INDIAN RIVER BANKING COMPANY - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934

For the fiscal year ended December 31, 2002

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the transition period from ______ to _______

Commission file number: 000-32643

Indian River Banking Company
(Exact name of registrant as specified in its charter)

Florida 59-2931518
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

958 20th Place, Vero Beach, Florida 32960
(Address of principal executive offices) (Zip Code)

Registrant's telephone number: 772.569.9200

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: Common Stock, $1.00 par
value

Indicate by check mark whether the registrant; (1) 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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained in this form,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer
Yes [ ] No [X]

The aggregate market value of the outstanding common stock held by nonaffiliates
as of June 30, 2002 was approximately $41,124,916.

As of February 15, 2003, the number of outstanding shares of registrant's common
stock, $1.00 par value, was 2,162,631.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are hereby incorporated by reference into
this Form 10-K:

Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders, to be held on April 30, 2003 are
incorporated by reference in part III hereof.

PART I

ITEM 1. BUSINESS.

GENERAL

Indian River Banking Company ("Indian River") was incorporated under
the laws of the State of Florida in January 1989 to be the holding company for
Indian River National Bank ("Indian River Bank"), and acquired all of the shares
of Indian River Bank in April 1989. Indian River has four subsidiaries, Indian
River Bank, a national banking association, Indian River Title Company, LLC,
IRNB Insurance Services LLC, and Indian River Capital Trust I. Indian River Bank
commenced operations in March 1985, and currently operates out of four branches
in Indian River County and four branches in Brevard County. Indian River Bank
seeks to provide a high level of personal service and a sophisticated menu of
products to individuals and to small and medium sized businesses. While Indian
River Bank offers a full range of services to a wide array of depositors and
borrowers, it has chosen the small and medium sized businesses, professionals
and individual retail customers as its primary target market. Indian River Bank
believes that as financial institutions grow and are merged with or acquired by
larger institutions with headquarters that are far away from the local customer
base, the local business and individual is further removed from the point of
decision making. Indian River Bank attempts to place the customer contact and
the ultimate decision on products and credits as close together as possible.

Indian River has elected to become a "financial holding company" under
the Gramm Leach Bliley Act and the regulations promulgated under that act. As a
financial holding company, Indian River is able to engage in activities which
law, regulation or order determines are financial in nature, or which are
incidental or complementary to those activities. Indian River has established
IRNB Insurance Services, LLC to engage in insurance agency activities,
particularly those related to fixed annuities and life agency activities.
Currently, there are no definitive plans or agreements to engage in other
activities which are financial in nature. We cannot be sure that we will engage
in other financial activities, or that we will be successful or profitable in
these activities.

Indian River Bank expects to continue its expansion of operations by
opening its eighth branch, its fourth in Brevard County. The new branch opened
in February 2003. There can be no assurance that it will be profitably operated
or that it will add to earnings.

LENDING ACTIVITIES

Indian River Bank offers a full spectrum of lending services to its
customers, including commercial loans, lines of credit, residential mortgages,
home equity loans, personal loans, auto loans and financing arrangements for
personal equipment and business equipment. Loan terms, including interest rates,
loan to value ratios, and maturities, are tailored as much as possible to meet
the needs of the borrower within regulatory requirements and bank policy. A
special effort is made to keep loan products as flexible as possible within the
guidelines of prudent banking practices in terms of interest rate risk and
credit risk.

The primary factors taken into consideration by Indian River Bank when
considering loan requests are the cash flow and financial condition of the
borrower, the value of the underlying collateral, if any, and the character and
integrity of the borrower. These factors are evaluated in a number of ways
including an analysis of financial statements, credit reviews, trade reviews,
and visits to the borrower's place of business. The bank has implemented a
comprehensive loan policy and procedures manual to provide its loan officers
with term, collateral, loan-to-value and pricing guidelines. The policy manual
and sound credit analysis, together with thorough review by the Bank Loan
Committee, have resulted in a profitable loan portfolio, with minimal
non-performing assets.

Loan business is generated primarily through referrals and
direct-calling efforts. Referrals of loan business come from directors,
shareholders, current customers and professionals such as lawyers, accountants
and financial intermediaries.

2

At December 31, 2002, Indian River Bank's statutory lending limit to
any single borrower was $5.3 million subject to certain exceptions provided
under applicable law. As of December 31, 2002, Indian River Bank's credit
exposure to its largest borrower was $4.1 million.

Commercial Loans. Commercial loans are written for any business
purpose, including the financing of plant and equipment, the carrying of
accounts receivable, contract administration, and the acquisition and
construction of real estate projects. Special attention is paid to the
commercial real estate market which is particularly stable and active in the
Indian River and Brevard County area. Indian River Bank's commercial loan
portfolio reflects a diverse group of borrowers with no concentration in any
borrower, or group of borrowers.

As part of its internal loan review process, Indian River Bank's Loan
Committee, comprised of loan officers and staff, reviews consumer loans two
payments past due, commercial loans thirty days past due, loans on the Watch
List, loans rated special mention, substandard, or doubtful, and other loans of
concern at least quarterly. Loan reviews are reported to the Audit and Examining
Committee with any adversely rated changes specifically mentioned. All other
loans with their respective risk ratings are reported monthly to Indian River
Bank's Board of Directors. The Examining (Audit) Committee coordinates periodic
documentation and internal control reviews by outside vendors to complement loan
reviews.

Residential Mortgage and Home Equity Loans. The strong local economy
provides for a large and active real estate market for the construction and sale
of new residential property and sale of existing housing. Indian River Bank
provides financing for the construction and acquisition of residential property
throughout its market area. Indian River Bank has availed itself of the services
of mortgage brokers and programs offered by the Federal Home Loan Bank of
Atlanta in an effort to offer as many long-term and low interest rate mortgage
products as possible. In addition, Indian River Bank has developed a competitive
home equity line of credit product for the use of its customers. This product
offers the customer the ability to use the line of credit flexibility features
to manage their own credit needs on an on-going basis. Indian River Bank sells
loans which it originates for the secondary market to private investors and
government sponsored associations.

Other Loans. Loans are considered for any worthwhile personal or
business purpose on a case-by-case basis, such as the financing of equipment,
receivables, contract administration expenses, land acquisition and development,
and automobile financing.

INVESTMENT ACTIVITIES

The investment policy of Indian River Bank is an integral part of its
overall asset/liability management program. The purpose of the investment policy
is to establish a portfolio which will provide liquidity necessary to facilitate
funding of loans and to cover deposit fluctuations while at the same time
achieving a satisfactory return on the funds invested. Indian River Bank seeks
to maximize earnings from its investment portfolio consistent with the safety
and liquidity of those investment assets.

The securities in which Indian River Bank may invest are subject to
regulation and, for the most part, are limited to securities which are
considered investment grade securities. In addition, Indian River Bank's
internal investment policy restricts investments to the following categories:
U.S. Treasury securities; obligations of U.S. government agencies, investment
grade obligations of U.S. private corporations, mortgage-backed securities,
including securities issued by Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation; and securities of states and political
subdivisions, all of which must be considered investment grade by a recognized
rating service.

BROKERAGE ACTIVITIES

Indian River Bank offers brokerage services through FiServe Investor
Services, Inc, member NASD & SIPC, a third party vendor. Brokerage services
provided by FiServe include a full line of investment products, including the
purchase and sale of mutual funds, annuities, stocks, bonds, term life
insurance, cash management accounts, IRA's, and many other products and
services.

3

The manager of brokerage services for Indian River Bank is a licensed
securities representative through the NASD and is a dual employee of both
FiServe and Indian River Bank. In such capacity, he must comply with all
applicable rules and regulations of the FDIC, the SEC and the National
Association of Securities Dealers, SIPC and the OCC. Fees and commissions earned
by the brokerage services department are paid monthly by FiServe directly to
Indian River Bank.

The customer base of the brokerage department is made up of
approximately 99% percent individuals, with the remainder consisting of
investment clubs and other accounts. As of December 31, 2002, there were
approximately 1,020 open brokerage accounts.

SOURCES OF FUNDS

Deposits. Deposits obtained through bank offices have traditionally
been the principal source of Indian River Bank's funds for use in lending and
for other general business purposes. At December 31, 2002 total deposits in the
bank amounted to $364.9 million. Certificates of deposit and savings deposits,
representing 67.5% of the deposit base, are Indian River Bank's primary source
of deposit funds.

In order to better serve the needs of its customers, Indian River Bank
offers several types of deposit accounts in addition to standard savings,
checking, and NOW accounts. Special deposit accounts include Personal Checking
and Small Business Checking. Personal Checking requires no minimum balance and
has no monthly fee, per check charge, or activity limit, and checks are
truncated. Small Business Checking allows a small business to have up to 300
items per month at no cost and then a $0.25 per item charge thereafter during
the period. Indian River Bank also offers lockbox services payments processing
for many businesses including homeowners associations.

Bills have been introduced in each of the last three Congresses which
would permit banks to pay interest on checking and demand deposit accounts
established by businesses, a practice which is currently prohibited by
regulation. If the legislation effectively permitting the payment of interest on
business demand deposits is enacted, of which there can be no assurance, it is
likely that we may be required to pay interest on some portion of our
noninterest bearing deposits in order to compete against other banks. As a
significant portion of our deposits are non-interest bearing demand deposits
established by businesses, payment of interest on these deposits could have a
significant negative impact on our net income, net interest income, interest
margin, return on assets and equity, and other indices of financial performance.
We expect that other banks would be faced with similar negative impacts. We also
expect that the primary focus of competition would continue to be based on other
factors, such as quality of service.

Borrowing. Indian River has established various borrowing arrangements
in order to provide management with additional sources of liquidity and funding,
thereby increasing flexibility. Indian River has total borrowings, consisting
primarily of securities sold under agreements to repurchase and FHLB advances,
of $57.3 million at December 31, 2002. In addition, Indian River has available
credit of $25.7 million under federal funds lines of credit and in excess of
$4.3 million available under its line with the Federal Home Loan Bank of
Atlanta. Management believes that Indian River currently has adequate liquidity
available to respond to anticipated liquidity demands.

COMMUNITY REINVESTMENT ACT

Indian River Bank is committed to serving the banking needs of the
communities it serves, including low and moderate income areas, and is a
supporter of the Community Reinvestment Act. There are several ways in which
Indian River Bank attempts to fulfill this commitment, including working with
economic development agencies, undertaking special projects, and becoming
involved with neighborhood outreach programs.

4

Indian River Bank has contacts with state and city agencies that assist
in the financing of affordable housing developments as well as with groups which
promote the economic development of low and moderate income individuals. Indian
River Bank has computer software to geographically code all types of accounts to
track business development and performance by census tract and to assess market
penetration in low and moderate income neighborhoods within the primary service
area. Indian River Bank is a registered Small Business Administration lender.

Indian River encourages its directors and officers to participate in
community, civic and charitable organizations. Management and members of the
Board of Directors periodically review the various Community Reinvestment Act
activities of Indian River Bank, including the advertising program and geocoding
of real estate loans by census tract data which specifically focuses on low
income neighborhoods, its credit granting process with respect to business
prospects generated in these areas, and its involvement with community leaders
on a personal level.

COMPETITION

In attracting deposits and making loans, Indian River Bank encounters
competition from other institutions, including larger commercial banking
organizations, savings banks, credit unions, other financial institutions and
non-bank financial service companies serving Indian River and Brevard counties
and adjoining areas. Financial and non-financial institutions not located in the
market are also able to reach persons and entities based in the market through
mass marketing, the internet, telemarketing, and other means. The principal
methods of competition include the level of loan interest rates, interest rates
paid on deposits, efforts to obtain deposits, range of services provided and the
quality of these services. Our competitors include several major financial
companies whose substantially greater resources may afford them a marketplace
advantage by enabling them to maintain numerous banking locations and mount
extensive promotional and advertising campaigns. In light of the deregulation of
the financial service industry and the absence of interest rate controls on
deposits, we anticipate continuing competition from all of these institutions in
the future. Additionally, as a result of legislation which reduced restrictions
on interstate banking and widened the array of companies that may own banks,
Indian River Bank may face additional competition from institutions outside the
Florida market and outside the traditional range of bank holding companies which
may take advantage of such legislation to acquire or establish banks or branches
in Indian River Bank's market. There can be no assurance that we will be able to
successfully meet these competitive challenges.

In addition to offering competitive rates for its banking products and
services, our strategy for meeting competition has been to concentrate on
specific segments of the market for financial services, particularly small
business and individuals, by offering such customers customized and personalized
banking services. Although there are other small banks offering personalized
banking services in Indian River Bank's primary service area, we believe that
Indian River Bank is one of few such banks offering flexible credit
accommodations to small businesses.

We believe that active participation in civic and community affairs is
an important factor in building our reputation and, thereby, attracting
customers.

EMPLOYEES

As of February 18, 2003, Indian River Bank had 150 full-time equivalent
employees. Indian River Title Company LLC had 3 employees as of February 18,
2003. Indian River has no employees who are not also employees of Indian River
Bank or Indian River Title Company LLC. Such employees are not represented by
any collective bargaining unit, and we believe our employee relations are good.
Indian River Bank maintains a benefit program which includes health and dental
insurance, life and long-term disability insurance, and a 401(k) plan for
substantially all full-time employees.

5

SUPERVISION AND REGULATION

INDIAN RIVER

Indian River is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, (the "Act") and is subject to
supervision by the Federal Reserve Board. As a bank holding company, Indian
River is required to file with the Federal Reserve Board an annual report and
such other additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make examinations of
Indian River and each of its subsidiaries.

The Gramm Leach Bliley Act allows a bank holding company to certify
status as a financial holding company, which allows a company to engage in
activities that are financial in nature, that are incidental to such activities,
or are complementary to such activities. The Gramm Leach Bliley Act enumerates
certain activities that are deemed financial in nature, such as underwriting
insurance or acting as an insurance principal, agent or broker, underwriting,
dealing in or making markets in securities, and engaging in merchant banking
under certain restrictions. It also authorizes the Federal Reserve Board to
determine by regulation what other activities are financial in nature or
incidental or complementary thereto. A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized
under the FDIC Improvement Act prompt corrective action provisions, is well
managed and has at least a satisfactory rating under the Community Reinvestment
Act. Indian River has elected to be a financial holding company.

The Act requires approval of the Federal Reserve Board for, among other
things, the acquisition by a bank holding company of control of more than five
percent (5%) of the voting shares, or substantially all the assets, of any bank
or the merger or consolidation by a bank holding company with another bank
holding company. The Act also generally permits the acquisition by a bank
holding company of control, or substantially all the assets, of any bank located
in a state other than the home state of the bank holding company, except where
the bank has not been in existence for the minimum period of time required by
state law, but if the bank is at least 5 years old, the Federal Reserve Board
may approve the acquisition.

Under current law, with certain limited exceptions, a bank holding
company is prohibited from acquiring control of any voting shares of any company
which is not a bank or bank holding company and from engaging directly or
indirectly in any activity other than banking or managing or controlling banks
or furnishing services to or performing service for its authorized subsidiaries.
A bank holding company may, however, engage in or acquire an interest in a
company that engages in activities which the Federal Reserve Board has
determined by order or regulation to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. In making such
a determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the activities
that the Federal Reserve Board has determined by regulation to be closely
related to banking include making or servicing loans, performing certain data
processing services, acting as a fiduciary or investment or financial advisor,
and making investments in corporations or projects designed primarily to promote
community welfare.

As a financial holding company, no prior regulatory approval will be
required for Indian River to acquire a company, other than a bank or savings
association, engaged in most activities permitted under the Gramm Leach Bliley
Act, as discussed above.

Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or investments in their
stock or other securities, and on the taking of their stock or securities as
collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. A subsidiary bank may not extend
credit, lease or sell property, or furnish any services, or fix or

6

vary the consideration for any of the foregoing, on the condition that: (a) the
customer obtain or provide some additional credit, property or services from or
to such bank other than a loan, discount, deposit or trust service; (b) the
customer obtain or provide some additional credit, property or service from or
to the company or any other subsidiary of the company; or (c) the customer not
obtain some other credit, property or service from competitors, except for
reasonable requirements to assure the soundness of credit extended.

The Federal Reserve has also adopted capital guidelines for bank
holding companies that are substantially the same as the requirements applying
to national banks.

INDIAN RIVER BANK

Indian River Bank is a national banking association. Its deposit
accounts are insured by the Bank Insurance Fund of the FDIC up to the maximum
legal limits of the FDIC and it is subject to regulation, supervision and
regular examination by the Office of the Comptroller of the Currency and the
FDIC. The regulations of these various agencies govern most aspects of Indian
River Bank's business, including required reserves against deposits, loans,
investments, mergers and acquisitions, borrowings, dividends and location and
number of branch offices. The laws and regulations governing Indian River Bank
generally have been promulgated to protect depositors and the deposit insurance
funds, and not for the purpose of protecting stockholders.

Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in interstate
banking or acquisition activities. The Gramm Leach Bliley Act will allow a wider
array of companies to own banks, which could result in companies with resources
substantially in excess of Indian River's entering into competition with Indian
River and Indian River Bank.

Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of Indian River Bank's earnings. Thus, the earnings and growth of
Indian River Bank will be subject to the influence of economic conditions in
general, both domestic and foreign, and also to the monetary and fiscal policies
of the United States and its agencies, particularly the Federal Reserve Board
which regulates the supply of money through various means including open market
dealings in United States government securities. The nature and timing of
changes in such policies and their impact on Indian River Bank cannot be
predicted.

Branching and Interstate Banking. The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks has opted out of the interstate bank merger provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 by
adopting a law after the date of enactment of the Riegle-Neal Act and prior to
June 1, 1997 which applies equally to all out-of-state banks and expressly
prohibits merger transactions involving out-of-state banks. Interstate
acquisitions of branches are permitted only if the law of the state in which the
branch is located permits such acquisitions. Such interstate bank mergers and
branch acquisitions are also subject to the nationwide and statewide insured
deposit concentration limitations described in the Riegle-Neal Act.

The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. Florida has enacted laws which permit
interstate acquisitions of banks and bank branches and permit out-of-state banks
to establish de novo branches.

Capital Adequacy Guidelines. The Federal Reserve Board and the OCC have
adopted risk-based capital adequacy guidelines pursuant to which they assess the
adequacy of capital in examining and supervising banks and bank holding
companies and in analyzing bank regulatory applications. Risk-based capital
requirements determine the adequacy of capital based on the risk inherent in
various classes of assets and off-balance sheet items.

7

National banks are expected to meet a minimum ratio of total qualifying
capital, defined as the sum of core capital (Tier 1) and supplementary capital
(Tier 2), to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital.

Tier 1 Capital generally consists of the sum of common stockholders'
equity and perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stock which may be included as Tier 1
Capital), less goodwill, without adjustment for changes in the market value of
securities classified as "available for sale" in accordance with FAS 115. Tier 2
Capital consists of the following: hybrid capital instruments; perpetual
preferred stock which is not otherwise eligible to be included as Tier 1
Capital; term subordinated debt, intermediate-term preferred stock; and, subject
to limitations, general allowances for loan losses. Assets are adjusted under
the risk-based guidelines to take into account different risk characteristics,
with the categories ranging from 0%, requiring no risk-based capital, for assets
such as cash and certain U.S. government and agency securities, to 100% for the
bulk of assets which are typically held by a bank or holding company, including
certain multi-family residential and commercial real estate loans, commercial
business loans and consumer loans. Residential first mortgage loans on one to
four family residential real estate and certain seasoned multi-family
residential real estate loans, which are not 90 days or more past-due or
non-performing and which have been made in accordance with prudent underwriting
standards are assigned a 50% level in the risk-weighing system, as are certain
privately-issued mortgage-backed securities representing indirect ownership of
such loans. Off-balance sheet items also are adjusted to take into account
certain risk characteristics.

In addition to the risk-based capital requirements, the OCC has
established a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total
adjusted assets) requirement for the most highly-rated banks, with an additional
cushion of at least 100 to 200 basis points for all other banks, which
effectively increases the minimum Leverage Capital Ratio for such other banks to
4.0% - 5.0% or more. The highest-rated banks are those that are not anticipating
or experiencing significant growth and have well diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general, those which are considered a strong banking
organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply
with such requirement, submit a reasonable plan describing the means and timing
by which a bank shall achieve its minimum Leverage Capital Ratio requirement. A
bank which fails to file such plan is deemed to be operating in an unsafe and
unsound manner, and could subject that bank to a cease-and-desist order. Any
insured depository institution with a Leverage Capital Ratio that is less than
2.0% is deemed to be operating in an unsafe or unsound condition pursuant to
Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and is subject to
potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding solely on account of its capital
ratios, if it has entered into and is in compliance with a written agreement to
increase its Leverage Capital Ratio and to take such other action as may be
necessary for the institution to be operated in a safe and sound manner. The
capital regulations also provide, among other things, for the issuance of a
capital directive, which is a final order issued to a bank that fails to
maintain minimum capital or to restore its capital to the minimum capital
requirement within a specified time period. A capital directive is enforceable
in the same manner as a final cease-and-desist order.

Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than 4.0% or a Leverage
Capital Ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.

An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice

8

that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.

An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. A guaranty is limited to the lesser of (i) an amount equal to
5.0% of the institution's total assets at the time the institution was notified
or deemed to have notice that it was undercapitalized or (ii) the amount
necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. A guaranty expires after the federal banking agency
notifies the institution that it has remained adequately capitalized for each of
four consecutive calendar quarters. An institution which fails to submit a
written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.

A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership. The general
rule is that the FDIC will be appointed as receiver within 90 days after a bank
becomes critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into a bank except for certain technical requirements which may delay
the infusion for a period of time beyond the 90 day time period.

Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA, which (i) restrict payment
of capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring
the institution to raise additional capital; restricting transactions with
affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.

Additionally, under Section 11(c)(5) of the FDIA, a conservator or
receiver may be appointed for an institution where: (i) an institution's
obligations exceed its assets; (ii) there is substantial dissipation of the
institution's assets or earnings as a result of any violation of law or any
unsafe or unsound practice; (iii) the institution is in an unsafe or unsound
condition; (iv) there is a willful violation of a cease-and-desist order; (v)
the institution is unable to pay its obligations in the ordinary course of
business; (vi) losses or threatened losses deplete all or substantially all of
an institution's capital, and there is no reasonable prospect of becoming
"adequately capitalized" without assistance; (vii) there is any violation of law
or unsafe or unsound practice or condition that is likely to cause insolvency or
substantial dissipation of assets or earnings, weaken the institution's
condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is undercapitalized and has no reasonable prospect that it will become
adequately capitalized, fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.

Regulatory Enforcement Authority. Federal banking law grants
substantial enforcement powers to federal banking regulators. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and

9

institution-affiliated parties. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with regulatory
authorities.

Deposit Insurance Premiums. The FDIA establishes a risk based deposit
insurance assessment system. Under applicable regulations, deposit premium
assessments are determined based upon a matrix formed utilizing capital
categories - well capitalized, adequately capitalized and undercapitalized -
defined in the same manner as those categories are defined for purposes of
Section 38 of the FDIA. Each of these groups is then divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging from 0.04% of insured deposits for well
capitalized institutions having the lowest level of supervisory concern, to
0.31% of insured deposits for undercapitalized institutions having the highest
level of supervisory concern. In general, while the Bank Insurance Fund of the
FDIC ("BIF") maintains a reserve ratio of 1.25% or greater, no deposit insurance
premiums are required. When the BIF reserve ratio falls below that level, all
insured banks would be required to pay premiums

ITEM 2. PROPERTIES.

The executive offices of Indian River and Indian River Bank, and the
main office of Indian River Bank are located at 958 20th Place, Vero Beach,
Florida, in a 12,000 square foot, two-story masonry building. Indian River owns
the building. Indian River owns the buildings which house Indian River Bank's
Loan Center and the South Sebastian Branch. The Loan Center is located at 929
21st Street, Vero Beach in a 10,000 square foot masonry building. The Loan
Center site also houses a six lane drive through banking facility. The South
Sebastian branch is located at 816 US 1, Sebastian, Florida, in a 4,000 square
foot brick building, and has one drive through lane.

Indian River leases the properties housing its remaining branches and
the Operations Center. The Roseland branch, located at 13600 US 1, Unit 14,
Sebastian, Florida, in a 2,600 square foot masonry building is leased under a
six year lease which terminates in February 2007, and has a current annual rent
of $37,835, subject to annual increase based on the consumer price index (the
"CPI"). The Plantation branch, located at 6600 20th Street, Vero Beach, Florida,
consists of 2,875 square feet in a masonry building and three drive through
lanes. The property is occupied under a fifteen year lease, terminating in
October 2007, at a current annual rent of $37,005, subject to annual increase
based on the CPI, with a maximum increase of 5% annually. The Palm Bay branch,
located at 5240 Babcock Street, NE, Palm Bay, Florida, consists of 5,000 square
feet in a masonry building and three drive through lanes. The property is
occupied under a three year lease, terminating in October 2003, at a current
annual rent of $72,230, subject to annual increase based on the CPI, with a 5%
maximum annual increase. Indian River has two three year renewal options. The
Gateway Office, located at 1421 Gateway Drive, Melbourne, Florida, is a 2,500
square foot stand alone masonry building with three drive through lanes. The
property is occupied under a ten year lease, terminating in 2009, at a current
annual rent of $44,378, subject to annual increase based on the CPI with an 8%
maximum annual increase. Indian River has two five year renewal options. The
Rockledge branch, located at 3300 Murrell Road, Rockledge, Brevard County,
Florida, is a 2,500 square foot stand alone masonry building with three drive
through lanes. The property is occupied under a ten year lease terminating in
2011 at a current annual rental of $60,239, subject to annual increase based on
the CPI with an 8% maximum annual increase. Indian River has two five year
renewal options. The Operations Center, located at 3895 39th Square, Vero Beach,
Indian River County, Florida, is occupied under a three year lease, terminating
in November 2005. Indian River has three three-year renewal options. The
Operations Center consists of approximately 10,300 square feet in a frame
building. The current annual rental is $90,242, subject to annual increase based
on the CPI, with a 2% minimum annual increase and a 5% maximum annual increase.
The Sarno branch, Indian River's newest branch opening in the first quarter
2003, is located at 3000 Sarno Road, Melbourne, Brevard County, Florida. It is a
5,700 square foot stand alone wood frame and stucco building with three drive
through lanes. The property is occupied under a fifteen year lease terminating
in January 2018 at a current annual rental of $117,660, subject to annual
increase based on the CPI. Indian River Title Company is located at 916 20th
Place, Vero Beach, Indian River County, Florida. It is a 700 square foot stucco
building. The property is occupied under a one year lease, with guaranteed three
consecutive years of renewal. The current annual rent is $11,556, subject to an
annual increase of 3%.

10

Management believes the existing facilities are adequate for Indian
River's business as presently conducted.

ITEM 3. LEGAL PROCEEDINGS.

Indian River and Indian River Bank are involved from time to time in
routine legal proceedings occurring in the ordinary course of business. In the
opinion of management, the final disposition of these matters will not have a
material adverse effect on Indian River's financial condition or results of
operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2002.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

As of December 31, 2002, there were 1,966,378 shares of common stock
outstanding, held of record by approximately 869 shareholders. On February 14,
2003, Indian River paid a 10% stock dividend to shareholders of record on
January 31, 2003, increasing the number of outstanding shares of common stock to
2,162,631, after adjustment for the elimination of fractional shares.

As of December 31, 2002, there were outstanding options to purchase
162,200 shares of common stock pursuant to Indian River's stock option plans, of
which 130,901 were presently exercisable.

There does not currently exist an organized public trading market for
shares of Indian River common stock. Trading in the common stock has been
sporadic and consists mainly of private trades conducted without brokers. The
table below shows information relating to Indian River's share price history for
the past two fiscal years and through January 2003. Prices have been adjusted to
reflect the 10% stock dividends paid in February 2001, January 2002 and February
2003. High and low sales prices reflect trades known to Indian River, and do not
necessarily reflect all trades which occurred. Since October 2001, when Indian
River ceased acting as its own transfer agent, we are aware of only a small
percentage of the prices at which transactions occur. There are other trades of
which we are either not aware, or for which we are not aware of the price. These
trades and transactions do not necessarily reflect the intrinsic or market
values of the common stock.

2003 2002 2001
-------------------- ------------------- -----------------
Period Ended HIGH LOW HIGH LOW HIGH LOW
--------- -------- -------- -------- ------- --------
March 31 $36.37 $36.37 $27.27 $23.64 $22.50 $21.27
June 30 $27.27 $24.55 $22.09 $21.27
September 30 $29.09 $27.27 $22.09 $20.45
December 31 $29.09 $27.27 $22.09 $21.68

Dividends. Holders of the common stock are entitled to receive
dividends as and when declared by the Board of Directors. Indian River has paid
stock dividends for each of the last twelve years and currently intends to
continue the payment of such dividends. Indian River has not paid cash dividends
during such period, electing to retain earnings to support growth, and currently
expects that it will continue to retain earnings to support growth. Future
dividends will depend primarily upon Indian River Bank's earnings, financial
condition, and need for funds, as well as governmental policies and regulations
applicable to Indian River and Indian River Bank. There can be no assurance,
however, that Indian River and Indian River Bank will continue to have earnings
at a level sufficient to support the payment of dividends or that either entity
will in the future elect to pay dividends. As Indian River Bank is the primary

11

source of funds for payment of dividends by Indian River, the inability of
Indian River Bank to pay dividends could adversely affect the ability of Indian
River to pay dividends.

Regulations of the OCC place a limit on the amount of dividends Indian
River Bank may pay without prior approval. Prior approval of the OCC is required
to pay dividends which exceed Indian River Bank's net profits for the current
year plus its retained net profits for the preceding two calendar years, less
required transfers to surplus. At December 31, 2002, the amount available for
the payment of dividends by Indian River Bank without prior approval was
approximately $9 million. The Federal Reserve and the OCC also have authority to
prohibit a bank from paying dividends if the Federal Reserve or the OCC deems
such payment to be an unsafe or unsound practice.

The Federal Reserve has established guidelines with respect to the
maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that Indian River may pay in the future. In 1985, the Federal Reserve issued a
policy statement on the payment of cash dividends by bank holding companies. In
the statement, the Federal Reserve expressed its view that a holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income, or which could only be funded in ways that weakened the holding
company's financial health, such as by borrowing.

As a depository institution, the deposits of which are insured by the
FDIC, Indian River Bank may not pay dividends or distribute any of its capital
assets while it remains in default on any assessment due the FDIC. Indian River
Bank is not currently in default under any of its obligations to the FDIC.

Recent Sales of Unregistered Securities. During 2001, Indian River
issued 346 shares of common stock (as adjusted for the 10% stock dividend in
February 2003) which were not registered under the Securities Act of 1933 to 36
non-officer employees of Indian River as awards under a stock grant program. The
stock grant program awards one share of common stock for each year of service to
employees upon their anniversary date, commencing with their fifth anniversary.
No cash consideration or other property was received for the awards, which if
considered sales, are exempt under Section 4(2) of the Securities Act.

At September 30, 2002, the Indian River's new wholly owned statutory
business trust, Indian River Capital Trust I (the "Trust"), issued $7.0 million
of floating rate preferred capital securities to a third party. The Trust
invested the proceeds in an equivalent amount of junior subordinated debt
securities of Indian River bearing an interest rate equal to the coupon rate on
the securities issued by the Trust. After the payment of placement fees, Indian
River received an aggregate of $6,790,000 from these transactions. The net
proceeds received by Indian River will be used for the general corporate
purposes of Indian River and Indian River Bank, including supporting continued
expansion activities through the establishment and/or acquisition of additional
branch offices and possible corporate acquisitions. The subordinated debt
securities, which are the sole assets of the Trust, are subordinate and junior
in right of payment to all present and future senior debt (as defined in the
indenture) and certain other financial obligations of Indian River. Indian River
and the Trust issued these securities in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

12

ITEM 6. SELECTED FINANCIAL DATA

The following table shows selected historical consolidated financial
data for Indian River. You should read it in connection with the Company's
audited consolidated financial statements for the years ended December 31, 2002,
2001, 2000, 1999, and 1998.

(1) Per share data and average weighted shares have been adjusted to reflect
10% stock dividends paid in each year through 2003, and to reflect the two
for one stock split in the form of a dividend paid in March 2000.

(2) Represents the return on average stockholders' equity including, in average
stockholders' equity, unrealized gains and losses on securities available
for sale of $2.3 million, $1.0 million, ($1.6 million), ($319 thousand),
and $582 thousand in 2002, 2001, 2000, 1999, and 1998. If the return on
average stockholders' equity were calculated without including these
unrealized gains and losses, then it would be 18.47%, 15.18%, 14.61%,
13.98%, and 17.20% for the years ended December 31, 2002, 2001, 2000, 1999,
and 1998.

13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

Indian River is a financial holding company for Indian River Bank and
is headquartered in Vero Beach, Florida. Indian River Bank is a growing
community bank serving individuals and small to medium sized businesses with
special focus on real estate related lending and the professional community.
Indian River Bank operates four branches in Indian River County and four
branches in Brevard County. Indian River Bank offers deposit accounts and
associated services to businesses and individuals and makes loans and invests in
qualified securities. In addition, Indian River Bank's income includes fees on
deposit accounts and loans.

Forward-looking statements. This management's discussion and analysis
and other portions of this report contain forward-looking statements within the
meaning of the Securities Exchange Act of 1934, as amended, including statements
of goals, intentions, and expectations as to future trends, plans, events or
results of Company operations and policies and regarding general economic
conditions. In some cases, forward looking statements can be identified by use
of words such as "may," "will," "anticipates," believes," "expects," "plans,"
"estimates," "potential, "continue," "should" and similar words or phrases.
These statements are based upon current and anticipated economic conditions,
nationally and in the Company's market, interest rates and interest rate policy,
competitive factors, and other conditions which by their nature, are not
susceptible to accurate forecast, and are subject to significant uncertainty.
Because of these uncertainties and the assumptions on which this discussion and
the forward-looking statements are based, actual future operations and results
in the future may differ materially from those indicated herein. Readers are
cautioned against placing undue reliance on any such forward-looking statements.
The Company does not undertake to update any forward-looking statements to
reflect occurrences or events which may not have been anticipated as of the date
of such statements.

RESULTS OF OPERATIONS

2002 COMPARED TO 2001

NET INCOME. Indian River had income before income taxes of $8.9 million
for the year ended December 31, 2002 compared to $5.8 million for the year ended
December 31, 2001. Net income totaled $5.5 million for the year ended December
31, 2002, an increase of $1.8 million or 50.2% compared to net income in 2001.
Basic earnings per share were $2.57 in 2002 compared to $1.72 in 2001 (as
adjusted for 10% stock dividends in February 2003 and January 2002). Return on
average equity was 17.8% for the year ended December 31, 2002, as compared to
14.6% for the year ended December 31, 2001. Return on average assets for 2002
was 1.3% as compared to 1.0% for 2001.

NET INTEREST INCOME. Net interest income is the difference between
interest income on earning assets and interest expense on deposits and other
borrowed funds. Net interest income for the year ended December 31, 2002 totaled
$16.3 million compared to $13.3 million in 2001, reflecting an increase of $3.0
million or 22.3%. Total interest income totaled $25.5 million in 2002 compared
to $26.0 million in 2001. This decrease was primarily the result of decreases of
$747 thousand in interest and fees on loans. The increase in average outstanding
loan balances from $210.5 million in 2001 to $224.5 million in 2002 was offset
by a decrease in the average loan rates earned, which decreased to 7.52% in 2002
from 8.37% in 2001. Interest expense for 2002 decreased by $3.5 million from
2001. The decrease in interest expense was due to a decrease in the average rate
paid to 2.74% in 2002 from 4.33% in 2001. This decrease of rates paid offset an
increase in average interest-bearing deposits and other borrowed funds of
approximately $43.2 million. The decrease in rates paid was partially the result
of prior time deposit specials at a higher rate that did not mature until 2002;
those that renewed did so at the current lower market rate.

The average yield on earning assets for the year ended December 31,
2002, was 6.41% compared to 7.53% in 2001. The average rate paid on interest
bearing liabilities in 2002 was 2.74% compared to 4.33% in 2001. The average
time deposit rate paid decreased from 5.56% in 2001 to 3.53% in 2002. The
average interest rate paid on other borrowed funds in 2002 was 3.44% compared to
4.53% in 2001. Net interest margin is the ratio of net interest income to
average earning assets. For the year ended 2002, net interest margin was 4.09%
compared to 3.85% for the year ended December 31, 2001. The following table
illustrates the analysis of Indian River's average balances, yields and changes
in net interest income for the fiscal years indicated.

14

PROVISION FOR LOAN LOSSES. The provisions for loan losses added $620
thousand to the allowance for loan losses in 2002 compared to $600 thousand in
2001. Total charge-offs, net of recoveries, were approximately $181 thousand in
2002 and $233 thousand in 2001.

NON-INTEREST INCOME. Non-interest income for the year ended December
31, 2002 was $5.0 million compared to $3.9 million in 2001, an increase of $1.1
million or approximately 27.41%. The increase in deposit fee income of $220
thousand, or 13.32% over 2001 levels, resulted primarily from the increased
volume of accounts and Indian River Bank's branches opened in 2001. The increase
in gains on sale of securities of $591 thousand, or 267%, over 2001 levels
reflected Indian River's decision to decrease the percentage of corporate bonds
held to less than 10% of the total investment portfolio, electing to purchase
mortgage backed securities and CMO's. See investment activity section under
financial condition.

NON-INTEREST EXPENSE. Total non-interest expense for the year ended
December 31, 2002 of $11.8 million reflected an increase of approximately $0.9
million, or 8.91%, primarily as a result of increase in personnel costs and
other operating expenses. Salaries and benefits expense increased by $0.4
million, or 7.15%, in 2002, to $6.0 million compared to $5.6 million in 2001.
The increase in salary and benefits expense in 2002 is primarily due to the
hiring of additional staff to support the growth of Indian River. Non interest
expense in 2001 included nonrecurring non-interest expenses of approximately
$357 thousand after taxes relating to payment in connection with the resignation
of a former officer. Occupancy and equipment expense of $1.6 million increased
in 2002 by $0.1 million, or 5.14%, as compared to 2001. Other operating expenses
of $4.3 million increased by $0.5 million, or 13.00%, in 2002.

TAXES ON INCOME. Income tax expense totaled $3.3 million for 2002
compared to income tax expense of $2.1 million in 2001.

2001 COMPARED TO 2000

NET INCOME. Indian River had income before income taxes of $5.8 million
for the year ended December 31, 2001 compared to $4.1 million for the year ended
December 31, 2000. Net income totaled $3.7 million the year ended December 31,
2001, an increase of $1.1 million or 39.9% compared to net income in 2000. Basic
earnings per share were $1.72 in 2001 compared to $1.37 in 2000 (as adjusted for
10% stock dividends in February 2003, January 2002 and February 2001). Return on
average equity was 14.6% for the year ended December 31, 2001, as compared to
16.0% for the year ended December 31, 2000. The decline in return on equity
during 2001 as compared to 2000 in part reflects the sale in the fourth quarter
of 2000 of 207,828 shares of common stock, for gross proceeds of approximately
$5.1 million. Return on average assets for 2001 was 1.02% as compared to 0.85%
for 2000.

NET INTEREST INCOME. Net interest income is the difference between
interest income on earning assets and interest expense on deposits and other
borrowed funds. During 2001 net interest income, rates earned on loans and
investments and rates paid on deposits and other borrowings were impacted by the
activities of the Federal Reserve in lowering market interest rate benchmarks on
eleven occasions, by an aggregate of 475 basis points. Net interest income for
the year ended December 31, 2001 totaled $13.3 million compared to $11.5 million
in 2000, reflecting an increase of $1.8 million or 16.02%. Total interest income
totaled $26.0 million in 2001 compared to $24.0 million in 2000. This increase
was primarily the result of increases of $1.6 million in interest and fees on
loans. The increase in earnings on loans was due to an increase in average
outstanding loan balances from $180.7 million in 2000 to $210.5 million in 2001,
offsetting a decrease in the average loan rates earned, which decreased to 8.37%
in 2001 from 8.84% in 2000. Interest expense for 2001 increased by $193 thousand
from 2000. The increase in interest expense was due to an increase in average
interest-bearing deposits and other borrowed funds of approximately $39.4
million, offsetting a decrease in the average rate paid to 4.33% in 2001 from
4.93% in 2000.

The average yield on earning assets for the year ended December 31,
2001, was 7.53% compared to 8.17% in 2000. The average rate paid on interest
bearing liabilities in 2001 was 4.33% compared to 4.93% in 2000. The average
interest rate paid on other borrowed funds in 2001 was 4.53% compared to 6.50%
in 2000. Yields on savings accounts and certificates of deposits have not
dropped as dramatically as market deposit rates in general due to certificate of
deposit specials which were offered in 2000 and 2001 before the decline in
market rates and also, a savings account special offered in connection with the
opening of the Rockledge branch in April 2001, with a rate of 4.89% guaranteed
until April 2002. Net interest margin is the ratio of net interest income to
average earning assets. For the year ended

15

2001, net interest margin was 3.85% compared to 3.91% for the year ended
December 31, 2000. The following table illustrates the analysis of Indian
River's average balances, yields and changes in net interest income for the
fiscal years indicated.

PROVISION FOR LOAN LOSSES. The provisions for loan losses added $600
thousand to the allowance for loan losses in 2001 compared to $660 thousand in
2000. Total charge-offs, net of recoveries, were approximately $234 thousand in
2001 and $111 thousand in 2000.

NON-INTEREST INCOME. Non-interest income for the year ended December
31, 2001 was $3.9 million compared to $2.6 million in 2000, an increase of $1.3
million or approximately 54.03%. The increase in deposit fee income of $319
thousand, or 23.82% over 2000 levels, resulted primarily from the increased
volume of accounts and Indian River Bank's branches opened in 2000 and 2001. The
increase in gains on loans held for sale of $674 thousand or 96.81% over 2000
levels reflected the high level of mortgage lending activity resulting from the
significant decline in interest rates during 2001. Declines in mortgage lending
and refinancing activity, which may result from a period of stable or increasing
interest rates, may have an adverse affect on the volume of loans sold and gains
therefrom in future periods. Also, positively affecting non interest income in
2001 was the $221,000 in gains on the sale of securities, an increase of
$209,000, or 1,674%, from 2000. See investment activity section below.

NON-INTEREST EXPENSE. Total non-interest expense for the year ended
December 31, 2001 of $10.9 million reflected an increase of approximately $1.6
million, or 16.58%, primarily as a result of increase in personnel costs and
other operating expenses. Salaries and benefits expense increased by $1.0
million, or 23.12%, in 2001, to $5.6 million compared to $4.6 million in 2000.
Occupancy and equipment expense of $1.5 million stayed the same for 2001 as
compared to 2000. The increase in salary and benefits expense was in part a
result of the establishment and staffing of the Rockledge branch, Indian River
Bank's seventh, during 2001 and payments in connection with the resignation of a
former officer. Other operating expenses of $3.8 million increased by $0.6
million or 17.75% in 2001. This was due in part to a $327 thousand increase in
service bureau cost. The higher costs reflect an increase in number of accounts
and additional services, such as internet banking, bill pay, and ATM online
transactions.

TAXES ON INCOME. Income tax expense totaled $2.1 million for 2001
compared to income tax expense of $1.4 million in 2000.

16

COMPARISON OF AVERAGE BALANCES, INTEREST AND YIELDS

The following tables provides certain information relating to Indian
River's average consolidated statements of financial condition and reflects the
interest income on interest-earning assets and interest expense of
interest-bearing liabilities for the periods indicated and the average yields
earned and rates paid for the periods indicated. These yields and costs are
derived by dividing income or expense by the average daily balance of the
related assets or liabilities for the periods presented. Non-accrual loans have
been included in the average balances of loans receivable.

Year Ended December 31,
-----------------------------------------------------------------------------------
2002 2001
--------------------------------------- -----------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
-------------- ----------- ------------ --------------- ------------ -----------

(Dollars in Thousands)
Assets:
Interest-earning assets:
Investments (1) $ 165,098 $ 8,496 5.15% $ 126,825 $ 8,170 6.44%
Federal funds sold 8,522 137 1.60% 8,345 248 2.98%
Loans receivable (2) 224,543 16,876 7.52% 210,538 17,623 8.37%
-------------- ----------- ------------ --------------- ------------ -----------
Total interest
earning assets 398,163 25,509 6.41% 345,808 26,041 7.53%
----------- ------------ ------------ -----------
Noninterest-earning assets 23,249 17,312
-------------- ---------------
Total $ 421,412 $ 363,120
============== ===============

Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
NOW and money market
accounts $ 47,519 428 0.90% $ 31,517 367 1.17%
Savings accounts 114,805 2,670 2.33% 82,014 2,777 3.39%
Certificates of deposit 123,876 4,374 3.53% 137,208 7,630 5.56%
Other - short term
borrowing 18,396 373 2.03% 15,634 691 4.42%
Other - long term
borrowings 32,211 1,368 4.25% 27,209 1,251 4.60%
-------------- ----------- ------------ --------------- ------------ -----------
Total interest-bearing
liabilities 336,807 9,213 2.74% 293,582 12,716 4.33%
----------- ------------ ------------ -----------
Noninterest-bearing
liabilities 53,465 44,262
Stockholders' equity 31,140 25,276
-------------- ---------------
Total $ 421,412 $ 363,120
============== ===============

Net interest income and net yield
on interest-earning assets $ 16,296 4.09% $ 13,325 3.85%
=========== ============ ============ ===========

(1) Includes investment securities and Federal Reserve Bank, Fed Home Loan
Bank, and IBB stock. Yields on securities available for sale have been
calculated on the basis of historical cost and do not give effect to
changes in fair value of such securities, which are reflected as a
component of stockholder's equity.

(2) Includes loans for which the accrual of interest has been suspended.

17

COMPARISON OF AVERAGE BALANCES, INTEREST AND YIELDS (CONTINUED)

Year Ended December 31,
--------------------------------------------
2000
---------------------------------------------
Average Average
Balance Interest Yield/Rate
----------- ---------- ----------
(Dollars in Thousands)

Assets:
Interest-earning assets:
Investments (1) $ 113,002 $ 8,020 7.10%
Federal funds sold 248 16 6.28%
Loans receivable (2) 180,743 15,973 8.84%
--------- --------- ----
Total interest earning assets 293,993 24,009 8.17%
--------- ----
Noninterest-earning assets 14,445
---------
Total $ 308,438
=========

Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
NOW and money market accounts $ 29,206 352 1.21%
Savings accounts 68,860 2,654 3.85%
Certificates of deposit 127,987 7,686 6.00%
Other - short term borrowings 13,828 899 6.50%
Other - long term borrowings 14,344 933 6.50%
--------- --------- ----
Total interest-bearing liabilities 254,225 12,524 4.93%
--------- ----
Noninterest-bearing liabilities 37,800
Stockholders' equity 16,413
---------
Total $ 308,438
=========

Net interest income and net yield
On interest-earning assets $ 11,485 3.91%
========= ====

(1) Includes investment securities and Federal Reserve Bank, Fed Home Loan
Bank, and IBB stock. Yields on securities available for sale have been
calculated on the basis of historical cost and do not give effect to
changes in fair value of such securities, which are reflected as a
component of stockholder's equity.

(2) Includes loans for which the accrual of interest has been suspended.

18

RATE/VOLUME ANALYSIS OF NET INCOME

The following table sets forth certain information regarding changes in
interest income and interest expense of Indian River for the periods indicated.
For each category of interest-earning assets and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by the prior period's rate); (ii) changes in rates
(change in rate multiplied by the prior period's volume) and (iii) changes in
rate-volume (change in rate multiplied by the changes in volume).

FINANCIAL CONDITION

Total assets were $458.2 million at December 31, 2002 compared to
$389.1 million as of December 31, 2001. This represented an increase of 17.80%.
Average earning assets for 2002 were $398.2 million, an increase of 15.14% from
the 2001 average of $345.8 million.

Total net loans, excluding loans held for sale, increased by $21.5
million, or 10.36%, to $229.6 million at December 31, 2002 compared to $208.0
million at December 31, 2001. Loans held for sale increased $7.4 million, or
127.56%, reflecting increased mortgage activity and refinancing during the
declining rate environment. Investment securities and federal funds sold
increased to $189.5 million, a 22.85% increase from the $154.3 million as of
December 31, 2001. Total deposits increased by 14.46% to $364.9 million.

INVESTMENT ACTIVITY. The securities portfolio represented approximately
41.12% and 37.07% of the Bank's assets as of December 31, 2002 and 2001,
respectively. During 2002, Indian River's investment securities portfolio
increased by $44.3 million, or 30.70%. This increase in the securities portfolio
reflects management's commitment to increasing the level of earning assets,
enhances our liquidity level, and is a function of deposit growth and additional
borrowings in excess of the loan funding and operational requirements of the
Bank. The before tax unrealized gain on securities available for sale at
December 31, 2002 was $3.6 million as compared to $1.6 million at December 31,
2001, an increase of $2.0 million. The increase in value is primarily a result
of the decline in market interest rates and the related increase of the market
value of fixed rate bonds. In 2002, Indian River also undertook to restructure
portfolio composition to reduce both credit and interest rate risk. Accordingly,
the Company's exposure to corporate securities was reduced. Additionally, the
Company's holdings of U.S. Government agency securities were reduced. Proceeds
from these sales along with additional liquidity were reinvested in
mortgage-backed instruments, both PAC CMO's (Planned Amortization Class -
Collateralized Mortgage Obligations) and in adjustable rate mortgage securities.
The PAC CMO investments were selected to provide anticipated consistent cash
flows over shorter periods of time than the securities that were sold. As a
result of the sale of the corporate bonds, the Bank has recognized gains in
2002. As of December 31, 2002, there were no issuers, other than the U.S.
Government and its corporations and agencies, whose securities owned by Indian
River

19

had a book or market value exceeding ten percent of Indian River's stockholders'
equity.

The following table provides information regarding the composition of
Indian River's investment portfolio at the dates indicated. See Note 3 to the
Consolidated Financial Statements for additional information regarding the
securities portfolio.

The following table sets forth the projected maturities of the
components of the Bank's securities portfolio as of December 31, 2002 and the
weighted average yields on a non-tax-equivalent basis. The table assumes
estimated fair values for available-for-sale securities and amortized cost for
held to maturity securities:

After One Year After Five Years
One Year or Less Through Five Years Through Ten Years After Ten Years Total
------------------- ------------------ ------------------ ------------------ --------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- -------- -------- -------- -------- -------- -------- -------- ---------- --------
(Dollars in Thousands)

Available for Sale (at
Estimated Market Value):
U.S. Government Agency
obligations $ -- -- $ 22,015 4.5% $ 5,217 7.0% $ -- -- $ 27,232 5.0%
Mortgage-backed securities 44,633 4.2% 74,311 4.4% 15,692 4.8% 3,628 5.4% 138,264 4.4%
Corporate debt securities 2,512 5.7% 8,375 6.1% -- -- -- -- 10,887 6.0%
-------- ---- --------- ---- -------- ---- ------- ---- --------- ----
Total $ 47,145 4.3% $ 104,701 4.6% $ 20,909 5.3% $ 3,628 5.4% $ 176,383 4.6%
======== ==== ========= ==== ======== ==== ======= ==== ========= ====

Held to Maturity (at
Amortized Cost):
Securities issued by
state/political subdivisions $ -- -- $ -- -- $ 635 3.8% $ 5,293 5.1% $ 5,928 5.0%
Mortgage-backed securities -- -- -- -- -- -- 3,814 1.7% 3,814 1.7%
-------- ---- --------- ---- -------- ---- ------- ---- --------- ----
Total $ -- -- $ -- -- $ 635 3.8% $ 9,107 3.7% $ 9,742 3.7%
======== ==== ========= ==== ======== ==== ======= ==== ========= ====

20

LOAN PORTFOLIO. The following table shows the composition of Indian
River's loan portfolio by type of loan at the dates indicated.

December 31,
-----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------- ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
----------------- ------------------ ------------------ ------------------ ------------------
(Dollars in Thousands)

Real Estate:
Construction
and land development $ 45,913 19.7% $ 32,778 15.5% $ 8,883 4.5% $ 8,626 5.1% $ 2,382 1.7%
Farmland 3,181 1.4% 2,943 1.4% 2,690 1.4% 3,146 1.9% 2,984 2.1%
One to four family
residential 87,841 37.7% 74,917 35.5% 86,937 44.1% 68,431 40.6% 60,956 42.2%
Multifamily residential 2,506 1.1% 3,521 1.7% 1,117 0.6% 1,766 1.0% 1,762 1.2%
Nonfamily,
nonresidential 64,458 27.7% 62,660 29.7% 62,772 31.8% 55,104 32.7% 45,452 31.5%
Agriculture 1,788 0.8% 2,455 1.2% 3,236 1.7% 1,707 1.0% 1,552 1.1%
Commercial and Industrial 13,257 5.6% 14,948 7.1% 13,048 6.6% 12,308 7.3% 11,038 7.6%
Consumer 11,645 5.0% 14,421 6.8% 15,244 7.7% 15,092 9.0% 15,562 10.8%
Other 2,262 1.0% 2,225 1.1% 3,172 1.6% 2,370 1.4% 2,676 1.8%
--------- --------- --------- --------- ---------
Total Loans 232,851 210,868 197,099 168,550 144,364
Less: unearned
discounts and loan fees 4 5 6 -- 1
--------- --------- --------- --------- ---------
Loans, net $ 232,847 $ 210,863 $ 197,093 $ 168,550 $ 144,363
========= ========= ========= ========= =========

LOAN MATURITY. The following table sets forth the term to contractual
maturity of Indian River Bank's loan portfolio at December 31, 2002. Loans which
have adjustable rates and fixed rates are all shown in the period of contractual
maturity. Demand loans, loans having no contractual maturity and overdrafts are
reported as due in one year or less.

Due In
---------------------------------------------------------
Total One Year or Less One to Five Years Over Five Years
--------- ---------------- ----------------- ---------------
(Dollars in Thousands)

Commercial, Agricultural $ 15,045 $ 6,158 $ 8,394 $ 493
Real estate construction 45,913 10,681 17,404 17,828
Real estate mortgage 157,986 8,280 14,320 135,386
Consumer, other 13,907 2,052 10,932 923
--------- -------- -------- ---------
Total loans $ 232,851 $ 27,171 $ 51,050 $ 154,630
========= ======== ======== =========

Loans with:
Predetermined fixed interest rate $ 66,703 $ 14,765 $ 35,800 $ 16,138
Floating interest rate 166,148 12,406 15,250 138,492
--------- -------- -------- ---------
Total loans $ 232,851 $ 27,171 $ 51,050 $ 154,630
========= ======== ======== =========

Fixed rate loans due after one year total approximately $51.9 million
and adjustable rate loans due after one year total approximately $153.7 million.
See Note 4 to the Consolidated Financial Statements for additional information
regarding the composition of the loan portfolio.

21

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a valuation
reserve established by management in an amount it deems adequate to provide for
losses in the loan portfolio. Management assesses the adequacy of the allowance
for loan losses based upon a number of factors including, among others:
analytical reviews of loan loss experience in relationship to outstanding loans
and commitments; unfunded loan commitments; problem and non-performing loans and
other loans presenting credit concerns; trends in loan growth, portfolio
composition and quality; appraisals of the value of collateral; and management's
judgment with respect to current and expected economic conditions and their
impact on the existing loan portfolio.

The allowance for loan losses is increased by provisions for loan
losses charged to expense. Charge-offs of loan amounts determined by management
to be uncollectible or impaired decrease the allowance, and recoveries of
previous charge-offs are added to the allowance.

Calculating the allowance for loan losses is divided into three primary
allocation groups: (1) specific allocation loans, (2) past due / problem loans
and (3) all other passing grade loans. For specific allocation loans, the bank
has determined a reserve amount to set aside which it believes is sufficient to
cover a collateral shortfall. Problem loans are identified by the Loan Officer,
Loan Review, Asset Liability Committee or by the Examiners. Those loans
identified as problem loans are assigned a risk grade. Loans graded special
mention are multiplied by an inherent loss factor of 5% to determine the amount
to be reserved. Loans graded substandard are multiplied by a loss factor of 10%,
loans graded doubtful are multiplied by a loss factor of 50% and loans graded
loss are multiplied by a loss factor of 100%. Inherent losses in past due loans
are graded based on the number of days which the loan is past due, and are
multiplied by the same loss factors as problem loans. Loans past due 30-59 are
multiplied by a loss factor of 5%, loans past due 60-89 days are multiplied by
10% and loans past due 90 days are multiplied by a loss factor of 50%. All other
loans are graded pass and are categorized into six loan groups (real estate
loans are further sub-categorized) and multiplied by an historical experience
factor to determine the appropriate level of the allowance for loan losses. Due
to Indian River's low loss history, the historical experience factors are based
on the FDIC quarterly banking profile report for all institutions. Indian River
feels that these factors are better indication of overall loan performance in
the nation. In addition to historical experience factors, Indian River also
provides for losses due to economic factors, concentration of credit and
portfolio composition changes.

At December 31, 2002, the allowance for losses was $3.3 million or
1.40% of loans outstanding compared to $2.8 million or 1.34% of loans
outstanding as of December 31, 2001, an increase of $439 thousand. This increase
is attributable primarily to an increase in total loans outstanding. At December
31, 2002, non-accrual loans increased by $546 thousand, or 410.53%, to $678
thousand compared to $133 thousand at December 31, 2001. This increase is
primarily due to one commercial real estate loan for $585 thousand. A specific
loan loss reserve of $100 thousand has been allocated to this loan. The
allowance for loan losses coverage of non-accrual loans was 481% at December 31,
2002 compared to coverage of 2120% at December 31, 2001. See Note 1 to the
Consolidated Financial Statements for additional information regarding the
allowance for loan losses.

22

The following table sets forth activity in the allowance for loan
losses for the periods indicated.

Year Ended December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
(Dollars in Thousands)

Balance at beginning of year $ 2,820 $ 2,453 $ 1,904 $ 1,510 $ 1,322
------- ------- ------- ------- -------
Charge-offs:
Commercial, Agricultural (43) (62) (15) (17) (12)
Real estate construction -- (4) -- -- --
Real estate mortgage -- -- (27) -- --
Installment loans to individuals (183) (201) (111) (232) (233)
------- ------- ------- ------- -------
Total (226) (267) (153) (249) (245)
------- ------- ------- ------- -------
Recoveries
Commercial, Agricultural 1 -- 1 10 6
Real estate construction -- -- -- -- --
Real estate mortgage 6 -- -- -- --
Installment loans to individuals 38 34 41 43 52
------- ------- ------- ------- -------
Total 45 34 42 53 58
------- ------- ------- ------- -------
Net charge-offs (181) (233) (111) (196) (187)
Additions charged to operations 620 600 660 590 375
------- ------- ------- ------- -------
Balance at end of period $ 3,259 $ 2,820 $ 2,453 $ 1,904 $ 1,510
======= ======= ======= ======= =======

Ratio of net charge-offs during the period to
to average loans outstanding during the period 0.08% 0.11% 0.06% 0.13% 0.15%

The following table allocates the allowance for loan losses by loan
category. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any category.

December 31,
-----------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------ ------------------ -------------------- -------------------- -------------------
(Dollars in Thousands)

Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent (1)
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ -----------

Commercial,
Agricultural $ 420 6% $ 524 8% $ 390 8% $ 66 8% $ 41 9%

Real estate
construction 484 19% 154 15% 76 5% 39 5% 15 2%

Real estate
mortgage 1,617 69% 1,776 69% 1,639 78% 1,400 76% 1,105 77%

Consumer, other 646 6% 366 8% 348 9% 399 11% 349 12%

Unallocated 92 -- -- -- -- -- -- -- -- --
-------------- ------------- --------------- -------------- ------------
Total allowance for
loan losses $3,259 100% $2,820 100% $2,453 100% $1,904 100% $1,510 100%
============== ============= =============== ============== ============

(1) Represents the percent of loans in category to gross loans.

23

NON-PERFORMING ASSETS. Indian River Bank's non-performing assets, which
are comprised of loans delinquent 90 days or more, non-accrual loans, and other
real estate owned ("OREO"), totaled $738 thousand at December 31, 2002 compared
to $290 thousand at December 31, 2001. The percentage of non-performing assets
to total assets was 0.17% at December 31, 2002 compared to 0.07% December 31,
2001.

Non-performing loans constituted all of the non-performing assets at
December 31, 2002 and December 31, 2001. Non-performing loans at December 31,
2002 consist of loans in non-accrual status in the amount of $678 thousand and
loans past due over ninety days of $60 thousand compared to non-accrual loans of
$133 thousand and loans past due over ninety days of $157 thousand at December
31, 2001.

Indian River Bank owned no other real estate owned at either December
31, 2002 or 2001. Generally, Indian River Bank would evaluate the fair value of
each OREO property annually. These evaluations may be appraisals or other market
studies. Credit card loans are placed on non accrual when they are 180 days
delinquent. All other consumer and commercial loans are placed on nonaccrual at
90 days or when determined to be uncollectible by management.

The following table shows the amounts of non-performing assets at the
dates indicated.

December 31,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(Dollars in Thousands)

Nonaccrual Loans
Real estate $ 678 $ 120 $ 120 $ 49 $ 254
Installment -- 13 -- 5 --

Accrual loans - Past due 90 days or more
Real estate 39 125 -- 20 132
Installment 21 32 8 32 11

Restructured loans -- -- -- -- --

Real estate owned -- -- -- -- --

----- ----- ----- ----- -----
Total nonperforming assets $ 738 $ 290 $ 128 $ 106 $ 397
===== ===== ===== ===== =====

At December 31, 2002, there were no performing loans considered
potential problem loans, defined as loans which are not included in the past
due, nonaccrual or restructured categories, but for which known information
about possible credit problems causes management to have serious doubts as to
the ability of the borrowers to comply with the present loan repayment terms.
For the year ended December 31, 2002, $37 thousand in gross interest income
would have been recorded if the $678 thousand of nonaccrual loans had been
accruing interest throughout the period.

RELATED PARTY TRANSACTIONS. At December 31, 2002 the aggregate loans to
directors of the Bank and their related interests and executive officers totaled
approximately $4.7 million. During the year $2.9 million in new loans and
advances was extended and $2.0 million was paid on these loans to related
parties.

DEPOSITS AND OTHER BORROWINGS. The principal sources of funds for
Indian River Bank are core deposits (demand deposits, NOW accounts, money market
accounts, savings accounts and certificates of deposit less than $100,000) from
the local market areas surrounding the bank's offices. The bank's deposit base
includes transaction accounts, time and savings accounts and accounts which
customers use for cash management and which provide the bank with a source of
fee income and cross-marketing opportunities as well as a low-cost source of
funds. Time and savings accounts, including money market deposit accounts, also
provide a relatively stable and low-cost source of funding.

24

The following table reflects Indian River Bank's deposits by category
for the periods indicated.

Year Ended December 31,
-----------------------------------------------------------------------
2002 2001 2000
-------------------- \------------------ ---------------------
(Dollars in Thousands)

Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
--------- ------- --------- ------- --------- -------

Deposit Category
Noninterest-bearing demand $ 50,975 0.0% $ 43,157 0.0% $ 36,916 0.0%
Interest-bearing demand 44,630 0.9% 28,719 1.1% 25,583 1.1%
Money market 2,889 1.0% 2,798 1.5% 3,623 2.0%
Savings 114,805 2.3% 82,013 3.4% 68,860 3.9%
Certificates of deposit of $100,000 or more 37,749 3.5% 31,984 5.6% 22,506 6.0%
Other time 86,127 3.6% 105,224 5.5% 105,481 6.0%
--------- --------- ---------
Total $ 337,175 $ 293,895 $ 262,969
========= ========= =========

The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
2002. See Note 7 to the Consolidated Financial Statements for additional
information regarding Indian River's time deposits.

December 31, 2002
-----------------
(Dollars in Thousands)

Due In
3 months or less $ 9,801
Over 3 through 6 months 6,203
Over 6 through 12 months 16,776
Over 12 months 10,971
---------
Total $ 43,751
=========

The following table provides information regarding Indian River Bank's
short-term borrowings for the periods indicated. See Note 9 to the Consolidated
Financial Statements for additional information regarding Indian River Bank's
borrowings.

Maximum Amount
Outstanding At Average Average Ending Average Rate
Year Ended December 31, Any Month End Balance Rate Balance at Period End
- ------------------------------ -------------- ------- ------- ------- -------------
(Dollars in Thousands)

Federal Funds Purchased & Repurchase Agreements

2002 $ 33,000 $ 18,396 2.0% $ 11,698 1.5%
2001 20,853 15,625 4.4% 13,156 2.0%
2000 23,822 13,828 6.5% 15,244 6.2%

Other Short Term Borrowings

2002 $ -- $ -- 0.0% $ -- 0.0%
2001 -- -- 0.0% -- 0.0%
2000 10,000 9,109 6.3% 10,000 5.9%

25

ASSET/LIABILITY MANAGEMENT AND QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.

Interest rate risk is that portion of the variation in the Company's
performance attributable to changes in interest rates. Management closely
monitors the Company's exposure to how changes in market conditions can impact
the Indian River's future performance and considers strategies to reduce any
negative results.

Interest rate risk takes place because of unbalanced changes in
interest income and expense, and asset and liability market value when rates
change. The imbalances flow through to create variability in net interest
income, net income, and the market value of equity. The ultimate cause of
interest rate risk is a repricing mismatch between the assets and liabilities on
the Company's balance sheet and, if relevant, off-balance sheet