%
   Return on average equity                              15.56%                                   9.94%
   Noninterest expense to average assets                  1.06%                                   1.19%
   Efficiency ratio (1)                                  33.45%                                  42.76%
   Average stockholders' equity to average assets         7.27%                                   8.50%
------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Defined as noninterest  expenses  (excluding the provision for loan losses)
     as a % of net interest and dividend income plus noninterest income.
</FN>
</TABLE>

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


                                       19
<PAGE>


<TABLE>
                                                                     For the Year Ended December 31, 2002 vs. 2001
                                                                     ---------------------------------------------
                                                                     Increase (Decrease) Due To Change In:
                                                                     -------------------------------------
($ in thousands)                                                        Rate            Volume          Rate/Volume          Total
------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
<S>                                                                  <C>               <C>               <C>               <C>
   Loans                                                             $ (2,017)         $ 11,886          $   (783)         $  9,086
   Securities                                                          (1,337)            3,086            (1,208)              541
   Other interest-earning assets                                       (1,076)           (1,274)              740            (1,610)
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                                          (4,430)           13,698            (1,251)            8,017
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
   Interest checking deposits                                             (50)               42                (9)              (17)
   Savings deposits                                                      (267)              380              (129)              (16)
   Money market deposits                                                 (951)            2,174              (781)              442
   Certificates of deposit                                             (2,940)            3,614              (793)             (119)
------------------------------------------------------------------------------------------------------------------------------------
   Total deposit accounts                                              (4,208)            6,210            (1,712)              290
------------------------------------------------------------------------------------------------------------------------------------
   Federal funds purchased                                                  -                 -                 2                 2
   Debentures and related interest payable                             (1,212)            1,279              (204)             (137)
   Junior debentures - capital securities                                   -             1,427                12             1,439
   Note payable                                                             -                 -                17                17
------------------------------------------------------------------------------------------------------------------------------------
   Total borrowed funds                                                (1,212)            2,706              (173)            1,321

------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities                                     (5,420)            8,916            (1,885)            1,611
------------------------------------------------------------------------------------------------------------------------------------
Net change in interest and dividend income                           $    990          $  4,782          $    634          $  6,406
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

The  provision for loan losses was  $1,274,000 in 2002,  compared to $612,000 in
2001. The provision is based on management's  ongoing assessment of the adequacy
of the allowance for loan loss reserves, which takes into consideration a number
of  factors,  including  the  level of  outstanding  loans.  See the  discussion
entitled  "Comparison of Financial Condition at December 31, 2002 and 2001" that
follows  later in this report for a further  discussion  of these  factors.  The
higher  provision was largely a function of loan growth (of $123,028,000 in 2002
versus  $103,969,00  in  2001) as well as an  increase  in the  Bank's  internal
reserve percentages used in calculating the allowance.

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

Noninterest  income  includes fees from customer  service  charges,  income from
mortgage  lending  activities  (which  consists mostly of fees from expired loan
commitments and loan servicing, maintenance and inspections charges), and income
from the early  repayment  of  mortgage  loans  (which  consists  largely of the
recognition  of unearned fees  associated  with such loans at the time of payoff
and the receipt of prepayment penalties in certain cases).

Noninterest income increased to $2,218,000 in 2002, from $1,655,000 in 2001. The
increase was due to higher  income  ($286,000)  from the  prepayment of mortgage
loans and increases in fees earned on expired loan  commitments and loan service
charge income aggregating  $144,000. In addition, in the fourth quarter of 2002,
the Bank sold securities available for sale totaling $3,500,000 and recognized a
net gain of $120,000.

The  amount and timing of, as well as income  from,  loan  prepayments,  if any,
cannot be predicted and can  fluctuate  significantly.  Normally,  the number of
instances of prepayment of mortgage  loans tends to increase  during  periods of
declining  interest  rates and tends to decrease  during  periods of  increasing
interest  rates.  Many  of  the  Company's  mortgage  loans  include  prepayment
provisions, and others prohibit prepayment of indebtedness entirely.

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

Noninterest  expenses  increased to $6,479,000 in 2002, from $5,153,000 in 2001,
excluding  approximately  $150,000 of  nonrecurring  expenses in 2001 associated
with the merger of Intervest  Bank into  Intervest  National Bank. The resulting
increase of $1,326,000  was largely due to a $565,000  increase in  compensation
and  benefits,  a $235,000  increase  in data  processing  expenses,  a $141,000
increase in occupancy and equipment expenses, a $100,000 increase in operational
charges, a $44,000 increase in advertising expenses and the addition of $114,000
of net expenses in 2002 associated with foreclosed real estate.  Foreclosed real
estate expenses,  net of any rental income, consist mostly of real estate taxes,
insurance, utilities, maintenance,  professional fees and other charges required
to protect the Company's interest in the property acquired through foreclosure.


                                       20
<PAGE>
The  increase in  compensation  and benefits  expense was due to the  following:
$306,000 from additional  staff,  salary increases and a higher cost of employee
benefits;  bonus payments  aggregating  $150,000 to the Chairman of the Company;
and  $109,000 of  compensation  expense  associated  with  certain  common stock
warrants held by employees.  In 2001, the Holding Company  modified the terms of
its Class A common stock warrants  outstanding that were granted to employees by
reducing  the  exercise  price per  share to  $10.01  (from a range of $12.50 to
$16.00 per share)  commencing  January 1, 2002 and extending the expiration date
to December 31, 2002. In September  2002, the warrants were modified  further by
extending  the  expiration  date to December  31,  2003.  With  respect to these
warrants,  which  total  138,500  shares of Class A common  stock,  compensation
expense is being  recorded in the  consolidated  statements of earnings with the
corresponding  credit  to paid in  capital  in  accordance  with  variable  rate
accounting  as  prescribed  in APB Opinion  No. 25 and related  interpretations.
Future  compensation  expense related to the modified warrants will fluctuate up
or down (but not less  than  $73,000  recorded  through  the date of the  second
modification)  until  December 31, 2003 and will be a function of the  Company's
Class A common stock price and number of warrants outstanding and exercised.

The increase in data processing expenses was due to growth in the Bank's assets.
The Bank engages a third-party servicer for its main data processing and the fee
is a function of the Bank's total assets,  which  increased to  $581,435,000  at
December 31, 2002, from $421,152,000 at December 31, 2001.

The increase in occupancy and equipment  expenses was primarily due to increased
depreciation  expense  and higher  real estate  taxes and  maintenance  charges,
including   insurance  and  security  protection   expenses.   The  increase  in
operational charges was a direct function of growth in the Bank's  transactional
deposit  accounts.  The increase in  advertising  expenses was due to additional
advertising to support loan and deposit growth.

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

The provision for income taxes  increased to $4,713,000 in 2002, from $2,710,000
in 2001,  due to higher  pre-tax  earnings.  The  Company's  effective  tax rate
(inclusive  of state and local  taxes)  amounted  to 40.6% in 2002,  compared to
41.8% in 2001. The decrease in the effective rate was largely due to a lower New
York State tax rate.

Comparison  of Results of Operations  for the Years Ended  December 31, 2001 and
2000.

General
-------

Consolidated  net earnings for 2001  increased 45% to  $3,778,000,  or $0.97 per
fully diluted share,  from  $2,608,000,  or $0.67 per fully diluted  share,  for
2000.  The growth was due to an  increase  of  $2,165,000  in net  interest  and
dividend income and an increase of $672,000 in noninterest  income.  These items
were partially offset by an $801,000 increase in the provision for income taxes,
a $735,000  increase  in  noninterest  expense  and a $337,000  increase  in the
provision for loan losses.  Results for 2000 included an  extraordinary  charge,
net of taxes, of $206,000,  in connection  with the early  retirement of various
debentures.

Selected information regarding results of operations for 2001 follows:

<TABLE>
                                                            Intervest       Intervest                         Inter-
                                                             National        Mortgage        Holding         Company
($ in thousands)                                                 Bank     Corporation    Company (1)        Balances    Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>            <C>             <C>             <C>
Interest and dividend income                                 $ 27,126        $  7,624       $    818        $   (106)       $ 35,462
Interest expense                                               17,185           6,511          1,124            (106)         24,714
                                                             -----------------------------------------------------------------------
Net interest and dividend income (expense)                      9,941           1,113           (306)              -          10,748
Provision for loan loss reserves                                  575              18             19               -             612
Noninterest income                                                925           1,152            176            (598)          1,655
Noninterest expenses                                            4,500           1,175            226            (598)          5,303
                                                             -----------------------------------------------------------------------
Earnings (loss) before taxes                                    5,791           1,072           (375)              -           6,488
Provision (credit) for income taxes                             2,387             495           (172)              -           2,710
------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                          $  3,404        $    577       $   (203)          $   -        $  3,778
------------------------------------------------------------------------------------------------------------------------------------
Intercompany dividends (paid) received (2)                   $   (125)           $  -       $    125            $  -            $  -
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Includes the net activity of Intervest  Statutory  Trust I from December 18
     to December 31, 2001.
(2)  The Bank pays a monthly  dividend of  $125,000  to the  Holding  Company in
     order   to   provide   funds   for  the   debt   service   on  the   Junior
     Debentures-Capital  Securities,  the  amount  of which is  included  in the
     interest expense line in the table. The proceeds of the capital  securities
     were contributed to the Bank as capital in December 2001.
</FN>
</TABLE>

                                       21
<PAGE>

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

Net  interest  and  dividend  income  increased  to  $10,748,000  in 2001,  from
$8,583,000 in 2000. The  improvement  was  attributable to growth in the balance
sheet and a higher net interest  margin.  Average loans increased by $64,207,000
during 2001, funded by a similar increase in average deposits.  The net interest
margin  increased to 2.47% in 2001,  from 2.34% in 2000 due to the cost of funds
decreasing at a faster pace than the yield on interest-earning assets.

The yield on interest-earning  assets decreased 53 basis points to 8.15% in 2001
due to the steady decline in market  interest  rates  resulting from the Federal
Reserve Board  decreasing  the federal funds target rate on 11 occasions  during
2001 for a total of 475 basis  points.  The lower rate  environment  resulted in
originations  of new loans with lower rates than the  average  yield of the loan
portfolio in 2000, prepayments of higher-yielding loans, early calls of security
investments  by the issuers with the resulting  proceeds being invested in lower
yielding  securities,  and  lower  rates  earned  on  overnight  and  short-term
investments.  The cost of funds  decreased 77 basis points to 6.27% in 2001 also
due to the lower rate environment, which resulted in lower rates paid on deposit
accounts and variable-rate debentures indexed to the prime rate.

The following  table provides  information on average  assets,  liabilities  and
stockholders' equity;  yields earned on interest-earning  assets; and rates paid
on interest-bearing  liabilities for 2001 and 2000. For a further description of
the table,  see the section  "Comparison  of Results of Operations for the Years
Ended December 31, 2002 and 2001".

<TABLE>
                                                                            For the Year Ended December 31,
                                                                            --------------------------------
                                                                     2001                                   2000
                                                       -------------------------------         -------------------------------
                                                       Average     Interest     Yield/         Average     Interest     Yield/
 ($ in thousands)                                      Balance     Inc./Exp.    Rate           Balance     Inc./Exp.    Rate
 -----------------------------------------------------------------------------------------------------------------------------

       Assets
 Interest-earning assets:
<S>                                                    <C>          <C>         <C>            <C>          <C>         <C>
    Loans                                              $315,148     $30,187     9.58%          $250,941     $24,923     9.93%
    Securities                                           75,117       3,423     4.56            101,532       6,056     5.96
    Other interest-earning assets                        44,848       1,852     4.13             14,925         929     6.22
------------------------------------------------------------------------------------------------------------------------------
 Total interest-earning assets                          435,113     $35,462     8.15%           367,398     $31,908     8.68%
------------------------------------------------------------------------------------------------------------------------------
 Noninterest-earning assets                              11,973                                  12,257
------------------------------------------------------------------------------------------------------------------------------
 Total assets                                          $447,086                                $379,655
------------------------------------------------------------------------------------------------------------------------------
       Liabilities and Stockholders' Equity
 Interest-bearing liabilities:
    Interest checking  deposits                        $  8,089     $   238     2.94%          $  7,611     $   232     3.05%
    Savings deposits                                     19,629         778     3.96             17,070         897     5.25
    Money market deposits                                65,581       2,640     4.03             52,182       2,832     5.43
    Certificates of deposit                             222,743      13,423     6.03            175,552      10,892     6.20
------------------------------------------------------------------------------------------------------------------------------
    Total deposit accounts                              316,042      17,079     5.40            252,415      14,853     5.88
------------------------------------------------------------------------------------------------------------------------------
    Federal funds purchased                                   -           -        -              2,544         150     5.90
    Debentures and accrued interest payable              78,257       7,635     9.76             76,546       8,322    10.87
------------------------------------------------------------------------------------------------------------------------------
 Total interest-bearing liabilities                     394,299     $24,714     6.27%           331,505     $23,325     7.04%
------------------------------------------------------------------------------------------------------------------------------
 Noninterest-bearing deposits                             6,338                                   5,696
 Noninterest-bearing liabilities                          8,460                                   7,599
 Stockholders' equity                                    37,989                                  34,855
------------------------------------------------------------------------------------------------------------------------------
 Total liabilities and stockholders' equity            $447,086                                $379,655
------------------------------------------------------------------------------------------------------------------------------
 Net interest and dividend income/spread                            $10,748     1.88%                       $ 8,583     1.64%
------------------------------------------------------------------------------------------------------------------------------
 Net interest-earning assets/margin                    $ 40,814                 2.47%          $ 35,893                 2.34%
------------------------------------------------------------------------------------------------------------------------------
 Ratio of total interest-earning assets
    to total interest-bearing liabilities                 1.10x                                   1.11x
------------------------------------------------------------------------------------------------------------------------------
 Other Ratios:
   Return on average assets                               0.85%                                   0.69%
   Return on average equity                               9.94%                                   7.48%
   Noninterest expense to average assets                  1.19%                                   1.20%
   Efficiency ratio (1)                                  42.76%                                  47.75%
   Average stockholders' equity to average assets         8.50%                                   9.18%
------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Defined as noninterest  expenses  (excluding the provision for loan losses)
     as a % of net interest and dividend income plus noninterest income.
</FN>
</TABLE>

                                       22
<PAGE>


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

<TABLE>
                                                                               For the Year Ended December 31, 2001 vs. 2000
                                                                               ---------------------------------------------
                                                                               Increase (Decrease) Due To Change In:
                                                                               -------------------------------------
($ in thousands)                                                                 Rate          Volume      Rate/Volume       Total
------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
<S>                                                                            <C>            <C>            <C>            <C>
   Loans                                                                       $  (886)       $ 6,377        $  (227)       $ 5,264
   Securities                                                                   (1,429)        (1,576)           372         (2,633)
   Other interest-earning assets                                                  (313)         1,863           (627)           923
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                                                   (2,628)         6,664           (482)         3,554
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
   Interest checking deposits                                                       (8)            15             (1)             6
   Savings deposits                                                               (220)           134            (33)          (119)
   Money market deposits                                                          (731)           727           (188)          (192)
   Certificates of deposit                                                        (313)         2,928            (84)         2,531
------------------------------------------------------------------------------------------------------------------------------------
   Total deposit accounts                                                       (1,272)         3,804           (306)         2,226
------------------------------------------------------------------------------------------------------------------------------------
   Federal funds purchased                                                        (150)          (150)           150           (150)
   Debentures and accrued interest payable                                        (854)           186            (19)          (687)
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities                                              (2,276)         3,840           (175)         1,389
------------------------------------------------------------------------------------------------------------------------------------
Net change in interest and dividend income                                     $  (352)       $ 2,824        $  (307)       $ 2,165
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

The provision  amounted to $612,000 in 2001,  compared to $275,000 in 2000.  The
provision for loan loss reserves is based on management's  ongoing assessment of
the  adequacy  of the  allowance  for  loan  loss  reserves,  which  takes  into
consideration a number of factors, including the level of outstanding loans. See
the discussion entitled  "Comparison of Financial Condition at December 31, 2002
and 2001" that follows  later in this report for a further  discussion  of these
factors.  The  higher  provision  for  2001 was due to net  loan  growth  (which
amounted to $103,969,000 in 2001, versus $53,623,000 in 2000).

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

Noninterest  income  increased to $1,655,000 in 2001, from $983,000 in 2000. The
increase was due to a higher level of income ($631,000) from the early repayment
of mortgage loans. See the section  "Comparison of Results of Operations for the
Years Ended December 31, 2002 and 2001" for a description of noninterest income.

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

Noninterest  expenses  increased to $5,303,000 in 2001, from $4,568,000 in 2000.
Expenses  for 2001  included  approximately  $150,000 of  nonrecurring  expenses
associated  with the merger of  Intervest  Bank into  Intervest  National  Bank.
Expenses for the 2000 period  included  approximately  $210,000 of  nonrecurring
expenses  (consisting of $51,000 of attorney fees,  consulting fees and printing
costs,  and $159,000 of stock  compensation)  associated with the acquisition of
Intervest Mortgage Corporation.

Absent the aforementioned  expenses,  noninterest expenses totaled $5,153,000 in
2001,  compared to $4,358,000 in 2000. The increase was due to the following:  a
$382,000 increase in compensation and benefits (of which $254,000 was the result
of salary increases,  additional staff and increased  benefit expenses,  and the
remainder due to a lower amount of SFAS No. 91 deferred  origination  costs);  a
$212,000 increase in data processing  expenses (due to Intervest National Bank's
growth in assets); a $87,000 increase in occupancy expenses (due to higher taxes
and other charges);  and a $145,000 increase in all other  noninterest  expenses
(primarily  due to $40,000 of higher FDIC  insurance  premiums and  increases in
general insurance,  telephone and director expenses aggregating $47,000).  These
increases were partially offset by lower  advertising  expenses and professional
fees aggregating $28,000.

                                       23
<PAGE>

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

The provision for income taxes  increased to $2,710,000 in 2001, from $1,909,000
in 2000,  largely due to higher pre-tax  earnings.  The Company's  effective tax
rate (inclusive of state and local taxes) amounted to 41.8% in 2001, compared to
40.4% in 2000.  The  increase in the  effective  tax rate was  primarily  due to
higher earnings generated from the Company's New York operations, which is taxed
at a higher rate than Florida.

Extraordinary Item
------------------

In 2000, Intervest Mortgage Corporation redeemed debentures totaling $24,000,000
in  principal  prior to maturity  for the  outstanding  principal  plus  accrued
interest totaling $3,970,000. In connection with these redemptions,  $382,000 of
unamortized  deferred  debenture  offering  costs was  charged  to  expense  and
reported as an extraordinary  charge,  net of a tax benefit of $176,000,  in the
consolidated statement of earnings for the year ended December 31, 2000.

Comparison of Financial Condition at December 31, 2002 and December 31, 2001.

Overview
--------

Total assets at December 31, 2002 increased to $685,979,000,  from  $512,622,000
at December  31,  2001.  Total  liabilities  at December  31, 2002  increased to
$632,853,000,  from $472,227,000 at December 31, 2001, and stockholders'  equity
increased to  $53,126,000  at December 31, 2002,  from  $40,395,000  at year-end
2001.  Book value per common share increased to $11.30 per share at December 31,
2002, from $10.36 at December 31, 2001.

Selected balance sheet information as of December 31, 2002 follows:

<TABLE>
                                                    Intervest     Intervest     Intervest                    Inter-
                                                     National      Mortgage     Statutory      Holding      Company
($ in thousands)                                         Bank   Corporation       Trust I      Company     Balances    Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>               <C>      <C>          <C>             <C>
Cash and cash equivalents                           $  16,365     $  17,946     $       -    $   7,487    $ (10,949)      $  30,849
Time deposits with banks                                    -         2,000             -            -            -           2,000
Securities held to maturity, net                      145,694             -        15,464            -      (15,464)        145,694
Federal Reserve Bank stock                              1,108             -             -            -            -           1,108
Loans receivable, net of deferred fees                407,128        73,499             -        9,285            -         489,912
Allowance for loan loss reserves                       (4,464)         (101)            -          (46)           -          (4,611)
Investment in subsidiaries                                  -             -             -       63,813      (63,813)              -
Foreclosed real estate                                  1,081             -             -            -            -           1,081
All other assets                                       14,523         3,967            59        1,751         (354)         19,946
------------------------------------------------------------------------------------------------------------------------------------
Total assets                                        $ 581,435     $  97,311     $  15,523    $  82,290    $ (90,580)      $ 685,979
------------------------------------------------------------------------------------------------------------------------------------
Deposits                                            $ 517,209     $       -     $       -    $       -    $ (11,251)      $ 505,958
Subordinated debentures payable                             -        74,000             -       25,894      (15,464)         84,430
Junior debentures payable-capital securities                -             -        15,000            -            -          15,000
Note payable                                              266             -             -            -            -             266
Accrued interest payable on all debentures                  -        10,751            57        3,123          (59)         13,872
All other liabilities                                  12,024         1,147             2          147            7          13,327
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                     529,499        85,898        15,059       29,164      (26,767)        632,853
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity                                   51,936        11,413           464       53,126      (63,813)         53,126
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity          $ 581,435     $  97,311     $  15,523    $  82,290    $ (90,580)      $ 685,979
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       24
<PAGE>

A comparison of the Company's consolidated balance sheet as of December 31, 2002
and 2001 follows:

<TABLE>
                                                                             At December 31, 2002        At December 31, 2001
                                                                           -----------------------      ------------------------
                                                                           Carrying      % of           Carrying        % of
($ in thousands)                                                             Value    Total Assets        Value     Total Assets
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>           <C>              <C>
Cash and cash equivalents                                                  $ 30,849       4.4%          $ 24,409         4.8%
Time deposits with banks                                                      2,000       0.3                250         0.1
Securities available for sale at estimated fair value                             -         -              6,192         1.2
Securities held to maturity, net                                            145,694      21.2             99,157        19.3
Federal Reserve Bank stock                                                    1,108       0.2                654         0.1
Loans receivable, net of deferred fees and loan loss reserves               485,301      70.7            365,146        71.2
Foreclosed real estate                                                        1,081       0.2                  -           -
All other assets                                                             19,946       3.0             16,814         3.3
------------------------------------------------------------------------------------------------------------------------------------
Total assets                                                               $685,979     100.0%          $512,622       100.0%
------------------------------------------------------------------------------------------------------------------------------------
Deposits                                                                   $505,958      73.8%          $362,437        70.7%
Subordinated debentures payable                                              84,430      12.3             73,430        14.3
Junior debentures payable-capital securities                                 15,000       2.2             15,000         2.9
Note payable                                                                    266       0.1                  -           -
Accrued interest payable on all debentures                                   13,872       2.0             11,480         2.3
All other liabilities                                                        13,327       1.9              9,880         1.9
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                           632,853      92.3            472,227        92.1
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity                                                         53,126       7.7             40,395         7.9
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                 $685,979     100.0%          $512,622       100.0%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Cash and Cash Equivalents
-------------------------

Cash and cash  equivalents  increased to $30,849,000 at December 31, 2002,  from
$24,409,000  at December  31, 2001,  due to a higher level of overnight  federal
fund investments and noninterest-earning  balances due from banks. Cash and cash
equivalents    include   federal   funds   sold   and    interest-bearing    and
noninterest-bearing  cash balances with banks, and other short-term  investments
that  have  original   maturities  of  three  months  or  less.  The  short-term
investments  are  normally   comprised  of  commercial  paper  issued  by  large
commercial banks,  certificates of deposit and U.S. government  securities.  The
level  of cash  and  cash  equivalents  fluctuates  based  on  various  factors,
including  liquidity  needs,  loan demand,  deposit flows,  calls of securities,
repayments of borrowed funds and alternative investment opportunities.

Securities Available for Sale and Held to Maturity
--------------------------------------------------

The Company invests in securities after satisfying its liquidity  objectives and
lending commitments. The Company has historically only purchased debt securities
that are  issued  by the U.S.  government  or one of its  agencies,  such as the
Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal National
Mortgage  Association  (FNMA),  and the Federal Home Loan  Mortgage  Corporation
(FHLMC).  The  Company's  security  investments  have lower yields than its loan
portfolio.  To  manage  interest  rate  risk,  the  Company  normally  purchases
securities that have  adjustable  rates or securities with fixed rates that have
short to  intermediate  maturity  terms.  The Company does not engage in trading
activities.

Securities that are held for indefinite periods of time which management intends
to use as part of its asset/liability  management strategy,  or that may be sold
in response to changes in interest  rates or other  factors,  are  classified as
available  for sale and are  carried  at  estimated  fair  value.  There were no
securities  classified as available  for sale at December 31, 2002,  compared to
$6,192,000  at December 31, 2001.  The decline in the  portfolio  was due to the
sale of $3,500,000 of  securities,  and the remainder was due to early calls and
maturities  during the year.  A net gain of $120,000 was realized on the sale of
securities.

At December 31, 2001,  the  portfolio  had an  unrealized  gain,  net of tax, of
$111,000.  Unrealized gains and losses on securities  available for sale, net of
income taxes, are reported as a separate  component of comprehensive  income and
included in stockholders' equity.



                                       25
<PAGE>

Securities  for which the Company has the intent and ability to hold to maturity
are  classified  as held  to  maturity  and  carried  at  amortized  cost.  Such
securities totaled $145,694,000 at December 31, 2002, compared to $99,157,000 at
December 31, 2001.  The increase was due to new purchases  exceeding  maturities
and calls of  securities  during the year.  At December 31, 2002,  the portfolio
consisted of short-term debt  obligations of FNMA,  FHLB,  FHLMC and FFCB with a
weighted-average yield of 2.39% and a weighted-average remaining maturity of 1.6
years.  The  securities  are fixed  rate or have  predetermined  scheduled  rate
increases,  and some  have  call  features  that  allow  the  issuer to call the
security before its stated maturity  without  penalty.  At December 31, 2002 and
2001, the portfolio's  estimated fair value was  $146,560,000  and  $99,404,000,
respectively.

Federal Reserve Bank Stock
--------------------------

In order for the Bank to be a member of the Federal Reserve Banking System, the
Bank maintains an investment in the capital stock of the Federal Reserve Bank,
which pays a dividend that is currently 6%. The investment, which amounted to
$1,108,000 at December 31, 2002 and $654,000 at December 31, 2001, fluctuates
based on the Bank's capital level.

Loans Receivable, Net of Deferred Fees and Allowance for Loan Loss Reserves
---------------------------------------------------------------------------

Loans receivable, net of deferred fees and the allowance for loan loss reserves,
increased to $485,301,000  at December 31, 2002,  from  $365,146,000 at December
31, 2001. The growth  reflected new  originations  of commercial real estate and
multifamily  mortgage  loans,  partially  offset  by  principal  repayments.  At
December 31, 2002, the loan portfolio  consisted of  $134,360,000  of fixed-rate
loans  and  $360,942,000  of  adjustable-rate  loans.  The  loan  portfolio  has
historically  been  concentrated  in  commercial  real  estate  and  multifamily
mortgage  loans.  Such  loans  represented  99% of the total loan  portfolio  at
December 31, 2002 and 2001. Loan concentrations are defined as amounts loaned to
a number of borrowers engaged in similar activities, which would cause the loans
to be similarly  impacted by economic or other  conditions.  Credit risk,  which
represents the  possibility  of the Company not recovering  amounts due from its
borrowers,  is significantly  related to local economic  conditions in the areas
the properties  are located,  as well as the Company's  underwriting  standards.
Economic conditions affect the market value of the underlying collateral as well
as the  levels  of  occupancy  of  income-producing  properties  (such as office
buildings, shopping centers and rental and cooperative apartment buildings).

The following table sets forth information concerning the loan portfolio:

<TABLE>
                                                                  At December 31, 2002                   At December 31, 2001
                                                                  --------------------                   --------------------
                                                            # of                      % of          # of                      % of
($ in thousands)                                            Loans       Amount        Total         Loans       Amount        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>      <C>             <C>           <C>       <C>              <C>
Commercial real estate loans                                 162      $ 275,096       55.5%         139       $ 183,167        49.2%
Residential multifamily loans                                168        214,515       43.3          153         182,569        49.0
Land development and other land loans                          3          1,890        0.4            3           2,485         0.7
Residential 1-4 family loans                                  28          1,953        0.4           33           2,404         0.6
Commercial loans                                              27          1,608        0.3           26           1,363         0.4
Consumer loans                                                16            240        0.1           15             286         0.1
------------------------------------------------------------------------------------------------------------------------------------
Total gross loans receivable                                 404        495,302      100.0%         369         372,274       100.0%
Deferred loan fees                                                       (5,390)                                 (3,748)
------------------------------------------------------------------------------------------------------------------------------------
Loans, net of deferred fees                                             489,912                                 368,526
Allowance for loan loss reserves                                         (4,611)                                 (3,380)
------------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net                                                 $ 485,301                               $ 365,146
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table sets forth the scheduled contractual principal repayments of
the loan portfolio:

                                                          At December 31,
                                                          ---------------
             ($ in thousands)
                                                       2002              2001
             ------------------------------------------------------------------
             Within one year                         $103,398          $ 85,447
             Over one to five years                   305,013           221,435
             Over five years                           86,891            65,392
             ------------------------------------------------------------------
                                                     $495,302          $372,274
             ------------------------------------------------------------------


                                       26
<PAGE>

At  December  31,  2002,   $308,393,000  of  loans  with  adjustable  rates  and
$83,511,000 of loans with fixed rates were due after one year.

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

                                                 For the Year Ended December 31,
                                                 -------------------------------
    ($ in thousands)                                2002                2001
    ---------------------------------------------------------------------------
    Loans receivable, net, at beginning of year  $365,146            $263,558
      Loans originated                            233,689             195,754
      Principal repayments                       (110,661)            (91,785)
      Recoveries                                     (107)                  -
      Chargeoffs                                      150                   -
      Increase in deferred loan fees               (1,642)             (1,769)
      Provision for loan loss reserves             (1,274)               (612)
    ---------------------------------------------------------------------------
    Loans receivable, net, at end of year        $485,301            $365,146
    ---------------------------------------------------------------------------

Nonaccrual and Impaired Loans
-----------------------------

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

At December 31, 2002,  there were no nonaccrual or impaired  loans.  At December
31, 2001, one commercial real estate loan with a principal balance of $1,243,000
was on a nonaccrual  status and  considered  impaired under the criteria of SFAS
No.114. At December 31, 2001, there was no valuation allowance recorded for this
impaired loan.

In the second  quarter of 2002, the property  collateralizing  the impaired loan
was acquired  through  foreclosure  and transferred to Foreclosed Real Estate at
estimated fair value less estimated selling costs. A loan charge off of $150,000
was recorded  against the allowance  for loan loss  reserves in connection  with
this transfer.  Interest that was not accrued on this loan under its contractual
terms amounted to $29,000 in 2002 and $51,000 in 2001.

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

At  December  31,  2002,  the  allowance  for loan loss  reserves  increased  to
$4,611,000,  from  $3,380,000  at December 31, 2001.  The increase was largely a
function of loan growth (of $123,028,000 in 2002, versus $103,969,00 in 2001) as
well as an increase in the internal  reserve  percentages used by the Company in
calculating the allowance. At December 31, 2002 and 2001, the allowance for loan
loss reserves was predominately allocated to commercial real estate, multifamily
and land loans.

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

     <TABLE>
                                                                  For the Year Ended December 31,
                                                                  -------------------------------

     ($ in thousands)                                                   2002             2001
     --------------------------------------------------------------------------------------------
     <S>                                                             <C>              <C>
     Allowance at beginning of year                                  $  3,380         $  2,768
     Provision charged to operations                                    1,274              612
     Chargeoffs                                                          (150)               -
     Recoveries                                                           107                -
     --------------------------------------------------------------------------------------------
     Allowance at end of year                                        $  4,611         $  3,380
     --------------------------------------------------------------------------------------------
     Ratio of allowance to total loans, net of deferred fees             0.94%            0.92%
     Total loans, net of deferred fees at year end                   $489,912         $368,526
     Average loans outstanding during the year                       $439,241         $315,148
     --------------------------------------------------------------------------------------------
     </TABLE>

The allowance for loan loss reserves is established  through a provision charged
to operations.  Loans are charged against the allowance when management believes
that the collectability of the principal is unlikely.  Subsequent recoveries are
added to the  allowance.  The adequacy of the allowance is evaluated  monthly or
more  frequently  when  necessary  with  consideration  given to: the nature and
volume of the loan portfolio;  overall portfolio quality;  loan  concentrations;
specific  problem loans and  commitments  and  estimates of fair value  thereof;
historical  chargeoffs and recoveries;  adverse  situations which may affect the


                                       27
<PAGE>

borrowers'  ability to repay;  and  management's  perception  of the current and
anticipated  economic  conditions  in  the  Company's  lending  areas.  Although
management   believes   it  uses  the  best   information   available   to  make
determinations  with respect to the  allowance  for loan loss  reserves,  future
adjustments may be necessary if economic  conditions,  or other factors,  differ
from those assumed in the determination of the level of the allowance.

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

The  Company  considers  a variety of factors in  determining  whether a loan is
impaired,  including  (i) any notice from the borrower that the borrower will be
unable to repay all principal and interest amounts  contractually  due under the
loan agreement,  (ii) any delinquency in the principal and/or interest  payments
other than minimum delays or shortfalls in payments, and (iii) other information
known by  management  that would  indicate the full  repayment of principal  and
interest  is not  probable.  In  evaluating  loans  for  impairment,  management
generally  considers  delinquencies of 60 days or less to be minimum delays, and
accordingly  does not  consider  such  delinquent  loans to be  impaired  in the
absence  of other  indications.  Impaired  loans  normally  consist  of loans on
nonaccrual  status.  Generally,  all loans are  evaluated  for  impairment  on a
loan-by-loan  basis,  except for  smaller  balance  homogeneous  loans,  such as
consumer loans,  whose  evaluation for impairment is done on an aggregate basis.
For consumer loans,  historical  charge-off  experience as well as the chargeoff
experience  of peer groups and  industry  statistics  are used to  evaluate  the
adequacy of the allowance for loan loss reserves.  The Company's regulators,  as
an integral part of their examination process, periodically review the allowance
for loan loss reserves. Accordingly, the Company may be required to take certain
chargeoffs and/or recognize  additions to the allowance based on the regulators'
judgment concerning information available to them during their examination.

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

At December  31,  2002,  foreclosed  real  estate  amounted  to  $1,081,000  and
represented one commercial real estate property  located in the State of Florida
that was acquired by the Bank as discussed previously.  The property is actively
being marketed for sale.  Foreclosed  real estate is carried at the lower of the
new cost basis or estimated fair value less estimated selling costs. Revenue and
expenses from operations and changes in the valuation  allowance of the property
are included in the  consolidated  statements of earnings.  In 2001, the Company
had no foreclosed real estate.

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

The following table sets forth the composition of all other assets:

                                                              At December 31,
                                                              ---------------
       ($ in thousands)                                     2002         2001
       ------------------------------------------------------------------------
       Accrued interest receivable                        $ 4,263      $ 3,202
       Loans fee receivable                                 3,706        2,679
       Premises and equipment, net                          6,098        6,042
       Deferred income tax asset                            1,997        1,236
       Deferred debenture offering costs, net               3,498        3,396
       All other                                              384          259
       ------------------------------------------------------------------------
                                                          $19,946      $16,814
       ------------------------------------------------------------------------



                                       28
<PAGE>

Accrued interest receivable fluctuates based on the amount of loans, investments
and  other  interest-earning  assets  outstanding  and the  timing  of  interest
payments received. The increase was due to the growth in these assets.

Loan fees receivable are fees due to the Company in accordance with the terms of
mortgage  loans.  Such amounts are generally due upon the full  repayment of the
loan.  This fee is recorded as deferred  income at the time a loan is originated
and is then  amortized  to interest  income over the life of the loan as a yield
adjustment. The increase was due to an increase in mortgage loan originations.

Premises  and  equipment  is  detailed in note 5 to the  consolidated  financial
statements.  Premises and equipment  increased due to purchases exceeding normal
amortization  and  depreciation  during the year. In 2002,  the Bank purchased a
property that is across from its Court Street branch office in Florida at a cost
of $350,000. This property was purchased primarily to provide additional parking
for the branch.

The deferred income tax asset relates primarily to the unrealized tax benefit on
the Company's allowance for loan loss reserves, depreciation, and organizational
start-up  costs.  These  charges  have been  expensed  for  financial  statement
purposes,  but are not all currently  deductible  for income tax  purposes.  The
ultimate  realization of the deferred tax asset is dependent upon the generation
of sufficient  taxable  income by the Company  during the periods in which these
temporary  differences become deductible for tax purposes.  Management  believes
that it is more likely than not that the  Company's  deferred  tax asset will be
realized and accordingly,  a valuation  allowance for deferred tax assets is not
maintained.

Deferred debenture offering costs consist primarily of underwriters' commissions
and are  amortized  over the terms of the  debentures.  The  increase was due to
additional costs  ($1,021,000)  incurred with the sale of new debentures in 2002
by Intervest Mortgage Corporation, partially offset by normal amortization.

Deposits
--------

Consolidated deposit liabilities increased to $505,958,000 at December 31, 2002,
from  $362,437,000 at December 31, 2001,  reflecting  growth in deposit accounts
during the year. Management believes that the Bank does not have a concentration
of deposits from any one source and that a large portion of its  depositors  are
residents in the Bank's primary market areas  (although there has been growth in
deposits   from   outside  the   primary   areas   resulting   from  the  Bank's
deposit-gathering   activities   through   its  web   site   on  the   internet:
www.intervestnatbank.com). The Bank does not accept brokered deposits.

The following table sets forth the distribution of deposit accounts by type:

    <TABLE>
                                        At December 31, 2002        At December 31, 2001
                                        --------------------        --------------------
    ($ in thousands)                    Amount    % of Total        Amount   % of Total
    ------------------------------------------------------------------------------------
    <S>                               <C>             <C>         <C>            <C>
    Demand deposits                   $  5,924        1.2%        $  5,550       1.5%
    Interest checking deposits          10,584        2.1           10,204       2.8
    Savings deposits                    30,174        6.0           24,624       6.8
    Money market deposits              134,293       26.5           80,594      22.2
    Certificates of deposit            324,983       64.2          241,465      66.7
    ------------------------------------------------------------------------------------
    Total deposit accounts (1)        $505,958      100.0%        $362,437     100.0%
    ------------------------------------------------------------------------------------

    <FN>
    (1)  Includes  individual  retirement  accounts  totaling   $53,340,000  and
         $28,193,000 at December 31, 2002 and 2001, respectively,  nearly all of
         which are certificates of deposit.
    </FN>
    </TABLE>

The  following  table sets forth  certificate  of deposits  by maturity  for the
periods indicated:

    <TABLE>
                                    At December 31, 2002           At December 31, 2001
                                    --------------------           --------------------
                                                  Wtd-Avg                        Wtd-Avg
      ($ in thousands)            Amount      Stated Rate        Amount      Stated Rate
    ------------------------------------------------------------------------------------
    <S>                         <C>              <C>           <C>              <C>
    Within one year             $122,890         3.51%         $144,739         5.00%
    Over one to two years         57,895         4.18            45,512         4.95
    Over two to three years       31,281         5.53            14,954         5.82
    Over three to four years      17,730         5.32            16,903         6.84
    Over four years               95,187         4.92            19,357         5.61
    ------------------------------------------------------------------------------------
                                $324,983         4.33%         $241,465         5.22%
    ------------------------------------------------------------------------------------
    </TABLE>


                                       29
<PAGE>


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

                                                              At December 31,
                                                              ---------------
    ($ in thousands)                                         2002         2001
    ----------------------------------------------------------------------------
    Due within three months or less                         $7,508      $10,332
    Due over three months to six months                      6,122        4,483
    Due over six months to one year                         13,033       18,401
    Due over one year                                       46,209       20,529
    ----------------------------------------------------------------------------
                                                           $72,872      $53,745
    ----------------------------------------------------------------------------
    As a percentage of total deposits                         14.4%        14.8%
    ----------------------------------------------------------------------------

The following table sets forth net deposit flows:

                                                            For the Year Ended
                                                            ------------------
                                                                   December 31,
                                                                   ------------
    ($ in thousands)                                        2002          2001
    ----------------------------------------------------------------------------
    Net increase before interest credited                 $126,230      $45,078
    Net interest credited                                   17,291       17,118
    ----------------------------------------------------------------------------
    Net deposit increase                                  $143,521      $62,196
    ----------------------------------------------------------------------------

Federal Funds Purchased
-----------------------

Periodically, the Bank purchases federal funds to manage its liquidity needs. At
December 31, 2002 and 2001,  there were no funds  outstanding.  The Bank did not
emphasize these types of borrowings in 2002 and 2001.

Debentures Payable and Accrued Interest Payable on Debentures
-------------------------------------------------------------

At December 31, 2002,  debentures  payable amounted to $84,430,000,  compared to
$73,430,000  at year-end  2001.  The increase was due to the sale of  additional
debentures  by  Intervest  Mortgage  Corporation  (Series  1/17/02  and  8/05/02
totaling  $13,500,000 in principal  amount and maturing at various times through
January  1,  2010)  as  part  of  its  normal   funding  of  its  mortgage  loan
originations,  partially  offset by the  repayment of  $2,500,000  of its Series
06/28/99 debentures. The sale of the debentures, after underwriter's commissions
and other issuance costs, resulted in net proceeds of approximately $12,500,000.

At December 31, 2002, Intervest Mortgage  Corporation had $74,000,000  principal
amount of debentures payable outstanding and the Holding Company had $10,430,000
principal  amount of debentures  payable  outstanding,  of which $6,930,000 were
convertible  into  the  Holding  Company's  Class A common  stock  at a  current
conversion price of $10.01 per share.

At December  31, 2002 and 2001,  the Holding  Company,  through its wholly owned
subsidiary  Intervest Statutory Trust I, has Trust Preferred  Securities (Junior
Debentures Payable)  outstanding totaling $15,000,000 that qualify as regulatory
capital.  On December 18, 2001,  Intervest  Statutory Trust I, sold 9.875% Trust
Preferred  Securities due December 18, 2031 in the aggregate principal amount of
$15,000,000, hereafter referred to as the "Capital Securities". The net proceeds
from the sale, in addition to the initial capital  contribution of $464,000 from
the Holding  Company to the Trust,  were  reinvested into the Holding Company in
exchange for  $15,464,000 of the Holding  Company's  9.875% Junior  Subordinated
Debentures  (the "Junior  Subordinated  Debentures")  due December 18, 2031. The
Holding Company then invested the  $15,000,000 as a capital  contribution in the
Bank. The sole asset of the Trust, the obligor on the Capital Securities, is the
Junior Subordinated Debentures.

At December 31, 2002,  accrued  interest  payable on all debentures  amounted to
$13,872,000, compared to $11,480,000 at year-end 2001. Nearly all of the accrued
interest  payable at December  31,  2002 is due and  payable at the  maturity of
various  debentures.  For a further discussion of all the debentures,  including
conversion prices and redemption premiums, see notes 7 and 9 to the consolidated
financial statements.

Note Payable
------------

In connection  with the purchase of property by the Bank that is across from its
Court Street branch office in Florida as described previously, the Bank issued a
note  payable to the seller for  $275,000.  The note matures in February of 2017
and calls for monthly payments of principal and interest at 7% per annum.


                                       30
<PAGE>


All Other Liabilities
---------------------

The following table shows the composition of all other liabilities:

                                                         At December 31,
                                                         ---------------
    ($ in thousands)                                   2002           2001
    ------------------------------------------------------------------------
    Mortgage escrow funds payable                     $5,894         $4,253
    Official checks outstanding                        4,373          3,219
    Accrued interest payable on deposits                 895            817
    Income taxes payable                                 526            772
    All other                                          1,639            819
    ------------------------------------------------------------------------
                                                     $13,327         $9,880
    ------------------------------------------------------------------------

Mortgage escrow funds payable  represent  advancepayments  made by borrowers for
taxes and  insurance  that are  remitted  by the Company to third  parties.  The
increase  reflects the timing of payments to taxing  authorities  as well as the
growth in the loan portfolio.  The level of official checks  outstanding  varies
and  fluctuates  based on banking  activity.  The level of income taxes  payable
fluctuates based on the Company's earnings, effective tax rate and timing of tax
payments. All other is comprised mainly of accrued expenses and fees received on
loan commitments that have not yet been funded.

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

Stockholders'  equity  increased  to  $53,126,000  at December  31,  2002,  from
$40,395,000  at December 31, 2001.  The increase was due to the  following:  net
earnings of  $6,906,000;  the issuance of 803,458 shares of Class A common stock
upon the exercise of common stock warrants for total proceeds, including related
tax benefits,  of $5,801,000;  and the recording of $109,000 of net compensation
expense  related to stock  warrants held by employees and  directors;  partially
offset by a $111,000  decrease in  unrealized  gains,  net of tax, on securities
available for sale. For additional  discussion of employee stock  warrants,  see
the section  "Comparison  of Results of Operations  for the Years Ended December
31, 2002 and 2001."

Liquidity and Capital Resources

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

At  December  31,  2002,  the  Company's  total  commitment  to lend  aggregated
$70,044,000.  The Company  believes that it can fund such  commitments  from the
aforementioned  sources of funds.  The Bank has  agreements  with  correspondent
banks whereby it may borrow up to $8,000,000 on an unsecured  basis.  There were
no outstanding  borrowings  under these agreements at December 31, 2002 or 2001.
Intervest  Mortgage  Corporation  filed a  registration  statement  in late 2002
relating to the issuance of additional  subordinated debentures in the aggregate
amount of up to  $7,500,000.  These  debentures are expected to be issued in the
first quarter of 2003.

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

The Bank is  required to  maintain,  for  regulatory  compliance  and  reporting
purposes,  regulatory  defined  minimum  Tier 1  leverage  and Tier 1 and  total
risk-based  capital  ratio  levels of at least 4%, 4% and 8%,  respectively.  At


                                       31
<PAGE>

December 31, 2002 and 2001,  management  believes  that the Bank met its capital
adequacy requirements.  The Bank is a well-capitalized institution as defined in
the  regulations,  which  require  minimum  Tier 1 leverage and Tier 1 and total
risk-based  ratios of 5%, 6% and 10%,  respectively.  Management  believes  that
there are no current  conditions  or events  outstanding  which would change the
Bank's designation as a well-capitalized institution.

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

    <TABLE>
                                                                                    At December 31,
                                                                                    ---------------
    ($ in thousands)                                                            2002              2001
    -----------------------------------------------------------------------------------------------------
    Tier 1 Capital:
    <S>                                                                       <C>               <C>
       Stockholder's equity                                                   $ 51,936          $ 46,749
       Disallowed portion of deferred tax asset                                 (1,623)             (946)
       Unrealized gain on debt securities, net of tax                                -              (111)
    -----------------------------------------------------------------------------------------------------
    Total Tier 1 capital                                                        50,313            45,692
    -----------------------------------------------------------------------------------------------------
    Tier 2 Capital:
       Allowable portion of allowance for loan loss reserves                     4,464             3,314
    -----------------------------------------------------------------------------------------------------
    Total risk-based capital                                                  $ 54,777          $ 49,006
    -----------------------------------------------------------------------------------------------------
    Net risk-weighted assets                                                  $450,599          $326,030
    Average assets for regulatory purposes                                    $569,204          $402,124
    Tier 1 capital to average assets                                              8.84%            11.36%
    Tier 1 capital to risk-weighted assets                                       11.17%            14.01%
    Total capital to risk-weighted assets                                        12.16%            15.03%
    -----------------------------------------------------------------------------------------------------
    </TABLE>

Asset and Liability Management

Interest  rate risk  arises  from  differences  in the  repricing  of assets and
liabilities  within a given time period.  The primary objective of the Company's
asset/liability  management strategy is to limit, within established guidelines,
the adverse  impact of changes in interest  rates on the  Company's net interest
income and capital.  This  strategy is overseen in part through the direction of
the Asset and  Liability  Committee  ("ALCO") of the Board of  Directors  of the
Bank, which  establishes  policies and monitors results to control interest rate
sensitivity.

The  Company  uses  "gap  analysis,"  which  measures  the  difference   between
interest-earning assets and interest-bearing  liabilities that mature or reprice
within a given time period, to monitor its interest rate  sensitivity.  An asset
or liability is normally  considered  to be  interest-rate  sensitive if it will
reprice or mature within one year or less. The interest-rate  sensitivity gap is
the difference between interest-earning assets and interest-bearing  liabilities
scheduled to mature or reprice  within  one-year.  A gap is considered  positive
when the amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive  liabilities.  Conversely,  a gap is considered negative when the
opposite is true.

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

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


                                       32
<PAGE>

their debts also may decrease in the event of an interest-rate increase, and the
behavior of depositors may be different than those assumed in the gap analysis.

The  Company's  one-year  positive  interest rate  sensitivity  gap was 15.7% at
December  31, 2002,  compared to 6.20% at December  31,  2001.  The increase was
primarily  due to an increase in  variable  rate loans  funded by an increase in
certificate  of deposits with a term of over one year. For purposes of computing
the gap,  100% of  deposits  with no stated  maturities  are  treated as readily
accessible accounts.  However, if such deposits were treated  differently,  then
the gap would change. The behavior of core depositors may not necessarily result
in the  immediate  withdrawal of funds in the event deposit rates offered by the
Bank did not change as quickly and uniformly as changes in general market rates.
For example,  if only 25% of deposits with no stated maturity were assumed to be
readily  accessible,  the  one-year  gap  would  have been a  positive  34.8% at
year-end 2002, compared to a positive 23.1% at year-end 2001.

The Company has a "floor," or minimum rate, on many of its  floating-rate  loans
that is  determined  in  relation  to  prevailing  market  rates  on the date of
origination.  This floor only  adjusts  upwards in the event of increases in the
loan's  interest rate.  This feature  reduces the effect on interest income in a
falling  rate  environment.  Notwithstanding  all of the above,  there can be no
assurances  that a sudden and  substantial  increase in  interest  rates may not
adversely impact the Company's  earnings,  to the extent that the interest rates
borne by assets and  liabilities  do not change at the same  speed,  to the same
extent, or on the same basis.

The  following  table  summarizes  the  Company's  interest-earning  assets  and
interest-bearing  liabilities  as of December  31, 2002,  that are  scheduled to
mature or reprice within the periods shown.

        <TABLE>
                                                         0-3          4-12      Over 1-4        Over 4
                                                         ---          ----      --------        ------
        ($ in thousands)                              Months        Months         Years         Years         Total
        ------------------------------------------------------------------------------------------------------------
        <S>                                         <C>           <C>           <C>          <C>            <C>
        Loans (1)                                   $139,843      $211,299      $122,427     $  21,733      $495,302
        Securities held to maturity (2)               16,237        66,128        63,329             -       145,694
        Short-term investments                        20,498             -             -             -        20,498
        Federal Reserve Bank stock                         -             -             -         1,108         1,108
        Interest-earning time deposits                     -         2,000             -             -         2,000
        ------------------------------------------------------------------------------------------------------------
        Total rate-sensitive assets                 $176,578      $279,427      $185,756     $  22,841      $664,602
        ------------------------------------------------------------------------------------------------------------

        Deposit accounts (3):
          Interest checking deposits                 $10,584      $      -      $      -     $       -      $ 10,584
          Savings deposits                            30,174             -             -             -        30,174
          Money market deposits                      134,293             -             -             -       134,293
          Certificates of deposit                     35,163        87,727       106,906        95,187       324,983
                                                    ----------------------------------------------------------------
          Total deposits                             210,214        87,727       106,906        95,187       500,034
        Debentures payable                            42,900             -        16,100        25,430        84,430
        Debentures payable- capital securities             -             -             -        15,000        15,000
        Accrued interest on all debentures             7,426            57         3,020         3,369        13,872
        Note payable                                       -             -             -           266           266
        ------------------------------------------------------------------------------------------------------------
        Total rate-sensitive liabilities            $260,540      $ 87,784      $126,026     $ 139,252      $613,602
        ------------------------------------------------------------------------------------------------------------
        GAP (repricing differences)                 $(83,962)     $191,643      $ 59,730     $(116,411)      $51,000
        ------------------------------------------------------------------------------------------------------------
        Cumulative GAP                              $(83,962)     $107,681      $167,411     $  51,000       $51,000
        ------------------------------------------------------------------------------------------------------------
        Cumulative GAP to total assets                -12.2%         15.7%         24.4%          7.4%          7.4%
        ------------------------------------------------------------------------------------------------------------
         <FN>
         Significant assumptions used in preparing the table above:

         (1)  Adjustable-rate  loans are  included  in the period in which their
         interest  rates are next  scheduled to adjust rather than in the period
         in which the loans mature.  Fixed-rate  loans are scheduled,  including
         repayments,  according to their contractual maturities;  (2) securities
         are scheduled according to the earlier of their contractual maturity or
         the date in which the  interest  rate is  scheduled  to  increase.  The
         effects of possible prepayments that may result from the issuer's right
         to  call a  security  before  its  contractual  maturity  date  are not
         considered.  (3) interest  checking,  savings and money market deposits
         are   regarded  as  ready   accessible   withdrawable   accounts;   and
         certificates of deposit are scheduled through their maturity dates.
         </FN>
         </TABLE>


                                       33
<PAGE>


Recent Accounting Pronouncements

See note 1 to the  consolidated  financial  statements  for a discussion of this
topic.

Impact of Inflation and Changing Prices

The financial  statements  and related  financial  data  concerning  the Company
presented  herein have been prepared in accordance  with  accounting  principles
generally  accepted  in  the  United  States  of  America,   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.  Virtually  all of the
assets and  liabilities  of the  Company are  monetary  in nature.  As a result,
changes in interest rates have a more  significant  impact on the performance of
the Company than do the effects of changes in the general rate of inflation  and
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 7a.  Quantitative and Qualitative Disclosures About Market Risk

Market  risk is the risk of loss  from  adverse  changes  in market  prices  and
interest rates.  The Company's  market risk arises  primarily from interest rate
risk inherent in its lending and deposit-taking  activities, and the issuance of
its  debentures.  The  Company has not  engaged in and  accordingly  has no risk
related to trading accounts, commodities or foreign exchange. The measurement of
market risk  associated  with financial  instruments is meaningful only when all
related and offsetting on-and off-balance sheet transactions are aggregated, and
the resulting net positions are identified.  Disclosures about the fair value of
financial instruments as of December 31, 2002 and 2001, which reflect changes in
market prices and rates, can be found in note 20 to the  consolidated  financial
statements.

Management  actively  monitors  and manages  the  Company's  interest  rate risk
exposure.  The primary  objective  in managing  interest  rate risk is to limit,
within established  guidelines,  the adverse impact of changes in interest rates
on the Company's net interest income and capital. For a further discussion,  see
the section "Asset and Liability Management."

Item 8.  Financial Statements and Supplementary Data

Financial Statements

The  following  consolidated  financial  statements  of the Company are included
herein:

- Independent Auditors' Report - Hacker, Johnson & Smith, P.A., P.C. (page 36)
- Independent Auditors' Report - Eisner LLP (page 37)
- Consolidated Balance Sheets at December 31, 2002 and 2001 (page 38)
- Consolidated Statements of  Earnings for  the Years  Ended  December 31, 2002,
  2001 and 2000 (page 39)
- Consolidated  Statements of  Comprehensive Income for the Years Ended December
  31, 2002, 2001 and 2000  (page 40)
- Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
  December 31, 2002, 2001 and 2000 (page 41)
- Consolidated  Statements of  Cash Flows for the Years Ended December 31, 2002,
  2001 and 2000 (page 42)
- Notes to the Consolidated Financial Statements (pages 43 to 65)

Supplementary Data

Securities Available for Sale
-----------------------------

The following table sets forth, by maturity distribution, information pertaining
to securities available for sale:

<TABLE>
                                                       After One Year to       After Five Years to
                                                       -----------------       -------------------
                                One Year or Less           Five Years               Ten Years                 Total
                                ----------------           ----------               ---------                 -----
                               Carrying      Avg.     Carrying      Avg.       Carrying      Avg.       Carrying      Avg.
($ in thousands)                  Value    Yield         Value    Yield           Value    Yield           Value    Yield
-------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                   <C>                       <C>                     <C>
At December 31, 2002:
U.S. government agencies         $    -        -%      $     -        -%         $    -        -%        $     -        -%
At December 31, 2001:
U.S. government agencies         $2,571     5.78%      $ 3,621     5.46%         $    -        -%        $ 6,192     5.59%
At December 31, 2000:
U.S. government agencies         $  998     5.42%      $63,809     5.70%         $9,982     6.56%        $74,789     5.81%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       34
<PAGE>


Supplementary Data, Continued

Securities Held to Maturity
---------------------------

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

<TABLE>
                                                          After One Year to     After Five Years to
                                                          -----------------     -------------------
                                  One Year or Less           Five Years             Ten Years                   Total
                                 ------------------          ----------             ---------                   -----
                                 Carrying       Avg.      Carrying       Avg.   Carrying        Avg.    Carrying        Avg.
($ in thousands)                    Value     Yield          Value     Yield       Value      Yield        Value       Yield
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>        <C>           <C>        <C>                  <C>             <C>
At December 31, 2002:
---------------------
U.S. government agencies         $ 75,566      2.52%      $ 70,128      2.25%      $  -          -%     $ 145,694       2.39%
At December 31, 2001:
---------------------
U.S. government agencies         $ 79,411      2.85%      $ 19,746      3.02%      $  -          -%     $  99,157       2.89%
At December 31, 2000:
---------------------
U.S. government agencies         $ 20,970      6.52%      $      -         -%      $  -          -%     $  20,970       6.52%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

<TABLE>
                                                                 2002           2001           2000           1999           1998
                                                                 ----           ----           ----           ----           ----
                                                               Carrying       Carrying       Carrying       Carrying       Carrying
($ in thousands)                                                  value          value          value          value          value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>            <C>            <C>
Commercial real estate and multifamily loans                  $ 489,611      $ 365,736      $ 260,753      $ 207,521      $ 160,610
Land development and other land loans                             1,890          2,485          2,531          2,501              -
Residential 1-4 family loans                                      1,953          2,404          3,034          2,311          2,627
Commercial business loans                                         1,608          1,363          1,781          2,107          2,875
Consumer loans                                                      240            286            206            242            184
                                                              ----------------------------------------------------------------------
Loans receivable                                                495,302        372,274        268,305        214,682        166,296
Deferred loan fees                                               (5,390)        (3,748)        (1,979)        (1,745)        (1,310)
                                                              ----------------------------------------------------------------------
Loans receivable, net of deferred fees                          489,912        368,526        266,326        212,937        164,986
Allowance for loan loss reserves                                 (4,611)        (3,380)        (2,768)        (2,493)        (1,662)
------------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net                                         $ 485,301      $ 365,146      $ 263,558      $ 210,444      $ 163,324
------------------------------------------------------------------------------------------------------------------------------------
Loans included above that were
   on a nonaccrual status at year end                              $  -      $   1,243          $   -         $    - $            -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
($ in thousands)                                                      2002           2001          2000          1999          1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>           <C>           <C>           <C>
Allowance at beginning of year                                   $   3,380      $   2,768     $   2,493     $   1,662     $   1,173
Provision charged to operations                                      1,274            612           275           830           479
Chargeoffs                                                            (150)             -             -             -             -
Recoveries                                                             107              -             -             1            10
------------------------------------------------------------------------------------------------------------------------------------
Allowance at end of year                                         $   4,611      $   3,380     $   2,768     $   2,493     $   1,662
------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of deferred fees                                $ 489,912      $ 368,526     $ 266,326     $ 212,937     $ 164,986
Average loans outstanding during the year                        $ 439,241      $ 315,148     $ 250,941     $ 175,980     $ 170,675
Ratio of allowance to net loans receivable                            0.94%          0.92%         1.04%         1.17%         1.01%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Other financial  statement  schedules and  inapplicable  periods with respect to
schedules listed above are omitted because the conditions requiring their filing
do not exist or the information required thereby is included in the consolidated
financial statements filed, including the notes thereto.


                                       35
<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 Subsidiaries (the "Company") as of December 31, 2002
and 2001 and the related  consolidated  statements  of  earnings,  comprehensive
income, changes in stockholders' equity, and cash flows for each of the years in
the three-year  period ended December 31, 2002.  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 did  not  audit  the  consolidated  financial  statements  of  Intervest
Mortgage  Corporation  (formerly  known as Intervest  Corporation  of New York),
whose total assets as of December 31, 2002 and 2001, constituted 13.6% and 15.6%
of the related consolidated totals, respectively, and whose net interest income,
noninterest  income and net earnings for the years ended December 31, 2002, 2001
and 2000, constituted 12.4%, 21.9% and 22.7%, respectively in 2002, 10.4%, 42.5%
and 15.3%, respectively in 2001 and 10.3%, 48.6% and 5.0%, respectively in 2000,
of the related  consolidated  totals.  Those  statements  were  audited by other
auditors  whose report has been  furnished to us, and our opinion  insofar as it
relates to the amounts included in the consolidated  totals, are based solely on
the report of the other auditors.

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

     In our opinion,  based on our audits and the report of other auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the financial  position of the Company at December 31, 2002
and 2001,  and the results of its  operations and its cash flows for each of the
years in the  three-year  period  ended  December  31, 2002 in  conformity  with
accounting principles generally accepted in the United States of America.


/s/ Hacker, Johnson & Smith, P.A., P.C.
---------------------------------------
Hacker, Johnson & Smith, P.A., P.C.
Tampa, Florida
January 24, 2003


                                       36


<PAGE>


                          Independent Auditors' Report


Board of Directors and Stockholder
Intervest Mortgage Corporation
New York, New York:

     We have  audited the  consolidated  balance  sheets of  Intervest  Mortgage
Corporation   (formerly  known  as  Intervest   Corporation  of  New  York)  and
Subsidiaries  (the  "Company")  at  December  31,  2002 and 2001 and the related
consolidated statements of operations,  changes in stockholder's equity and cash
flows for each of the years in the  three-year  period  ended  December 31, 2002
(all of which are not presented  separately herein).  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  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
fairly present, in all material respects,  the financial position of the Company
at December 31, 2002 and 2001,  and the results of its  operations  and its cash
flows for each of the years in the three-year  period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Eisner LLP
--------------
Eisner LLP
New York, New York
January 23, 2003

                                       37

<PAGE>


                Intervest Bancshares Corporation and Subsidiaries
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                                 At December 31,
                                                                                                          ------------ -------------
($ in thousands, except par value)                                                                             2002          2001
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                                                          <C>            <C>
Cash and due from banks                                                                                      $ 10,351       $  4,714
Federal funds sold                                                                                              9,114          6,345
Commercial paper and other short-term investments                                                              11,384         13,350
------------------------------------------------------------------------------------------------------------------------------------
    Total cash and cash equivalents                                                                            30,849         24,409
Time deposits with banks                                                                                        2,000            250
Securities available for sale at estimated fair value                                                             -            6,192
Securities held to maturity, net                                                                              145,694         99,157
Federal Reserve Bank stock, at cost                                                                             1,108            654
Loans receivable (net of allowance for loan losses of $4,611 in 2002 and $3,380 in 2001)                      485,301        365,146
Accrued interest receivable                                                                                     4,263          3,202
Loan fees receivable                                                                                            3,706          2,679
Premises and equipment, net                                                                                     6,098          6,042
Foreclosed real estate                                                                                          1,081            -
Deferred income tax asset                                                                                       1,997          1,236
Deferred debenture offering costs, net                                                                          3,498          3,396
Other assets                                                                                                      384            259
====================================================================================================================================
Total assets                                                                                                 $685,979       $512,622
====================================================================================================================================
LIABILITIES
Deposits:
   Noninterest-bearing demand deposit accounts                                                               $  5,924       $  5,550
   Interest-bearing deposit accounts:
      Checking (NOW) accounts                                                                                  10,584         10,204
      Savings accounts                                                                                         30,174         24,624
      Money market accounts                                                                                   134,293         80,594
      Certificate of deposit accounts                                                                         324,983        241,465
------------------------------------------------------------------------------------------------------------------------------------
Total deposit accounts                                                                                        505,958        362,437
Subordinated debentures payable                                                                                84,430         73,430
Guaranteed preferred beneficial interest in junior subordinated debentures                                     15,000         15,000
Note payable                                                                                                      266            -
Accrued interest payable on all debentures                                                                     13,872         11,480
Accrued interest payable on deposits                                                                              895            817
Mortgage escrow funds payable                                                                                   5,894          4,253
Official checks outstanding                                                                                     4,373          3,219
Other liabilities                                                                                               2,165          1,591
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                             632,853        472,227
------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 5, 17 and 19)
STOCKHOLDERS' EQUITY
Preferred stock  (300,000 shares authorized, none issued)                                                         -              -
Class A common stock  ($1.00 par value, 9,500,000 shares authorized,
      4,348,087 and 3,544,629 shares issued and outstanding, respectively)                                      4,348          3,545
Class B common stock  ($1.00 par value, 700,000 shares authorized,
      355,000 shares issued and outstanding)                                                                      355            355
Additional paid-in-capital, common                                                                             24,134         19,001
Retained earnings                                                                                              24,289         17,383
Accumulated other comprehensive income -
    Net unrealized gain on securities available for sale, net of tax                                              -              111
------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                                     53,126         40,395
====================================================================================================================================
Total liabilities and stockholders' equity                                                                   $685,979       $512,622
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       38

<PAGE>

           Intervest Bancshares Corporation and Subsidiaries
                  Consolidated Statements of Earnings

<TABLE>
<CAPTION>
                                                                                                        Year Ended December 31,
                                                                                            ---------------------------------------
($ in thousands, except per share data)                                                             2002          2001         2000
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
<S>                                                                                                <C>         <C>         <C>
Loans receivable                                                                                   $ 39,273    $ 30,187    $ 24,923
Securities                                                                                            3,964       3,423       6,056
Other interest-earning assets                                                                           242       1,852         929
-----------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income                                                                   43,479      35,462      31,908
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits                                                                                             17,369      17,079      14,853
Subordinated debentures                                                                               7,440       7,577       8,322
Junior debentures - capital securities                                                                1,497          58         -
Note payable                                                                                             17         -           -
Federal funds purchased                                                                                   2         -           150
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense                                                                               26,325      24,714      23,325
-----------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income                                                                     17,154      10,748       8,583
Provision for loan loss reserves                                                                      1,274         612         275
-----------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income after provision for loan loss reserves                              15,880      10,136       8,308
-----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees                                                                                   171         159         139
Income from mortgage lending activities                                                                 485         341         291
Income from the early repayment of mortgage loans                                                     1,435       1,149         518
Gain from the sales of securities available for sale                                                    120         -           -
All other                                                                                                 7           6          35
-----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                                                              2,218       1,655         983
-----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits                                                                        3,016       2,451       2,228
Occupancy and equipment, net                                                                          1,318       1,177       1,090
Data processing                                                                                         564         329         117
Advertising and promotion                                                                                69          25          35
Professional fees and services                                                                          350         341         410
Stationery, printing and supplies                                                                       141         137         140
FDIC and general insurance                                                                              179         177         117
Postage and delivery                                                                                     93          91          92
All other                                                                                               749         575         339
-----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses                                                                            6,479       5,303       4,568
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before taxes and extraordinary item                                                         11,619       6,488       4,723
Provision for income taxes                                                                            4,713       2,710       1,909
                                                                                                   --------------------------------
Earnings before extraordinary item                                                                    6,906       3,778       2,814
Extraordinary item, net of tax (note 7)                                                                 -           -          (206)
===================================================================================================================================
Net earnings                                                                                       $  6,906    $  3,778    $  2,608
===================================================================================================================================
Basic earnings per share:
    Earnings before extraordinary item                                                             $   1.71    $   0.97    $   0.72
    Extraordinary item, net of tax                                                                      -           -         (0.05)
===================================================================================================================================
   Net earnings per share                                                                          $   1.71    $   0.97    $   0.67
===================================================================================================================================
Diluted earnings per share:
    Earnings before extraordinary item                                                             $   1.37    $   0.97    $   0.72
    Extraordinary item, net of tax                                                                      -           -         (0.05)
===================================================================================================================================
   Net earnings per share                                                                          $   1.37    $   0.97    $   0.67
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements

                                       39

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                 Consolidated Statements of Comprehensive Income


<TABLE>
<CAPTION>
                                                                                                        Year Ended December 31,
                                                                                            ---------------------------------------
($ in thousands)                                                                                    2002          2001         2000
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>         <C>         <C>
Net earnings                                                                                        $ 6,906     $ 3,778     $ 2,608
-----------------------------------------------------------------------------------------------------------------------------------

  Net unrealized holding (losses) gains on available-for-sale securities                                (72)        596        (405)
  Reclassification adjustment for gains realized in earnings                                           (120)        -           -
-----------------------------------------------------------------------------------------------------------------------------------
  Net unrealized (losses) gains on available-for-sale securities                                       (192)        596        (405)
-----------------------------------------------------------------------------------------------------------------------------------
  Provision for income taxes related to unrealized (losses) gains
        on available-for-sale securities                                                                 81        (233)        153
-----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income , net of tax                                                         (111)        363        (252)
===================================================================================================================================
Total comprehensive income, net of tax                                                              $ 6,795     $ 4,141     $ 2,356
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       40

<PAGE>


                Intervest Bancshares Corporation and Subsidiaries
           Consolidated Statements of Changes in Stockholders' Equity


<TABLE>
<CAPTION>
                                                                                                      Year Ended December 31,
                                                                                           ----------------------------------------
($ in thousands)                                                                                    2002         2001           2000
-----------------------------------------------------------------------------------------------------------------------------------

CLASS A COMMON STOCK
<S>                                                                                              <C>          <C>          <C>
Balance at beginning of year                                                                     $  3,545     $  3,545     $  3,532
Issuance of 803,458 and 12,750 shares in 2002 and 2000, respectively,
     upon the exercise of warrants                                                                    803          -             13
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                              4,348        3,545        3,545
-----------------------------------------------------------------------------------------------------------------------------------

CLASS B COMMON STOCK
Balance at beginning of year                                                                          355          355          305
Issuance of 50,000 shares of restricted stock compensation                                            -            -             50
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                                355          355          355
-----------------------------------------------------------------------------------------------------------------------------------

ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of year                                                                       19,001       18,975       18,770
Compensation related to vesting of certain Class B stock warrants                                      26           26           26
Compensation related to certain Class A stock warrants modified                                       109          -            -
Issuance of 50,000 shares of restricted Class B stock compensation                                    -            -            109
Issuance of 803,458 and 12,750 shares in 2002 and 2000, respectively, upon
    the exercise of stock warrants, inclusive of tax benefits                                       4,998          -             70
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                             24,134       19,001       18,975
-----------------------------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS
Balance at beginning of year                                                                       17,383       13,605       10,997
Net earnings for the year                                                                           6,906        3,778        2,608
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                             24,289       17,383       13,605
-----------------------------------------------------------------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year                                                                          111         (252)         -
Net change in accumulated other comprehensive income (loss), net                                     (111)         363         (252)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                                -            111         (252)
-----------------------------------------------------------------------------------------------------------------------------------

===================================================================================================================================
Total stockholders' equity at end of year                                                        $ 53,126     $ 40,395     $ 36,228
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements

                                       41

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                       Year Ended December 31,
                                                                                            ---------------------------------------
($ in thousands)                                                                                 2002          2001          2000
-----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S>                                                                                           <C>           <C>           <C>
Net earnings                                                                                  $   6,906     $   3,778     $   2,608
Adjustments to reconcile net earnings to net cash provided by operating
    activities:
Depreciation and amortization                                                                       606           505           433
Provision for loan loss reserves                                                                  1,274           612           275
Deferred income tax benefit                                                                        (681)         (364)          (16)
Amortization of deferred debenture offering costs                                                   919           753         1,136
Compensation expense related to common stock and warrants                                           135            26           185
Amortization of premiums, fees and discounts, net                                                  (588)       (1,823)       (1,814)
Gain from sales of securities available for sale                                                   (120)          -             -
Net increase in accrued interest payable on debentures                                            2,392         2,747           641
Net increase in official checks outstanding                                                       1,154           938           460
Net change in all other assets and liabilities, net                                               2,802         2,118         1,912
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                        14,799         9,290         5,820
-----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net increase in interest-earning time deposits with banks                                        (1,750)         (250)          -
Maturities and calls of securities available for sale                                             2,500        69,194           -
Sales of securities available for sale                                                            3,620           -             -
Maturities and calls of securities held to maturity                                             104,785        35,996        26,393
Purchases of securities held to maturity                                                       (153,335)     (114,013)      (39,160)
Net increase in loans receivable                                                               (124,271)     (103,969)      (53,623)
Purchases of Federal Reserve Bank stock, net                                                       (454)          (49)          (97)
Purchases of premises and equipment, net                                                           (387)         (816)         (301)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                          (169,292)     (113,907)      (66,788)
-----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money market deposits                                   60,003        38,387         4,299
Net increase in certificates of deposit                                                          83,518        23,809        94,862
Net increase in mortgage escrow funds payable                                                     1,641           856            22
Principal repayments of federal funds purchased, net                                                -             -          (6,955)
Principal repayments of debentures                                                               (2,500)       (1,400)      (24,000)
Principal repayments of note payable                                                                 (9)          -             -
Proceeds from issuance of debentures, net of issuance costs                                      12,479        24,436         3,500
Proceeds from issuance of common stock, net of issuance costs                                     5,801           -              83
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                       160,933        86,088        71,811
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                              6,440       (18,529)       10,843
Cash and cash equivalents at beginning of year                                                   24,409        42,938        32,095
===================================================================================================================================
Cash and cash equivalents at end of year                                                      $  30,849     $  24,409     $  42,938
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
   Interest                                                                                   $  22,936     $  21,253     $  21,532
   Income taxes                                                                                   5,301         2,704         1,004
Noncash activities:
   Transfer of loans to foreclosed real estate, net of chargeoffs                                 1,081           -             -
   Purchase of premises with note payable                                                           275           -             -
   Transfers of securities from held-to-maturity to available-for-sale                              -             -          74,789
   Accumulated other comprehensive income (loss) - change in unrealized (loss)
         gain on securities available for sale, net of tax                                         (111)          363          (252)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements

                                       42

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

1.   Description of Business and Summary of Significant Accounting Policies

     Description of Business

     Intervest  Bancshares  Corporation (the "Holding Company") was incorporated
     in 1993 and is  headquartered  in Rockefeller  Center in New York City. Its
     wholly  owned  subsidiaries  are  Intervest  National  Bank,  a  nationally
     chartered bank, Intervest Mortgage Corporation (whose name was changed from
     Intervest  Corporation of New York in 2002), a mortgage investment company,
     and Intervest Statutory Trust I, a special purpose finance subsidiary.  The
     Holding Company's primary business is the ownership of its subsidiaries. In
     July 2001,  Intervest Bank (a Florida state  chartered  commercial bank and
     the Holding  Company's other wholly owned banking  subsidiary prior to that
     date) was merged into Intervest  National Bank. The merger was treated as a
     reorganization  and  accounted  for  at  historical  cost  similar  to  the
     pooling-of-interests method of accounting.  Under this method, the recorded
     assets,  liabilities,  shareholders'  equity,  income and  expenses of both
     banks  were  combined  and  recorded  at  their  historical  cost  amounts.
     Hereafter, Intervest National Bank is referred to as the "Bank" and all the
     entities are referred to  collectively  as the "Company" on a  consolidated
     basis.

     The  Bank  has  its  headquarters   and  full-service   banking  office  in
     Rockefeller  Center  in New York  City,  and a total  of five  full-service
     banking offices in Pinellas County, Florida - four in Clearwater and one in
     South  Pasadena.  The  Bank  conducts  a  full-service  commercial  banking
     business, which consists of attracting deposits from the general public and
     investing  those funds,  together  with other  sources of funds,  primarily
     through the  origination of commercial and  multifamily  real estate loans,
     and through the purchase of security investments.

     Intervest Mortgage Corporation and its wholly owned subsidiaries, Intervest
     Distribution  Corporation and Intervest Realty Servicing  Corporation,  are
     located  in  Rockefeller  Center  in  New  York  City.  Intervest  Mortgage
     Corporation  is  engaged  in  the  real  estate  business,   including  the
     origination and purchase of real estate mortgage loans, consisting of first
     mortgage, junior mortgage and wraparound mortgage loans. Intervest Mortgage
     Corporation  was  acquired  by the Holding  Company in March  2000.  In the
     acquisition,  all of the  outstanding  capital stock of Intervest  Mortgage
     Corporation  was acquired in exchange for  1,250,000  shares of the Holding
     Company's Class A common stock.  Former  shareholders of Intervest Mortgage
     Corporation  are officers and directors of Intervest  Mortgage  Corporation
     and  the  Holding  Company.  The  acquisition  was  also  accounted  for at
     historical cost similar to the pooling-of-interests method of accounting.

     Intervest  Statutory  Trust I was  formed  in  December  2001  for the sole
     purpose  of  issuing  $15,000,000  of  Capital  Securities  as  more  fully
     described in note 9.

     Principles of Consolidation, Basis of Presentation and Use of Estimates

     The consolidated  financial  statements include the accounts of the Holding
     Company and its  subsidiaries.  All significant  intercompany  balances and
     transactions    have   been    eliminated   in    consolidation.    Certain
     reclassifications  have been made to prior  year  amounts to conform to the
     current year's  presentation.  The accounting and reporting policies of the
     Company conform to accounting  principles  generally accepted in the United
     States of America and to general practices within the banking industry.  In
     preparing the consolidated financial statements,  management is required to
     make estimates and assumptions  that affect the reported  amounts of assets
     and liabilities,  and disclosure of contingent liabilities,  as of the date
     of the financial  statements and revenues and expenses during the reporting
     periods.  Actual results could differ from those estimates.  Estimates that
     are   particularly   susceptible  to  significant   change  relate  to  the
     determination  of the  allowance  for loan loss  reserves and the valuation
     allowances  for  deferred  tax  assets  and real  estate  acquired  through
     foreclosures.

     Cash Equivalents

     For purposes of the consolidated statements of cash flows, cash equivalents
     include  federal  funds  sold  (generally  sold for  one-day  periods)  and
     commercial paper and other  short-term  investments that have maturities of
     three months or less from the time of purchase.

                                       43

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

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

     Securities

     Securities  for which the  Company has the ability and intent to hold until
     maturity are  classified as securities  held to maturity and are carried at
     cost,  adjusted for  accretion of discounts and  amortization  of premiums,
     which are recognized  into interest  income using the interest  method over
     the period to maturity.  Securities that are held for indefinite periods of
     time  which  management  intends  to use  as  part  of its  asset/liability
     management strategy, or that may be sold in response to changes in interest
     rates  or other  factors,  are  classified  as  available  for sale and are
     carried at fair value.  Unrealized gains and losses on securities available
     for sale, net of related income taxes, are reported as a separate component
     of comprehensive income. Realized gains and losses from sales of securities
     are determined using the specific  identification  method. The Company does
     not acquire securities for the purpose of engaging in trading activities.

     Loans Receivable

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

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

     Allowance for Loan Loss Reserves

     The allowance for loan loss reserves is netted against loans receivable and
     is  increased  by  provisions   charged  to  operations  and  decreased  by
     chargeoffs (net of recoveries).  The adequacy of the allowance is evaluated
     monthly  with  consideration  given to:  the  nature and volume of the loan
     portfolio; overall portfolio quality; loan concentrations; specific problem
     loans and  commitments  and  estimates  of fair value  thereof;  historical
     chargeoffs  and  recoveries;   adverse  situations  which  may  affect  the
     borrowers' ability to repay; and management's perception of the current and
     anticipated   economic  conditions  in  the  Company's  lending  areas.  In
     addition,  Statement  of  Financial  Accounting  Standards  (SFAS)  No. 114
     specifies  the manner in which the portion of the  allowance  for loan loss
     reserves is computed related to certain loans that are impaired.  A loan is
     normally deemed impaired when,  based upon current  information and events,
     it is probable  the Company will be unable to collect  both  principal  and
     interest due  according  to the  contractual  terms of the loan  agreement.
     Impaired loans  normally  consist of loans on nonaccrual  status.  Interest
     income on impaired  loans is  recognized  on a cash basis.  Impairment  for
     commercial  real estate and  residential  loans is  measured  based on: the
     present  value of  expected  future cash  flows,  discounted  at the loan's
     effective interest rate; or the observable market price of the loan; or the
     estimated fair value of the loan's collateral,  if payment of the principal
     and interest is dependent upon the  collateral.  When the fair value of the
     property is less than the recorded  investment in the loan, this deficiency
     is recognized  as a valuation  allowance  within the overall  allowance for
     loan loss reserves and a charge through the provision for loan losses.  The
     Company charges off any portion of the recorded investment in the loan that
     exceeds the fair value of the  collateral.  The net  carrying  amount of an
     impaired  loan does not at any time exceed the recorded  investment  in the
     loan.

                                       44

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

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

     Allowance for Loan Loss Reserves, Continued

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

     Premises and Equipment

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

     Deferred Debenture Offering Costs

     Costs  relating to offerings of debentures  are amortized over the terms of
     the debentures.  The costs consist primarily of underwriters'  commissions.
     Accumulated  amortization  amounted to  $3,793,000 at December 31, 2002 and
     $3,042,000 at December 31, 2001.

     Foreclosed Real Estate

     Real estate properties  acquired  through,  or in lieu of, loan foreclosure
     are to be sold.  Upon  foreclosure  of the  property,  the related  loan is
     transferred  from the loan portfolio to foreclosed real estate at the lower
     of the loan's  carrying  value at the date of transfer,  or estimated  fair
     value of the property less estimated selling costs. Such amount becomes the
     new cost basis of the property.  Adjustments  made to the carrying value at
     the time of transfer are charged to the allowance  for loan loss  reserves.
     After foreclosure,  management  periodically performs market valuations and
     the real  estate is  carried at the lower of cost or  estimated  fair value
     less  estimated  selling  costs.  Revenue and expenses from  operations and
     changes in the  valuation  allowance  of the  property  are included in the
     consolidated statements of earnings.

     Stock-Based Compensation

     The Company follows APB No. 25,  "Accounting for Stock Issued to Employees"
     and related interpretations in accounting for its stock-based compensation,
     which is generally in the form of stock warrants. SFAS No. 123, "Accounting
     for Stock-Based  Compensation,"  as amended by SFAS No.148  "Accounting for
     Stock-Based  Compensation  Transition and Disclosure,"  collectively  "SFAS
     No.123,"  requires pro forma  disclosures  of net earnings and earnings per
     share  determined as if the Company  accounted for its stock warrants under
     the fair value method.

     Advertising Costs

     Advertising costs are expensed as incurred.

     Income Taxes

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

                                       45

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

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

     Earnings Per Share (EPS)

     Basic EPS is  calculated  by dividing net earnings by the  weighted-average
     number of shares of common stock outstanding.  Diluted EPS is calculated by
     dividing adjusted net earnings by the weighted-average  number of shares of
     common  stock  and  dilutive  potential  common  stock  shares  that may be
     outstanding  in the  future.  Potential  common  stock  shares  consist  of
     outstanding  dilutive  common stock warrants  (which are computed using the
     "treasury stock method") and convertible debentures (computed using the "if
     converted method"). Diluted EPS considers the potential dilution that could
     occur  if  the  Company's   outstanding   stock  warrants  and  convertible
     debentures  were  converted  into  common  stock  that  then  shared in the
     Company's  earnings (as adjusted for interest  expense that would no longer
     occur if the debentures were converted).

     Comprehensive Income

     The  Company  follows  SFAS  No.  130,  "Reporting  Comprehensive  Income."
     Accounting principles generally require that recognized revenue,  expenses,
     gains and losses be included in net earnings.  However,  certain changes in
     assets  and   liabilities,   such  as   unrealized   gains  and  losses  on
     available-for-sale  securities, are reported as a separate component of the
     equity section of the consolidated balance sheet, such items along with net
     earnings, are components of comprehensive income.

     Off-Balance Sheet Financial Instruments

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

     Start-Up Costs

     The  Company  follows  the  AICPA's   Statement  of  Position  (SOP)  98-5,
     "Reporting  on the  Costs  of  Start-Up  Activities,"  which  requires  all
     start-up  costs  (except  for  those  that are  capitalizable  under  other
     accounting  principles  generally accepted in the United States of America)
     to be expensed as incurred for financial statement purposes.

     Recent Accounting Pronouncements

     Accounting  for  Business   Combinations.   In  June  2001,  the  Financial
     Accounting  Standards Board (FASB) issued Statement of Financial Accounting
     Standards (SFAS) No. 141, "Business  Combinations,"  SFAS 141 addresses the
     accounting  and reporting for business  combinations  and requires that all
     business combinations  initiated after June 30, 2001 be accounted for using
     the   purchase   method   of   accounting   and   prohibits   the   use  of
     pooling-of-interests  method of accounting.  Pooling transactions initiated
     prior to that date were not affected.  SFAS 141 also requires  identifiable
     intangible assets acquired in a business combination to be recognized as an
     asset apart from  goodwill if they meet certain  criteria.  The adoption of
     this  statement  had no  effect  on the  Company's  consolidated  financial
     statements.

     Accounting for Goodwill and Other  Intangible  Assets.  The Company adopted
     SFAS No. 142  "Goodwill  and Other  Intangible  Assets" on January 1, 2002.
     SFAS 142 addresses the initial  recognition  and  measurement of intangible
     assets  acquired   individually  or  with  a  group  of  other  assets  not
     constituting  a business  combination.  Under SFAS 142,  all  goodwill  and
     identifiable  intangible  assets  recognized as having an indefinite useful
     life, including those acquired before its effective date, are not amortized
     but, assessed for impairment at least annually. Intangible assets, having a
     finite life, are separately  recognized and amortized over their  estimated
     useful lives.  Intangible  assets with finite useful lives will continue to
     be reviewed for impairment in accordance with previous pronouncements.  The
     Company does not have goodwill or other intangible  assets and as a result,
     the adoption of this statement had no effect on its consolidated  financial
     statements.

                                       46

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

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

     Recent Accounting Pronouncements, Continued

     Accounting  for the Impairment or Disposal of Long-Lived  Assets.  SFAS No.
     144,  "Accounting  for the  Impairment or Disposal of  Long-Lived  Assets,"
     addresses financial accounting and reporting for the impairment or disposal
     of long-lived assets. This statement  supersedes SFAS No. 121,  "Accounting
     for the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be
     Disposed Of", and the  accounting  and reporting  provisions of APB No. 30,
     "Reporting the Results of Operations-Reporting the Effects of Disposal of a
     Segment  of  a  Business,  and  Extraordinary,   Unusual  and  Infrequently
     Occurring  Events and  Transactions,"  for the  disposal  of a segment of a
     business (as previously  defined  therein).  The adoption of this statement
     had no effect on the Company's consolidated financial statements.

     Accounting for the  Extinguishment of Debt and Other Technical  Amendments.
     SFAS No. 145,  "Rescission of FASB Statements No. 4, 44, and 64,  Amendment
     of FASB  Statement No. 13, and Technical  Corrections,"  among other items,
     addresses  income  statement   classification   of  gains  or  losses  from
     extinguishment.  Previously,  under  Statement 4, all gains and losses from
     extinguishment  of debt were  required to be  aggregated  and, if material,
     classified as an extraordinary item, net of related income tax effect. This
     Statement  eliminates  Statement  4 and  requires  gains  and  losses  from
     extinguishment of debt to be classified as extraordinary items only if they
     meet the criteria in APB Opinion No. 30. Applying the provisions of Opinion
     30 will  distinguish  transactions  that are part of an entity's  recurring
     operations  from those  that are  unusual  or  infrequent  or that meet the
     criteria for  classification  as an  extraordinary  item. This statement is
     effective for  financial  statements  issued on or after May 15, 2002.  The
     adoption  of this  statement  had no effect on the  Company's  consolidated
     financial statements.

     Accounting for Costs Associated with Exit or Disposal Activities.  SFAS No.
     146,  "Accounting for Costs  Associated with Exit or Disposal  Activities,"
     addresses financial accounting and reporting for costs associated with exit
     or  disposal  activities  and  nullifies  EITF Issue No.  94-3,  "Liability
     Recognition for Certain  Employee  Termination  Benefits and Other Costs to
     Exit an Activity  (including  Certain Costs Incurred in a  Restructuring)."
     The new statement  requires that a liability for a cost  associated with an
     exit or disposal  activity be  recognized  and  measured  initially at fair
     value only when the  liability is  incurred.  Under Issue 94-3, a liability
     for an exit  cost as  defined  therein  was  recognized  at the  date of an
     entity's  commitment to an exit plan.  The provisions of this statement are
     effective for exit or disposal activities that are initiated after December
     31, 2002. The adoption of this statement is not expected to have any effect
     on the Company's consolidated financial statements.

     Accounting for  Acquisitions of Certain  Financial  Institutions.  SFAS No.
     147, "Acquisitions of Certain Financial Institutions - an amendment of SFAS
     No. 72 and 144 and FASB  Interpretation  No. 9,"  removes  acquisitions  of
     financial   institutions   from  the  scope  of  both   Statement   72  and
     Interpretation  9 and requires that those  transactions be accounted for in
     accordance with  Statements No. 141,  Business  Combinations,  and No. 142,
     Goodwill and Other Intangible Assets.  Thus, the requirement in paragraph 5
     of Statement 72 to recognize (and subsequently  amortize) any excess of the
     fair  value of  liabilities  assumed  over the fair value of  tangible  and
     identifiable  intangible  assets acquired as an  unidentifiable  intangible
     asset no longer applies to acquisitions within the scope of this Statement.
     In addition,  the statement amends No. 144,  "Accounting for the Impairment
     or  Disposal  of  Long-Lived  Assets",  to include  in its scope  long-term
     customer-relationship  intangible assets of financial  institutions such as
     depositor-   and   borrower-relationship   intangible   assets  and  credit
     cardholder  intangible  assets.  Consequently,  those intangible assets are
     subject  to  the  same  undiscounted  cash  flow  recoverability  test  and
     impairment loss  recognition and measurement  provisions that statement 144
     requires for other long-lived assets that are held and used. The provisions
     of this statement are effective as of October 1, 2002. The adoption of this
     statement had no effect on the Company's consolidated financial statements.

                                       47

<PAGE>
                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

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

     Recent Accounting Pronouncements, Continued

     Accounting for Guarantees. In November 2002, the FASB issued Interpretation
     No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness to Others," ("FIN 45"), which
     expands previously issued accounting  guidance and disclosure  requirements
     for certain guarantees. FIN 45 requires the Company to recognize an initial
     liability  for the  fair  value  of an  obligation  assumed  by  issuing  a
     guarantee.  The provision for initial  recognition  and  measurement of the
     liability  will be applied on a prospective  basis to guarantees  issued or
     modified after December 31, 2002. The adoption of FIN 45 is not expected to
     have any effect on the Company's consolidated financial statements.

2.   Securities

     The carrying value  (estimated fair value) and amortized cost of securities
     available for sale as of December 31, 2001 is as follows:

                                                    Gross       Gross
                                                    -----       -----
                                   Amortized   Unrealized  Unrealized   Carrying
                                   ---------   ----------   ----------  --------
($ in thousands)                        Cost        Gains      Losses      Value
--------------------------------------------------------------------------------
U.S. government agency securities     $6,000         $192         $ -     $6,192
--------------------------------------------------------------------------------

     There were sales of $3,500,000  of  securities  in 2002 and gross  realized
     gains  amounted to $120,000.  There were no sales of  securities in 2001 or
     2000. At December 31, 2001, the  available-for-sale  portfolio consisted of
     fixed-rate  debt  obligations  of the  Federal  Home Loan Bank  (FHLB)  and
     Federal National Mortgage Association (FNMA) with a weighted-average  yield
     and remaining maturity of 5.59% and 1.4 years, respectively.  There were no
     transfers  of  securities  to the  available-for-sale  portfolio in 2002 or
     2001.  On December 31, 2000,  $75,194,000  of  securities  held-to-maturity
     (with an  estimated  fair value of  $74,789,000)  were  transferred  to the
     available-for-sale  portfolio.  This transfer consisted of U.S.  government
     agency securities with some having call features, which allow the issuer to
     call the security  before its stated  maturity  without  penalty.  In 2001,
     nearly all of these  securities were called by the issuers due to declining
     interest rates.

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

                                                    Gross       Gross  Estimated
                                                    -----       -----  ---------
                                    Amortized  Unrealized  Unrealized       Fair
                                    ---------  ----------  ----------       ----
($ in thousands)                         Cost       Gains      Losses      Value
--------------------------------------------------------------------------------
At December 31, 2002:
  U.S. government agency securities  $145,694        $881         $15   $146,560
--------------------------------------------------------------------------------
At December 31, 2001:
  U.S. government agency securities   $99,157        $355        $108    $99,404
--------------------------------------------------------------------------------

     Securities held to maturity  consist of debt obligations of the FHLB, FNMA,
     Federal  Home Loan  Mortgage  Corp.  (FHLMC) and  Federal  Farm Credit Bank
     (FFCB).  At December  31,  2002 and 2001,  the  weighted-average  yield and
     remaining  maturity of the portfolio was 2.39% and 1.6 years, and 2.89% and
     1.1  years,   respectively.   The   securities   are  fixed  rate  or  have
     predetermined  scheduled rate  increases,  and some have call features that
     allow the issuer to call the security  before its stated  maturity  without
     penalty.

     The amortized cost and estimated fair value of securities  held to maturity
     at December  31,  2002,  by remaining  term to  contractual  maturity is as
     follows:

                                                                     Estimated
                                                                     ---------
                                                         Amortized        Fair
                                                         ---------        ----
($ in thousands)                                              Cost       Value
-------------------------------------------------------------------------------
Due in one year or less                                    $75,566     $76,078
Due after one year through five years                       70,128      70,482
-------------------------------------------------------------------------------
                                                          $145,694    $146,560
-------------------------------------------------------------------------------

                                       48
<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

3.   Loans Receivable

     Loans receivable is as follows:

<TABLE>
<CAPTION>
                                          At December 31, 2002     At December 31, 2001
                                          --------------------     --------------------
($ in thousands)                         # of Loans    Amount       # of Loans  Amount
---------------------------------------------------------------------------------------
<S>                                           <C>    <C>                <C>   <C>
Commercial real estate loans                  162    $ 275,096          139   $ 183,167
Residential multifamily loans                 168      214,515          153     182,569
Land development and other land loans           3        1,890            3       2,485
Residential 1-4 family loans                   28        1,953           33       2,404
Commercial business loans                      27        1,608           26       1,363
Consumer loans                                 16          240           15         286
---------------------------------------------------------------------------------------
Loans receivable                              404      495,302          369     372,274
---------------------------------------------------------------------------------------
Deferred loan fees                                      (5,390)                  (3,748)
Allowance for loan loss reserves                        (4,611)                  (3,380)
---------------------------------------------------------------------------------------
Loans receivable, net                                $ 485,301                $ 365,146
---------------------------------------------------------------------------------------
</TABLE>

     At December  31,  2002,  there were no  nonaccrual  or impaired  loans.  At
     December 31, 2001, one commercial real estate loan with a principal balance
     of $1,243,000 was on nonaccrual  status and  considered  impaired under the
     criteria of SFAS No.114. There was no valuation allowance recorded for this
     impaired loan.  Interest  income that was not recorded from this loan under
     its contractual  terms amounted to $29,000 in 2002 and $51,000 in 2001. The
     average  balance of this impaired loan for 2002 and 2001 was  approximately
     $310,000 and $104,000,  respectively.  There were no nonaccrual or impaired
     loans in 2000.  At December  31,  2002 and 2001,  there were no loans which
     were ninety days past due and still accruing interest.

     Credit risk, which represents the possibility of the Company not recovering
     amounts due from its borrowers,  is significantly related to local economic
     conditions  in the  areas  the  properties  are  located,  as  well  as the
     Company's  underwriting  standards.  Economic  conditions affect the market
     value of the  underlying  collateral  as well as the levels of occupancy of
     income-producing properties (such as office buildings, shopping centers and
     rental and cooperative apartment buildings).

     The geographic distribution of the loan portfolio is as follows:

<TABLE>
<CAPTION>
                                        At December 31, 2002          At December 31, 2001
                                        --------------------          --------------------
($ in thousands)                      Amount       % of Total         Amount     % of Total
---------------------------------------------------------------------------------------------
<S>                                  <C>                <C>          <C>            <C>
New York                             $278,280           56.2%        $192,256       51.7%
Florida                               184,257           37.2          145,660       39.1
Connecticut and New Jersey             21,991            4.4           24,875        6.7
All other                              10,774            2.2            9,483        2.5
---------------------------------------------------------------------------------------------
                                     $495,302          100.0%        $372,274      100.0%
---------------------------------------------------------------------------------------------
</TABLE>

4.   Allowance for Loan Loss Reserves

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

                                                 For the Year Ended December 31,
                                                 -------------------------------
($ in thousands)                                      2002       2001      2000
--------------------------------------------------------------------------------
Allowance at beginning of year                     $ 3,380    $ 2,768   $ 2,493
Provision charged to operations                      1,274        612       275
Chargeoffs (1)                                        (150)       -         -
Recoveries (2)                                         107        -         -
--------------------------------------------------------------------------------
Allowance at end of year                           $ 4,611    $ 3,380   $ 2,768
--------------------------------------------------------------------------------

(1)  Represents  a  chargeoff  taken  in  connection  with  the  transfer  of  a
     nonperforming loan to foreclosed real estate.
(2)  Represents  proceeds  received from the sale of collateral from a loan that
     was charged off prior to 1997.

                                       49

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

5.   Premises and Equipment, Lease Commitments and Rental Expense

     Premises and equipment is as follows:

                                                                At December 31,
                                                                ---------------
($ in thousands)                                              2002         2001
--------------------------------------------------------------------------------
Land                                                        $ 1,516     $ 1,264
Buildings                                                     4,810       4,575
Leasehold improvements                                          335         335
Furniture, fixtures and equipment                             2,435       2,414
--------------------------------------------------------------------------------
Total cost                                                    9,096       8,588
--------------------------------------------------------------------------------
Less accumulated deprecation and amortization                (2,998)     (2,546)
--------------------------------------------------------------------------------
Net book value                                              $ 6,098     $ 6,042
--------------------------------------------------------------------------------

     The Bank leases its headquarters and branch office at Rockefeller Center in
     New York  City,  and its  branch  office  at  Belcher  Road in  Clearwater,
     Florida.   Intervest  Mortgage   Corporation  also  leases  its  office  at
     Rockefeller  Center in New York  City.  All the  leases  contain  operating
     escalation  clauses related to taxes and operating costs based upon various
     criteria and are  accounted for as operating  leases  expiring in May 2008,
     June 2007, and September 2004, respectively. All other offices are owned by
     the Bank.

     Total  future  minimum  annual  lease  rental   payments  due  under  these
     noncancellable  operating  leases as of December  31, 2002 were as follows:
     $602,000  in 2003;  $574,000 in 2004;  $400,000 in 2005;  $404,000 in 2006;
     $345,000  in 2007;  and  $261,000  thereafter  for an  aggregate  amount of
     $2,586,000.  Rent expense aggregated $618,000 in 2002, $554,000 in 2001 and
     $522,000 in 2000.

     The Bank  subleases  certain of its  offices in Florida to other  companies
     under leases that expire at various times through August 2007. Total future
     sublease  rental  income due under such leases as of December 31, 2002 were
     as follows:  $447,000 in 2003; $432,000 in 2004; $388,000 in 2005; $314,000
     in 2006;  and  $128,000  in 2007 for an  aggregate  amount  of  $1,709,000.
     Sublease rental income  aggregated  $421,000 in 2002,  $388,000 in 2001 and
     $340,000 in 2000.

6.   Deposits

     Scheduled maturities of certificates of deposit accounts are as follows:

                                  At December 31, 2002   At December 31, 2001
                                  --------------------   --------------------
                                            Wtd-Avg                  Wtd-Avg
($ in thousands)                 Amount   Stated Rate     Amount   Stated Rate
--------------------------------------------------------------------------------
Within one year                 $122,890     3.51%       $144,739     5.00%
Over one to two years             57,895     4.18          45,512     4.95
Over two to three years           31,281     5.53          14,954     5.82
Over three to four years          17,730     5.32          16,903     6.84
Over four years                   95,187     4.92          19,357     5.61
--------------------------------------------------------------------------------
                                $324,983     4.33%       $241,465     5.22%
--------------------------------------------------------------------------------

     Certificate of deposit accounts of $100,000 or more totaled $72,872,000 and
     $53,745,000  at December 31, 2002 and 2001,  respectively.  At December 31,
     2002,  certificate  of deposit  accounts of  $100,000 or more by  remaining
     maturity were as follows: due within one year $26,663,000;  over one to two
     years $11,299,000,  over two to three years $6,964,000;  over three to four
     years $3,859,000; and over four years $24,087,000.

     Interest expense on deposits is as follows:

                                               For the Year Ended December 31,
                                               -------------------------------
($ in thousands)                               2002           2001         2000
--------------------------------------------------------------------------------
Interest checking accounts                    $ 221          $ 238        $ 232
Savings accounts                                762            778          897
Money market accounts                         3,082          2,640        2,832
Certificates of deposit accounts             13,304         13,423       10,892
--------------------------------------------------------------------------------
                                            $17,369        $17,079      $14,853
--------------------------------------------------------------------------------

                                       50

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

7.   Note Payable, Debentures Payable and Extraordinary Item

     In connection with the purchase of property by the Bank that is across from
     its Court Street branch  office in Florida,  the Bank issued a note payable
     to the seller for $275,000.  The note matures in February of 2017 and calls
     for monthly  payments of principal  and interest at 7% per annum.  The note
     cannot be prepaid except during the last year of its term.

     Debentures payable is as follows:

<TABLE>
<CAPTION>
                                                                                                                  At December 31,
                                                                                                                  ---------------
($ in thousands)                                                                                                 2002         2001
------------------------------------------------------------------------------------------------------------------------------------
INTERVEST MORTGAGE CORPORATION (1) :
<S>                                                                                  <C>                        <C>          <C>
Series 05/12/95 - interest at 2% above prime                                         - due April 1, 2004        $ 9,000      $ 9,000
Series 10/19/95 - interest at 2% above prime                                         - due October 1, 2004        9,000        9,000
Series 05/10/96 - interest at 2% above prime                                         - due April 1, 2005         10,000       10,000
Series 10/15/96 - interest at 2% above prime                                         - due October 1, 2005        5,500        5,500
Series 04/30/97 - interest at 1% above prime                                         - due October 1, 2005        8,000        8,000
Series 11/10/98 - interest at 8 1/2% fixed                                           - due January 1, 2003        1,400        1,400
Series 11/10/98 - interest at 9% fixed                                               - due January 1, 2005        2,600        2,600
Series 06/28/99 - interest at 8% fixed                                               - due July 1, 2002             -          2,500
Series 06/28/99 - interest at 8 1/2% fixed                                           - due July 1, 2004           2,000        2,000
Series 06/28/99 - interest at 9% fixed                                               - due July 1, 2006           2,000        2,000
Series 09/18/00 - interest at 8% fixed                                               - due January 1, 2004        1,250        1,250
Series 09/18/00 - interest at 8 1/2% fixed                                           - due January 1, 2006        1,250        1,250
Series 09/18/00 - interest at 9% fixed                                               - due January 1, 2008        1,250        1,250
Series 08/01/01 - interest at 7 1/2% fixed                                           - due April 1, 2005          1,750        1,750
Series 08/01/01 - interest at 8% fixed                                               - due April 1, 2007          2,750        2,750
Series 08/01/01 - interest at 8 1/2% fixed                                           - due April 1, 2009          2,750        2,750
Series 01/17/02 - interest at 7 1/4% fixed                                           - due October 1, 2005        1,250          -
Series 01/17/02 - interest at 7 1/2% fixed                                           - due October 1, 2007        2,250          -
Series 01/17/02 - interest at 7 3/4% fixed                                           - due October 1, 2009        2,250          -
Series 08/05/02 - interest at 7 1/4% fixed                                           - due January 1, 2006        1,750          -
Series 08/05/02 - interest at 7 1/2% fixed                                           - due January 1, 2008        3,000          -
Series 08/05/02 - interest at 7 3/4% fixed                                           - due January 1, 2010        3,000          -
                                                                                                                --------------------
                                                                                                                 74,000       63,000
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed                                               - due July 1, 2008           6,930        6,930
Series 12/15/00 - interest at 8% fixed                                               - due April 1, 2004          1,000        1,000
Series 12/15/00 - interest at 8 1/2% fixed                                           - due April 1, 2006          1,250        1,250
Series 12/15/00 - interest at 9% fixed                                               - due April 1, 2008          1,250        1,250
                                                                                                                --------------------
                                                                                                                 10,430       10,430
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                $84,430      $73,430
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Represents  prime rate of  JPMorganChase  Bank, which was 4.25% on December
     31, 2002 and 4.75% on December 31, 2001.
</FN>
</TABLE>
     Intervest Mortgage Corporation filed a registration  statement in late 2002
     relating  to the  issuance of  additional  subordinated  debentures  in the
     aggregate  amount of up to $7,500,000.  These debentures are expected to be
     issued in the first quarter of 2003.

     In 2000, Intervest Mortgage Corporation's Series 6/29/92,  9/13/93, 1/28/94
     and  10/28/94  debentures  totaling  $24,000,000  were  redeemed  prior  to
     maturity for principal plus accrued  interest  aggregating  $3,970,000.  In
     connection with these early redemptions,  $382,000 of unamortized  deferred
     debenture  offering  costs  was  charged  to  expense  and  reported  as an
     extraordinary charge, net of a tax benefit of $176,000, in the consolidated
     statement of earnings for the year ended December 31, 2000.

                                       51

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

7.   Note Payable, Debentures Payable and Extraordinary Item, Continued

     In 2002,  Intervest  Mortgage  Corporation  sold Series 1/17/02 and 8/05/02
     debentures  totaling  $13,500,000  in principal  amount.  The sales,  after
     underwriter's  commissions  and  other  issuance  costs,  resulted  in  net
     proceeds of $12,490,000.  Intervest Mortgage  Corporation's Series 06/28/99
     debentures  maturing  on July 1,  2002 were  redeemed  on April 1, 2002 for
     principal of $2,500,000 and accrued interest of $586,000.

     Intervest Mortgage  Corporation's  floating-rate Series 5/12/95,  10/19/95,
     5/10/96,  10/15/96 and 4/30/97  debentures have a maximum  interest rate of
     12%. Interest on an aggregate of $6,350,000 of these debentures at December
     31, 2002 is accrued  and  compounded  quarterly,  and is due and payable at
     maturity.  The  payment of  interest on the  remaining  debentures  is made
     quarterly. Any debenture holder in the aforementioned Series whose interest
     accrues and is due at maturity may at any time elect to receive the accrued
     interest and subsequently receive regular payments of interest.

     Intervest  Mortgage  Corporation's  Series  11/10/98,   6/28/99,  09/18/00,
     $770,000 of Series 08/01/01,  $270,000 of Series 01/17/02 and $1,520,000 of
     Series 08/05/02  debentures  accrue and compound interest  quarterly,  with
     such  interest due and payable at maturity.  The payment of interest on the
     remaining  debentures is made  quarterly.  The holders of Series  11/10/98,
     6/28/99,  9/18/00,  01/17/02 and 08/05/02  debentures can require Intervest
     Mortgage  Corporation  to repurchase  the  debentures  for face amount plus
     accrued interest each year (beginning  January 1, 2004 for Series 09/18/00,
     October  1,  2005 for  Series  01/17/02  and  January  1,  2006 for  Series
     08/05/02)  provided,  however,  in no calendar year will Intervest Mortgage
     Corporation be required to purchase more than $100,000 in principal  amount
     of each maturity, in each series of debentures, on a non-cumulative basis.

     All of Intervest  Mortgage  Corporation's  debentures  may be redeemed,  in
     whole  or in  part,  at  any  time  at the  option  of  Intervest  Mortgage
     Corporation,  for face  value,  except for  Series  01/17/02  and  08/05/02
     debentures, which would be at a premium of 1% if the redemption is prior to
     April 1, 2003 for Series  01/17/02  and prior to October 1, 2003 for Series
     08/05/02.  All the debentures are unsecured and  subordinate to all present
     and future senior indebtedness, as defined in the indenture related to each
     debenture.

     The Holding Company's Series 5/14/98  subordinated  debentures are due July
     1, 2008 and are  convertible at the option of the holders at any time prior
     to April 1, 2008, unless previously  redeemed by the Holding Company,  into
     shares of Class A common  stock of the  Holding  Company  at the  following
     conversion  prices per share  effective  January  1, 2002:  $10.01 in 2003;
     $12.00 in 2004;  $14.00 in 2005;  $16.00 in 2006; $18.00 in 2007 and $20.00
     from January 1, 2008  through  April 1, 2008.  The Holding  Company has the
     right to  establish  conversion  prices  that are less than those set forth
     above for such  periods as it may  determine.  In January  1999 and October
     2001,  the conversion  prices were adjusted  downward from those set at the
     original  offering date to the current  prices  indicated  above.  Interest
     accrues and compounds each calendar  quarter at 8%. All accrued interest is
     due  and  payable  at  maturity  whether  by  acceleration,  redemption  or
     otherwise.  Any  convertible  debenture  holder may, on or before July 1 of
     each year  commencing July 1, 2003,  elect to be paid all accrued  interest
     and to  thereafter  receive  payments  of interest  quarterly.  The Holding
     Company's  debentures may be redeemed,  in whole or in part, at any time at
     the option of the Holding Company for face value.

     Scheduled contractual  maturities of all debentures as of December 31, 2002
     is as follows:

($ in thousands)                                   Principal   Accrued Interest
--------------------------------------------------------------------------------
For the year ended December 31, 2003                  $1,400             $1,613
For the year ended December 31, 2004                  22,250              5,094
For the year ended December 31, 2005                  29,100              2,769
For the year ended December 31, 2006                   6,250                969
For the year ended December 31, 2007                   5,000                 34
Thereafter                                            20,430              3,336
--------------------------------------------------------------------------------
                                                     $84,430            $13,815
--------------------------------------------------------------------------------

                                       52

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

8.   Federal Funds Purchased and Lines of Credit

     From time to time, the Bank purchases overnight federal funds to manage its
     liquidity  needs.  At December 31, 2002 and 2001,  there were no such funds
     outstanding.  During 2002,  2001 and 2000,  federal fund purchased were not
     significant.  The Bank has agreements with  correspondent  banks whereby it
     may borrow up to  $8,000,000  on an unsecured  basis and it can borrow from
     the  Federal  Reserve  Bank of New York on a secured  basis.  There were no
     outstanding borrowings under these agreements at December 31, 2002 or 2001.

9.   Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures

     On December  18,  2001,  the  Holding  Company's  wholly-owned  subsidiary,
     Intervest  Statutory  Trust I, sold 9.875% Trust  Preferred  Securities due
     December  18,  2031  in the  aggregate  principal  amount  of  $15,000,000,
     hereafter  referred to as the "Capital  Securities".  The net proceeds from
     the sale, in addition to the initial capital  contribution of $464,000 from
     the Holding Company to the Trust,  were reinvested into the Holding Company
     in  exchange  for  $15,464,000  of  the  Holding  Company's  9.875%  Junior
     Subordinated Debentures (the "Junior Subordinated Debentures") due December
     18,  2031.  The Holding  Company  then  invested  $15,000,000  as a capital
     contribution  in the Bank. The sole asset of the Trust,  the obligor on the
     Capital Securities, is the Junior Subordinated Debentures.

     The Holding Company has guaranteed the Trust's payment of distributions on,
     payments  on any  redemptions  of, and any  liquidation  distribution  with
     respect to, the Capital Securities.  Cash distributions on both the Capital
     Securities and the Junior Subordinated Debentures are payable semi-annually
     in  arrears on  December  18 and June 18 of each  year.  Issuance  costs of
     $469,000  associated with the Capital  Securities have been  capitalized by
     the  Holding  Company  and  are  being  amortized  over  the  life  of  the
     securities.

     The Capital  Securities  are subject to mandatory  redemption (i) in whole,
     but not in part,  upon repayment of the Junior  Subordinated  Debentures at
     stated  maturity or, at the option of the Holding  Company,  their  earlier
     redemption  in whole  upon the  occurrence  of  certain  changes in the tax
     treatment or capital  treatment of the Capital  Securities,  or a change in
     the law such that the Trust would be considered  an investment  company and
     (ii) in  whole  or in  part  at any  time on or  after  December  18,  2006
     contemporaneously  with the optional  redemption by the Holding  Company of
     the  Junior  Subordinated   Debentures  in  whole  or  inpart.  The  Junior
     Subordinated  Debentures are redeemable  prior to maturity at the option of
     the Holding Company (i) on or after December 18, 2006, in whole at any time
     or in part from time to time,  or (ii) in  whole,  but not in part,  at any
     time within 90 days following the occurrence  and  continuation  of certain
     changes  in  the  tax  treatment  or  capital   treatment  of  the  Capital
     Securities,  or a change in law such that the Trust would be  considered an
     investment company. Any redemption would need prior regulatory approvals.

10.  Stockholders' Equity

     The Holding  Company's  Board of  Directors  is  authorized  to issue up to
     300,000  shares  of  preferred   stock  of  the  Holding   Company  without
     stockholder  approval.   The  powers,   preferences  and  rights,  and  the
     qualifications,  limitations,  and  restrictions  thereof  on any series of
     preferred stock issued is determined by the Board of Directors. At December
     31, 2002 and 2001, there was no preferred stock issued and outstanding.

     Class A and B common  stock have  equal  voting  rights as to all  matters,
     except  that,  so long as at least  50,000  shares of Class B common  stock
     remain issued and  outstanding,  the holders of the  outstanding  shares of
     Class B common stock are entitled to vote for the election of two-thirds of
     the Board of Directors  (rounded up to the nearest whole  number),  and the
     holders of the  outstanding  shares of Class A common stock are entitled to
     vote for the  remaining  Directors  of the Holding  Company.  The shares of
     Class B common stock are  convertible,  on a  share-for-share  basis,  into
     Class A common stock at any time.

                                       53

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

11.  Asset and Dividend Restrictions

     The Bank is required  under Federal  Reserve Board  regulations to maintain
     reserves,  generally  consisting of cash or  noninterest-earning  accounts,
     against its transaction  accounts.  At December 31, 2002 and 2001, balances
     maintained   as  reserves   were   approximately   $470,000  and  $400,000,
     respectively.

     As a member of the Federal Reserve  Banking system,  the Bank must maintain
     an investment in the capital stock of the Federal Reserve Bank. At December
     31, 2002 and 2001,  such  investment,  which  earns a dividend,  aggregated
     $1,108,000 and $654,000,  respectively. At December 31, 2002 and 2001, U.S.
     government  agency  securities  with a  carrying  value of  $7,081,000  and
     $7,127,000, respectively, were pledged against various deposit accounts and
     lines of credit.

     The payment of dividends by the Holding Company to its shareholders and the
     payment of dividends by the Holding  Company's  subsidiaries to the Holding
     Company  itself  is  subject  to  various  regulatory  restrictions.  These
     restrictions take into consideration  various factors such as whether there
     are sufficient net earnings, as defined,  liquidity, asset quality, capital
     adequacy and economic  conditions.  The holders of Class A common stock and
     Class B common stock share ratably in any dividend. The Holding Company has
     not  paid  any  dividends  on  its  capital  stock  and  currently  is  not
     contemplating the payment of a dividend.

12.  Profit Sharing Plans

     The Company sponsors tax-qualified, profit sharing plans in accordance with
     the  provisions of Section  401(k) of the Internal  Revenue  Code,  whereby
     eligible employees meeting certain length-of-service  requirements may make
     tax-deferred   contributions  up  to  certain  limits.  The  Company  makes
     discretionary  matching  contributions  up to 3% of employee  compensation,
     which vest to the employees over a period of time. Total cash contributions
     to the plans included in the consolidated statements of earnings aggregated
     $47,000, $37,000 and $26,000 for 2002, 2001 and 2000, respectively.

13.  Related Party Transactions

     The  Bank  has  deposit  accounts  from  affiliated  companies,  directors,
     executive  officers  and members of their  immediate  families  and related
     business  interests of  approximately  $19,000,000 at December 31, 2002 and
     $8,400,000  at December  31, 2001.  There are no loans to any  directors or
     executive officers of the Holding Company or its subsidiaries.

     The Company paid  commissions  and fees in connection with the placement of
     debentures of approximately $58,000 in 2002, $15,000 in 2001 and $34,000 in
     2000 to Intervest Securities Corporation,  an affiliate of the Company. See
     note  22  for  a  further   discussion   regarding   Intervest   Securities
     Corporation.

     The Company paid fees of approximately  $157,000 in 2002,  $219,000 in 2001
     and $100,000 in 2000 for legal services rendered by a law firm, a principal
     of which is a director of the  Company.  The Company paid  commissions  and
     fees in  connection  with the  placement  of  debentures  of  approximately
     $515,000 in 2002,  $301,000 in 2001 and  $246,000 in 2000 to an  investment
     firm, a principal of which is a director of the Company.

14.  Common Stock Warrants

     The Holding Company has common stock warrants  outstanding that entitle the
     registered  holders  thereof to purchase one share of common stock for each
     warrant. All warrants are exercisable when issued, except for certain Class
     B common stock  warrants.  The warrants have been issued in connection with
     public stock  offerings,  to directors  and employees of the Company and to
     outside third parties for  performance  of services.  In 2001,  the Holding
     Company  modified the terms of its Class A and Class B warrants as follows:
     the  expiration  date of all warrants  exercisable  at $6.67 per share were
     extended one year beyond their original  expiration dates effective October
     4, 2001, and the exercise price of certain Class A warrants (exercisable at
     $12.50 and $16.00 per share as of December 31, 2001) were reduced to $10.01
     per share commencing  January 1, 2002 until their original  expiration date
     of December 31, 2002. In 2002,  the $10.01 per share  warrants were further
     modified by extending their expiration date to December 31, 2003.

                                       54

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

14.  Common Stock Warrants, Continued

     Data concerning common stock warrants is as follows:

<TABLE>
                                                              Exercise Price Per Warrant
                                                              --------------------------              Total          Wtd-Avg
Class A Common Stock Warrants:                         $6.67           $10.01(1)        $10.01(1)    Warrants    Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>              <C>           <C>             <C>
Outstanding at December 31, 1999                   1,383,565          962,403          122,000       2,467,968       $   8.33
   Exercised in 2000                                 (12,750)             -                -           (12,750)      $   6.67
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 and 2001          1,370,815          962,403          122,000       2,455,218       $   9.42
--------------------------------------------------------------------------------------------------------------
   Exercised in 2002                                (772,600)         (30,858)             -          (803,458)      $   9.88
   Expired in 2002                                   (96,750)             -                -           (96,750)      $   6.67
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2002                     501,465          931,545          122,000       1,555,010       $   8.93
--------------------------------------------------------------------------------------------------------------
Remaining contractual life in years
    at December 31, 2002 (2)                             4.1              1.0              1.0             2.0
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  The exercise price per warrant was reduced to $10.01 per share in 2001.

(2)  The Holding Company may, at its sole discretion,  set an earlier expiration
     date.
</FN>
</TABLE>

<TABLE>
                                                        Exercise Price Per Warrant
                                                        --------------------------                        Total          Wtd-Avg
Class B Common Stock Warrants:                                               $6.67         $10.00 (1)    Warrants     Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>            <C>           <C>
Outstanding at December 31, 2000, 2001 and 2002                            145,000         50,000         195,000       $   7.52
-----------------------------------------------------------------------------------------------------------------
Remaining contractual life in years at December 31, 2002                       5.1            5.1             5.1
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) At December 31, 2002, 35,500 of these warrants were immediately exercisable.
An additional  7,100 warrants vest and become  exercisable on April 27th of 2003
and the remaining 7,400 on April 27, 2004. The warrants, which expire on January
31, 2008, become fully vested earlier upon certain conditions.
</FN>
</TABLE>

     The Company uses the  intrinsic  value-based  method  prescribed  under APB
     Opinion No. 25,  "Accounting  for Stock Issued to Employees," in accounting
     for its stock warrants. Under this method,  compensation expense related to
     stock  warrants  granted to employees is the excess,  if any, of the market
     price  of the  stock  as of the  grant  or  modification  date or over  the
     exercise  price of the warrant.  In accordance  with APB 25,  approximately
     $26,000 of  compensation  expense was  included in  salaries  and  employee
     benefits expense for 2002, 2001 and 2000, respectively,  in connection with
     Class B warrants  granted in 1998 at $10.00 per share. For warrants granted
     to employees whose exercise price was reduced to $10.01  effective  January
     1,  2002 and  whose  expiration  date was  extended  in 2002,  compensation
     expense of $109,000 was recorded in 2002 under variable rate  accounting as
     prescribed under APB 25. No other compensation expense was recorded related
     to the remaining stock warrants  granted because their exercise prices were
     the same or greater than the market price of the common  shares at the date
     of grant or modification.

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

                                                For the Year Ended December 31,
($ in thousands, except per share amounts)        2002        2001        2000
--------------------------------------------------------------------------------
Reported net earnings                           $6,906      $3,778      $2,608
Pro forma net earnings                          $6,883      $3,755      $2,585

Reported basic earnings per share                $1.71       $0.97       $0.67
Pro forma basic earnings per share               $1.70       $0.96       $0.66

Reported diluted earnings per share              $1.37       $0.97       $0.67
Pro forma diluted earnings per share             $1.37       $0.96       $0.66
--------------------------------------------------------------------------------

                                       55
<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

15.  Income Taxes

     The Company and its  subsidiaries  file a  consolidated  federal income tax
     return and  combined  state and city  income tax  returns in New York.  The
     Company  also files a state income tax return in New Jersey and a franchise
     tax return in  Delaware.  The Bank also files a state  income tax return in
     Florida.  Intervest Mortgage  Corporation files state income tax returns in
     various other states. All the returns are filed on a calendar year basis.

     At December 31, 2002 and 2001,  the Company had a net deferred tax asset of
     $1,997,000  and  $1,236,000,   respectively.   The  asset  relates  to  the
     unrealized  benefit for net  temporary  differences  between the  financial
     statement  carrying  amounts of existing  assets and  liabilities and their
     respective  tax  bases  that  will  result in  future  tax  deductions.  In
     assessing the  realizability of deferred tax assets,  management  considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized. The ultimate realization of such assets is
     dependent  upon the  generation  of  sufficient  taxable  income during the
     periods in which those temporary  differences reverse.  Management believes
     that it is more likely than not that the Company's  deferred tax asset will
     be realized and accordingly,  a valuation allowance for deferred tax assets
     was not maintained at any time during 2002, 2001 or 2000.

     The total tax provision (benefit) is as follows:


                                                For the Year Ended December 31,
                                                -------------------------------
($ in thousands)                                 2002       2001        2000
--------------------------------------------------------------------------------
Provision for income taxes                        $4,713      $2,710     $1,909
Benefit from extraordinary item                        -           -       (176)
--------------------------------------------------------------------------------
                                                  $4,713      $2,710     $1,733
--------------------------------------------------------------------------------

     Allocation  of federal,  state and local income taxes  between  current and
     deferred portions is as follows:

($ in thousands)                               Current     Deferred       Total
--------------------------------------------------------------------------------
Year Ended December 31, 2002:
   Federal                                      $4,004       $(547)      $3,457
   State and Local                               1,390        (134)       1,256
--------------------------------------------------------------------------------
                                                $5,394       $(681)      $4,713
--------------------------------------------------------------------------------
Year Ended December 31, 2001:
   Federal                                      $2,265       $(284)      $1,981
   State and Local                                 809         (80)         729
--------------------------------------------------------------------------------
                                                $3,074       $(364)      $2,710
--------------------------------------------------------------------------------
Year Ended December 31, 2000:
   Federal                                      $1,350        $(10)      $1,340
   State and Local                                 399          (6)         393
--------------------------------------------------------------------------------
                                                $1,749        $(16)      $1,733
--------------------------------------------------------------------------------

     The components of the deferred tax benefit is as follows:

                                                 For the Year Ended December 31,
($ in thousands)                                     2002     2001     2000
--------------------------------------------------------------------------------
Allowance for loan loss reserves                    $(623)   $(220)   $  16
Organization and startup costs                         28       41      (10)
Stock-based compensation                              (62)     (12)     (17)
Depreciation                                          (41)     (18)     (33)
Deferred income                                        13     (157)     -
All other                                               4        2       28
--------------------------------------------------------------------------------
                                                    $(681)   $(364)   $ (16)
--------------------------------------------------------------------------------

                                       56

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

15.  Income Taxes, Continued

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

                                                             At December 31,
($ in thousands)                                              2002      2001
--------------------------------------------------------------------------------
Allowance for loan loss reserves                            $1,572      $ 949
Unrealized net gain on securities available for sale            -         (80)
Organization and startup costs                                  40         68
Stock-based compensation                                       118         56
Depreciation                                                   114         73
Deferred income                                                144        157
All other                                                        9         13
--------------------------------------------------------------------------------
Total deferred tax asset                                    $1,997     $1,236
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                      For the Year Ended December 31,
                                                           2002    2001    2000
--------------------------------------------------------------------------------
<S>                                                        <C>     <C>     <C>
Tax provision at statutory rate                            34.0%   34.0%   34.0%
Increase in taxes resulting from:
  State and local income taxes, net of federal benefit      6.6     7.6     6.4
   Other                                                    -       0.2     -
--------------------------------------------------------------------------------
                                                           40.6%   41.8%   40.4%
--------------------------------------------------------------------------------
</TABLE>

16.  Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                            For the Year Ended December 31,
($ in thousands, except share and per share amounts)                          2002         2001        2000
------------------------------------------------------------------------------------------------------------
Basic earnings per share:
<S>                                                                         <C>          <C>         <C>
  Net earnings applicable to common stockholders                            $6,906       $3,778      $2,608
  Average number of common shares outstanding                            4,043,619    3,899,629   3,884,560
------------------------------------------------------------------------------------------------------------
Basic earnings per share amount                                              $1.71        $0.97       $0.67
------------------------------------------------------------------------------------------------------------

Diluted earnings per share:
  Net earnings applicable to common stockholders                            $6,906       $3,778      $2,608
  Adjustment to net earnings from assumed conversion of debentures             436            -           -
                                                                       -------------------------------------
  Adjusted net earnings for diluted earnings per share computation          $7,342       $3,778      $2,608
                                                                       -------------------------------------
  Average number of common shares outstanding:
     Common shares outstanding                                           4,043,619    3,899,629   3,884,560
      Potential dilutive shares resulting from exercise of warrants        313,519            -           -
      Potential dilutive shares resulting from conversion of debentures    990,983            -           -
                                                                       -------------------------------------
  Total average number of common shares outstanding used for dilution    5,348,121    3,899,629   3,884,560
------------------------------------------------------------------------------------------------------------
Diluted earnings per share amount                                            $1.37        $0.97       $0.67
------------------------------------------------------------------------------------------------------------
</TABLE>

     In 2001 and 2000,  2,650,218  warrants  with exercise  prices  ranging from
     $6.67 to $16.00 in 2001 and $6.67 to $15.00 in 2000 were not  considered in
     the  computations  of diluted EPS because  their  exercise  price per share
     exceeded  the average  market  price of Class A common  stock  during those
     years and as a result, they were not dilutive.  Convertible debentures with
     principal and accrued interest totaling $9,164,000 at December 31, 2001 and
     $8,466,000  at December 31, 2000,  and  convertible  at $14.00 per share in
     2001 and  $12.50  per  share in 2000  into  Class A common  stock  were not
     considered  in the diluted EPS  computations  for those years  because they
     were not  dilutive.  In  2002,  all  warrants  and  convertible  debentures
     outstanding were considered in the computation of diluted EPS.

                                       57

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

17.  Contingencies

     The  Company is  periodically  a party to or  otherwise  involved  in legal
     proceedings  arising in the normal  course of  business,  such as claims to
     enforce liens, claims involving the making and servicing of mortgage loans,
     and other issues  incident to the Company's  business.  Management does not
     believe  that there is any  pending or  threatened  proceeding  against the
     Company which, if determined adversely, would have a material effect on the
     business, results of operations, or financial position of the Company.

18.  Regulatory Matters

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

     The  Company (on a  consolidated  basis) and the Bank is subject to various
     regulatory  capital  requirements   administered  by  the  federal  banking
     agencies.  Failure  to  meet  capital  requirements  can  initiate  certain
     mandatory and possibly  discretionary  actions by the  regulators  that, if
     undertaken,  could have a direct  material  effect on the Company's and the
     Bank's  financial  statements.  Under capital  adequacy  guidelines and the
     regulatory framework for prompt corrective action, the Company and the Bank
     must meet specific capital guidelines that involve quantitative measures of
     their assets, liabilities and certain off-balance sheet items as calculated
     under  regulatory  accounting  practices.  These  capital  amounts are also
     subject to qualitative  judgement by the regulators about components,  risk
     weighting and other factors.  Prompt  corrective  action provisions are not
     applicable to bank holding companies.  Quantitative measures established by
     the regulations to ensure capital adequacy require the Company and the Bank
     to  maintain  minimum  amounts  and  ratios of total and Tier 1 capital  to
     risk-weighted assets and of Tier 1 capital to average assets, as defined by
     the regulations.

     Management believes, as of December 31, 2002 and 2001, that the Company and
     the Bank met all capital  adequacy  requirements to which they are subject.
     As of December 31, 2002, the most recent  notification  from the regulators
     categorized the Bank as a well-capitalized institution under the regulatory
     framework  for prompt  corrective  action,  which  requires  minimum Tier 1
     leverage and Tier 1 and total risk-based  capital ratios of 5%, 6% and 10%,
     respectively.  Management  believes that there are no current conditions or
     events outstanding that would change the designation from well capitalized.

     In June 2001,  the OCC  terminated a Memorandum of  Understanding  with the
     Bank  that was in effect  since  June  2000.  The  memorandum  was a formal
     written agreement  whereby,  among other things, the Bank had been required
     to review,  revise,  develop and implement  various policies and procedures
     with respect to its lending and credit underwriting. Management implemented
     various  actions  in order for the Bank to be in full  compliance  with the
     memorandum.

     The table that follows presents information regarding the Company's and the
     Bank's capital adequacy.

                                       58

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

18.      Regulatory Matters, Continued


<TABLE>
<CAPTION>
                                                                                            Minimum to Be Well
                                                                                            ------------------
                                                                                             Capitalized Under
                                                                                             -----------------
                                                                      Minimum Capital        Prompt Corrective
                                                                      ---------------        -----------------
                                                    Actual              Requirements         Action Provisions
                                                    ------              ------------         -----------------
($ in thousands)                              Amount      Ratio        Amount      Ratio       Amount      Ratio
------------------------------------------------------------------------------------------------------------------
Consolidated as of December 31, 2002:
<S>                                            <C>          <C>       <C>           <C>       <C>          <C>
   Total capital to risk-weighted assets       $70,764      13.06%    $43,342       8.00%          NA          NA
   Tier 1 capital to risk-weighted assets      $66,153      12.21%    $21,671       4.00%          NA          NA
   Tier 1 capital to average assets            $66,153       9.88%    $26,788       4.00%          NA          NA

Consolidated as of December 31, 2001:
   Total capital to risk-weighted assets       $57,457      14.11%    $32,581       8.00%          NA          NA
   Tier 1 capital to risk-weighted assets      $52,505      12.89%    $16,291       4.00%          NA          NA
   Tier 1 capital to average assets            $52,505      10.67%    $19,692       4.00%          NA          NA

Intervest National Bank at December 31, 2002:
   Total capital to risk-weighted assets       $54,777      12.16%    $36,048       8.00%     $45,060      10.00%
   Tier 1 capital to risk-weighted assets      $50,313      11.17%    $18,024       4.00%     $27,036       6.00%
   Tier 1 capital to average assets            $50,313       8.84%    $22,768       4.00%     $28,460       5.00%

Intervest National Bank at December 31, 2001:
   Total capital to risk-weighted assets       $49,006      15.03%    $26,082       8.00%     $32,603      10.00%
   Tier 1 capital to risk-weighted assets      $45,692      14.01%    $13,041       4.00%     $19,562       6.00%
   Tier 1 capital to average assets            $45,692      11.36%    $16,085       4.00%     $20,106       5.00%
------------------------------------------------------------------------------------------------------------------
</TABLE>

19.  Off-Balance Sheet Financial Instruments

     The Company is party to financial  instruments with off-balance  sheet risk
     in the  normal  course  of  business  to meet  the  financing  needs of its
     customers.  These  financial  instruments are in the form of commitments to
     extend credit,  unused lines of credit and standby  letters of credit,  and
     may involve, to varying degrees,  elements of credit and interest rate risk
     in excess of the amounts recognized in the consolidated balance sheets. The
     contract amounts of these instruments reflect the extent of involvement the
     Company  has in these  financial  instruments.  The  Company's  exposure to
     credit  loss in the  event  of  nonperformance  by the  other  party to the
     off-balance  sheet financial  instruments is represented by the contractual
     amount of those  instruments.  The Company uses the same credit policies in
     making commitments as it does for on-balance sheet instruments.

     Commitments  to extend credit are agreements to lend funds to a customer as
     long as there is no violation of any condition established in the contract.
     Such commitments generally have fixed expiration dates or other termination
     clauses and may require payment of fees.  Since some of the commitments are
     expected to expire  without being drawn upon, the total  commitment  amount
     does not  necessarily  represent  future  cash  requirements.  The  Company
     evaluates each customer's  credit  worthiness on a case-by-case  basis. The
     amount of  collateral  obtained,  if deemed  necessary  by the Company upon
     extension of credit,  is based on  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.

                                       59

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

19.  Off-Balance Sheet Financial Instruments, Continued

     The  notional  amounts  of  the  Company's   off-balance   sheet  financial
     instruments is as follows:

                                                                 At December 31,
($ in thousands)                                                 2002      2001
--------------------------------------------------------------------------------
Unfunded loan commitments                                     $68,244   $26,375
Available lines of credit                                         533       663
Standby letters of credit                                       1,267       167
--------------------------------------------------------------------------------
                                                              $70,044   $27,205
--------------------------------------------------------------------------------

20.  Estimated Fair Value of Financial Instruments

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

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

<TABLE>
<CAPTION>
                                                At December 31, 2002      At December 31, 2001
                                                --------------------      --------------------
                                                  Carrying        Fair      Carrying        Fair
($ in thousands)                                     Value       Value         Value       Value
-------------------------------------------------------------------------------------------------
Financial Assets:
<S>                                                <C>         <C>           <C>         <C>
  Cash and cash equivalents                        $30,849     $30,849       $24,409     $24,409
  Time deposits with banks                           2,000       2,000           250         250
  Securities available for sale, net                     -           -         6,192       6,192
  Securities held to maturity, net                 145,694     146,560        99,157      99,404
  Federal Reserve Bank stock                         1,108       1,108           654         654
  Loans receivable, net                            485,301     497,664       365,146     378,962
  Accrued interest receivable                        4,263       4,263         3,202       3,202
Financial Liabilities:
  Deposit liabilities                              505,958     515,018       362,437     368,597
  Debentures payable plus accrued interest         113,302     115,992        99,910     101,264
  Note payable                                         266         278             -           -
  Accrued interest payable                             895         895           817         817
Off -Balance Sheet Instruments:
   Commitments to lend                                 415         415           180         180
-------------------------------------------------------------------------------------------------
</TABLE>

                                       60

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

20.  Estimated Fair Value of Financial Instruments, Continued

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

     Securities.  The estimated fair value of securities  available for sale and
     held to maturity are based on quoted  market  prices.  The  estimated  fair
     value of the Federal Reserve Bank stock  approximates  fair value since the
     security does not present credit concerns and is redeemable at cost.

     Loans  Receivable.  The  estimated  fair  value  of  loans  is  based  on a
     discounted cash flow analysis, using interest rates currently being offered
     for loans with similar terms to borrowers of similar credit quality.

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

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

     Debentures,  Note Payable and Accrued Interest Payable.  The estimated fair
     value of debentures  and related  accrued  interest  payable as well as the
     note payable is based on a discounted cash flow analysis. The discount rate
     used in the present value  computation  was estimated by comparison to what
     management  believes to be the  Company's  incremental  borrowing  rate for
     similar arrangements.

     All Other  Financial  Assets and  Liabilities.  The estimated fair value of
     cash and cash  equivalents,  time  deposits  with banks,  accrued  interest
     receivable and accrued interest payable  approximates their carrying values
     since  these   instruments   are  payable  on  demand  or  have  short-term
     maturities.

     Off-Balance Sheet Instruments.  The carrying amounts of commitments to lend
     approximated estimated fair value. The fair value of commitments to lend is
     based on fees currently  charged to enter into similar  agreements,  taking
     into account the remaining  terms of the agreements and the counter party's
     credit standing.

                                       61

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

21.  Holding Company Financial Information

<TABLE>
<CAPTION>
                            Condensed Balance Sheets
                                                                     At December 31,
                                                                     ---------------
($ in thousands)                                                    2002        2001
-------------------------------------------------------------------------------------
ASSETS
<S>                                                               <C>          <C>
Cash and due from banks                                           $  229       $  77
Short-term investments                                             7,258         784
                                                                ---------------------
   Total cash and cash equivalents                                 7,487         861
Loans receivable, net (net of allowance for loan loss reserves
     of $47 and $49 at December 31, 2002 and 2001)                 9,239       9,557
Investment in subsidiaries                                        63,813      57,060
Deferred debenture offering costs, net of amortization               942       1,047
All other assets                                                     809         301
-------------------------------------------------------------------------------------
Total assets                                                     $82,290     $68,826
-------------------------------------------------------------------------------------

LIABILITIES
Debentures payable                                               $25,894     $25,894
Accrued interest payable on debentures                             3,123       2,367
All other liabilities                                                147         170
-------------------------------------------------------------------------------------
Total liabilities                                                 29,164      28,431
-------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY
Common equity                                                     53,126      40,395
-------------------------------------------------------------------------------------
Total stockholders' equity                                        53,126      40,395
-------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                       $82,290     $68,826
-------------------------------------------------------------------------------------
</TABLE>


                        Condensed Statements of Earnings

<TABLE>
<CAPTION>
                                                       For the Year Ended December 31,
                                                       -------------------------------
($ in thousands)                                         2002       2001       2000
------------------------------------------------------------------------------------
<S>                                                    <C>        <C>        <C>
Interest income                                        $   988    $   818    $   672
Interest expense                                         2,695      1,124        686
                                                       -------    -------    -------
Net interest income                                     (1,707)      (306)       (14)
(Credit) provision for loan loss reserves                   (2)        19         17
Noninterest income                                         205        176        165
Noninterest expenses                                       544        226        405
                                                       -------    -------    -------
Loss before income taxes                                (2,044)      (375)      (271)
Credit for income taxes                                   (924)      (172)      (131)
                                                       -------    -------    -------
Net loss before earnings of subsidiaries                (1,120)      (203)      (140)
Equity in earnings of Intervest National Bank            6,459      3,404      2,619
Equity in earnings of Intervest Mortgage Corporation     1,567        577        129
----------------------------------------------------   -------    -------    -------
Net earnings                                           $ 6,906    $ 3,778    $ 2,608
----------------------------------------------------   -------    -------    -------
Cash dividends received from subsidiaries              $ 1,500    $   125    $ 3,000
</TABLE>

                                       62

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

21.  Holding Company Financial Information, Continued

                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                  For the Year Ended December 31,
                                                                                                  -------------------------------
($ in thousands)                                                                              2002           2001            2000
------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S>                                                                                        <C>             <C>             <C>
Net earnings                                                                               $  6,906        $  3,778        $  2,608
Adjustments to reconcile net earnings to net cash provided by
     operating activities:
Equity in earnings of subsidiaries                                                           (8,026)         (3,981)         (2,748)
Cash dividends received from subsidiaries                                                     1,500             125           3,000
(Credit) provision for loan loss reserves                                                        (2)             19              17
Deferred income tax benefit                                                                     (55)            (16)            (41)
Compensation expense from awards/modifications of stock warrants                                135              26             185
Increase in accrued interest payable on debentures                                              756             831             644
Change in all other assets and liabilities, net                                                (365)             81              24
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                       849             863           3,689
------------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Investment in subsidiaries, net                                                                (338)        (15,500)         (4,000)
Purchase of equipment                                                                            (2)            -               -
Loan originations and principal repayments, net                                                 389          (3,738)         (3,368)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                                              49         (19,238)         (7,368)
------------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Net (decrease) increase in mortgage escrow funds payable                                        (64)            (11)            157
Proceeds from sale of debentures, net of issuance costs                                          (9)         17,800             -
Proceeds from issuance of common stock upon the exercise of stock
    warrants, inclusive of income tax benefits                                                5,801             -                83
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                     5,728          17,789             240
------------------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                          6,626            (586)         (3,439)
Cash and cash equivalents at beginning of year                                                  861           1,447           4,886
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                                   $  7,487        $    861        $  1,447
------------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES Cash paid (received) during the year for:
   Interest                                                                                $  1,825        $    202         $   -
   Income taxes                                                                                (617)           (139)           (110)
Noncash transactions:
   Accumulated other comprehensive income, change in
      subsidiary's unrealized (loss) gain on securities available
      for sale, net of tax                                                                     (111)            363            (252)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       63

<PAGE>

                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

22.  Acquisitions

     Acquisition of Intervest Securities Corporation

     In December 2002, the Holding  Company entered into an agreement to acquire
     Intervest  Securities  Corporation  ("ISC"), an affiliated entity that is a
     broker/dealer  registered  in nine  states  and is an NASD and SIPC  member
     firm. ISC  participates as a selected dealer from time to time in offerings
     of debt securities of the Company,  primarily  those of Intervest  Mortgage
     Corporation.  Pursuant to this agreement,  the Holding Company will acquire
     all of the  capital  stock of ISC for  30,000  shares of its Class B common
     stock that will be newly issued for this transaction. At December 31, 2002,
     ISC's net assets amounted to approximately  $200,000 and consisted of cash.
     The transaction is subject to the approval of both the NASD and the Federal
     Reserve  Bank of New York  (FRB)  and is  expected  to  close in the  first
     quarter of 2003.  ISC will become a wholly owned  subsidiary of the Holding
     Company. In connection with this transaction,  The Holding Company filed an
     election  with and was  approved by the FRB to become a  financial  holding
     company under Regulation Y effective January 23, 2003.

     Acquisition of Intervest Mortgage Corporation

     On March 10, 2000,  the Holding  Company  acquired  all of the  outstanding
     capital  stock of Intervest  Mortgage  Corporation  ("IMC") in exchange for
     1,250,000 shares of the Holding Company's Class A common stock. As a result
     of the  acquisition,  IMC became a wholly owned  subsidiary  of the Holding
     Company.  Former shareholders of IMC are officers and directors of both the
     Holding Company and IMC.

     In  connection  with  the   acquisition,   the  Holding  Company   incurred
     approximately  $210,000 in expenses  related to legal and consulting  fees,
     printing and stock  compensation  expense.  The Board of Directors  and the
     Holding Company's shareholders approved a grant of 50,000 shares of Class B
     common stock to the Chairman of the Holding  Company for his services  with
     respect to the  development,  structuring and other  activities  associated
     with the merger.  This resulted in $159,000 of  compensation  expense being
     recorded in the consolidated statement of earnings for 2000.

     A summary of the  Company's  consolidated  statement  of earnings  for 2000
     follows:

<TABLE>
<CAPTION>
                                                                               Excluding        As
($ in thousands)                                                                  IMC        Reported
------------------------------------------------------------------------------------------------------
<S>                                                                              <C>          <C>
Interest and dividend income                                                     $23,389      $31,908
Interest expense                                                                  15,689       23,325
                                                                           -------------- ------------
Net interest and dividend income                                                   7,700        8,583
Provision for loan loss reserves                                                     275          275
                                                                           -------------- ------------
Net interest and dividend income after provision for loan loss reserves            7,425        8,308
Noninterest income                                                                   505          983
Noninterest expenses                                                               3,830        4,568
                                                                           -------------- ------------
Earnings before taxes and extraordinary item                                       4,100        4,723
Provision for income taxes                                                         1,621        1,909
Extraordinary item, net of tax                                                         -         (206)
------------------------------------------------------------------------------------------------------
Net earnings                                                                      $2,479       $2,608
------------------------------------------------------------------------------------------------------
</TABLE>
The amounts  reported in the table above are after  elimination of  intercompany
revenue and expense.

                                       64

<PAGE>


                Intervest Bancshares Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------

23.  Selected Quarterly Financial Data (Unaudited)

     The following information is as of or for the period ended:

<TABLE>
<CAPTION>
                                                                                             2002
                                                                                             ----
                                                                             First      Second       Third      Fourth
($ in thousands, except per share amounts)                                 Quarter     Quarter     Quarter     Quarter
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>        <C>         <C>         <C>
Interest and dividend income                                                $9,711     $11,008     $11,396     $11,364
Interest expense                                                             6,073       6,530       6,857       6,865
                                                                            -------------------------------------------
Net interest and dividend income                                             3,638       4,478       4,539       4,499
Provision for loan loss reserves                                               346         426         192         310
                                                                            -------------------------------------------
Net interest and dividend income after provision for loan loss reserves      3,292       4,052       4,347       4,189
Noninterest income                                                             274         378         736         830
Noninterest expenses                                                         1,462       1,680       1,594       1,743
                                                                            -------------------------------------------
Earnings before income taxes                                                 2,104       2,750       3,489       3,276
Provision for income taxes                                                     856       1,106       1,385       1,366
-----------------------------------------------------------------------------------------------------------------------
Net earnings                                                                $1,248      $1,644      $2,104      $1,910
-----------------------------------------------------------------------------------------------------------------------

Basic earnings per share:                                                    $ .32       $ .42       $ .52       $ .45
Diluted earnings per share:                                                  $ .30       $ .33       $ .41       $ .37
-----------------------------------------------------------------------------------------------------------------------

Return on average assets                                                     0.95%       1.10%       1.30%       1.14%
Return on average equity                                                    12.23%      15.42%      18.57%      15.71%
Total assets                                                              $563,970    $628,157    $661,721    $685,979
Total cash and investment securities                                      $144,193    $161,935    $190,799    $179,651
Total loans, net of unearned fees                                         $405,055    $449,771    $454,391    $489,912
Total deposits                                                            $404,019    $465,753    $486,623    $505,958
Total borrowed funds and related interest payable                         $106,929    $104,246    $113,082    $113,568
Total stockholders' equity                                                 $41,699     $44,155     $47,118     $53,126
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                             2001
                                                                                             ----
                                                                             First      Second       Third      Fourth
($ in thousands, except per share amounts)                                 Quarter     Quarter     Quarter     Quarter
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>         <C>         <C>         <C>
Interest and dividend income                                                $8,684      $8,404      $8,950      $9,424
Interest expense                                                             6,621       6,055       6,014       6,024
                                                                            -------------------------------------------
Net interest and dividend income                                             2,063       2,349       2,936       3,400
Provision for loan loss reserves                                                 -         100         264         248
                                                                            -------------------------------------------
Net interest and dividend income after provision for loan loss reserves      2,063       2,249       2,672       3,152
Noninterest income                                                             224         570         237         624
Noninterest expenses                                                         1,324       1,329       1,313       1,337
                                                                            -------------------------------------------
Earnings before income taxes                                                   963       1,490       1,596       2,439
Provision for income taxes                                                     382         612         667       1,049
-----------------------------------------------------------------------------------------------------------------------
Net earnings                                                                 $ 581       $ 878       $ 929      $1,390
-----------------------------------------------------------------------------------------------------------------------

Basic earnings per share:                                                    $ .15       $ .23       $ .24       $ .35
Diluted earnings per share:                                                  $ .15       $ .23       $ .24       $ .35
-----------------------------------------------------------------------------------------------------------------------

Return on average assets                                                     0.54%       0.83%       0.84%       1.13%
Return on average equity                                                     6.31%       9.38%       9.68%      14.05%
Total assets                                                              $423,081    $423,186    $475,716    $512,622
Total cash and investment securities                                      $135,460     $99,102    $112,676    $130,662
Total loans, net of unearned fees                                         $276,701    $313,070    $350,126    $368,526
Total deposits                                                            $301,824    $297,010    $341,725    $362,437
Total borrowed funds and related interest payable                          $75,466     $76,111     $84,110     $99,910
Total stockholders' equity                                                 $37,126     $38,042     $39,027     $40,395
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       65

<PAGE>


Item 9.  Changes  In  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

None
                                    PART III

Item 10. Directors and Executive Officers

     a.   Directors.  The  information  required by this item is contained under
          the section  entitled  "Election of Directors" in the Company's  Proxy
          Statement for its 2003 Annual Meeting (the "Proxy  Statement")  and is
          incorporated herein by reference.

     b.   Executive Officers. The information required by this item is set forth
          in Part I of this report under the caption Item 4A "Executive Officers
          and Other Key Employees."

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions

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

Item 14. Controls and Procedures

     a) Evaluation of disclosure controls and procedures.  The Company maintains
        -------------------------------------------------
controls  and  procedures  designed  to ensure that  information  required to be
disclosed in the reports that the Company files or submits under the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time  periods  specified in the rules and forms of the  Securities  and Exchange
Commission.  Based  upon  their  evaluation  of those  controls  and  procedures
performed within 90 days of the filing date of this report,  the Chief Executive
and  Chief  Financial  Officer  of the  Company  concluded  that  the  Company's
disclosure controls and procedures were adequate.

     b) Changes in internal controls. The Company made no significant changes in
        -----------------------------
its internal controls or in other factors that could significantly  affect these
controls subsequent to the date of the evaluation of those controls by the Chief
Executive and Chief Financial Officer.

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents Filed as Part of this Report

     (1)  Financial   Statements:   See  Item  8   "Financial   Statements   and
          Supplementary Data"

     (2)  Financial Statement  Schedules:  See Item 8 "Financial  Statements and
          Supplementary Data"

     (3)  Exhibits: The following exhibits are filed herein as part of this Form
          10-K:

                                       66

<PAGE>

Exhibit No.                Description of Exhibit

2.0                 Agreement and Plan of Merger dated as of November 1, 1999 by
                    and among Intervest Bancshares Corporation, ICNY Acquisition
                    Corporation   and   Intervest   Corporation   of  New  York,
                    incorporated by reference to the Company's  definitive proxy
                    statement for the special meeting of shareholders to be held
                    March 10,  2000,  wherein  such  document is  identified  as
                    "Annex A."

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

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

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

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

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

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

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

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

4.7                 Form of  Indenture  between  the Company and the Bank of New
                    York,  as Trustee,  dated January 1, 2001,  incorporated  by
                    reference to the Company's  Report on Form 10-K for the year
                    ended December 31, 2000, wherein such document is identified
                    as Exhibit 4.7.

4.8                 Form of Indenture between the Company,  as Issuer, and State
                    Street  Bank  and  Trust  Company  of  Connecticut,  NA,  as
                    Trustee,  dated as of December  18,  2001,  incorporated  by
                    reference to the Company's  Report on Form 10-K for the year
                    ended December 31, 2001, wherein such document is identified
                    as Exhibit 4.8.

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

21                  Subsidiaries

23.1                Consent of Independent Accountants.

23.2                Consent of Independent Accountants.

99.1                Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.


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

                                       67

<PAGE>

                                   SIGNATURES

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

INTERVEST BANCSHARES CORPORATION
(Registrant)

By: /s/ Lowell S. Dansker                                 Date:February 26, 2003
    --------------------------------                           -----------------
        Lowell S. Dansker, President

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

Chairman of the Board, Executive Vice President and Director:

By: /s/ Jerome Dansker                                    Date:February 26, 2003
   -----------------------------------------                   -----------------
        Jerome Dansker

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

By: /s/ Lowell S. Dansker                                 Date:February 26, 2003
     -------------------------------                           -----------------
        Lowell S. Dansker

Vice President, Secretary and Director:

By: /s/ Lawrence G. Bergman                               Date:February 26, 2003
   -----------------------------------------                   -----------------
        Lawrence G. Bergman

Directors:

By: /s/ Michael A. Callen                                 Date:February 26, 2003
    --------------------------------                           -----------------
        Michael A. Callen

By: /s/ Paul Derosa                                       Date:February 26, 2003
    --------------------------------                           -----------------
        Paul Derosa

By: /s/ Wayne F. Holly                                    Date:February 26, 2003
    ----------------------------------------                   -----------------
        Wayne F. Holly

By: /s/ Lawton Swan, III                                  Date:February 26, 2003
    --------------------------------                           -----------------
        Lawton Swan, III

By: /s/ Thomas E. Willett                                 Date:February 26, 2003
    --------------------------------                           -----------------
        Thomas E. Willett

By: /s/ David J. Willmott                                 Date:February 26, 2003
    --------------------------------                           -----------------
        David J. Willmott

By: /s/ Wesley T. Wood                                    Date:February 26, 2003
    ----------------------------------------                   -----------------
        Wesley T. Wood

                                       68

<PAGE>

   Certification of the Principal Executive and Financial Officer Pursuant to
                Securities Exchange Act Rules 13a-14 and 15d-14
                             As adopted Pursuant to
                  Section 302 of The Sarbanes-Oxley Act of 2002

     I, Lowell S. Dansker,  as the principal  executive and principal  financial
officer of Intervest  Bancshares  Corporation and Subsidiaries  (the "Company"),
certify, that:

     1.   I have reviewed this annual report on Form 10-K of the Company;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the  Company as of, and for,  the periods  presented  in
          this annual report;

     4.   I am responsible for establishing and maintaining  disclosure controls
          and  procedures  (as defined in Exchange  Act Rules 13a-14 and 15d-14)
          for the Company and I have:

          (a)  designed such  disclosure  controls and procedures to ensure that
               material  information  relating  to the  Company,  including  its
               consolidated  subsidiaries,  is made known to me by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          (b)  evaluated the effectiveness of the Company's  disclosure controls
               and  procedures  as of a date  within 90 days prior to the filing
               date of this annual report (the "Evaluation Date"); and

          (c)  presented  in  this  annual  report  my  conclusions   about  the
               effectiveness of the disclosure  controls and procedures based on
               my evaluation as of the Evaluation Date;

     5.   I have disclosed, based on my most recent evaluation, to the Company's
          auditors and the Audit Committee of the Company's Board of Directors:

          (a)  all  significant  deficiencies  in the design or operation of the
               internal  controls  which could  adversely  affect the  Company's
               ability to record,  process,  summarize and report financial data
               and have  identified  for the  Company's  auditors  any  material
               weaknesses in internal controls; and

          (b)  any fraud,  whether or not material,  that involves management or
               other  employees  who have a  significant  role in the  Company's
               internal controls; and

     6.   I have  indicated  in this  annual  report  whether  or not there were
          significant  changes in  internal  controls or in other  factors  that
          could  significantly  affect the internal  controls  subsequent to the
          date of my most recent  evaluation,  including any corrective  actions
          with regard to significant deficiencies and material weaknesses.


          /s/ Lowell S. Dansker
          ---------------------
          Lowell S. Dansker, President and Treasurer
          (Principal Executive and Financial Officer)
          February 26, 2003

                                       69