INDIAN RIVER BANKING COMPANY - 10-K Annual Report

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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.

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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.

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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.

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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.

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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

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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.

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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

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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 positions.

Indian River's exposure to interest rate risk is managed primarily
through the Company's strategy of selecting the types and terms of
interest-earning assets and interest-bearing liabilities which generate
favorable earnings, while limiting potential negative effects of changes in
market interest rates. Since Indian River's primary source of interest-bearing
liabilities is customer deposits, the ability to manage the types and terms of
such deposits may be somewhat limited by customer preferences in the market
areas served by the Company. Borrowings, which include FHLB advances, short-term
borrowings and long-term borrowings, are generally structured with specific
terms which in management's judgment, when aggregated with the terms for
outstanding deposits and matched with interest-earning assets, mitigate Indian
River's exposure to interest rate risk. The rates, terms and interest rate
indices of Indian River's interest-earning assets result primarily from the
Company's strategies of investing in loans and securities which permit the
Company to limit its exposure to interest rate risk, together with credit risk,
while achieving a positive interest rate spread from the difference between the
income earned on interest-earning assets and the cost of interest-bearing
liabilities.

Liquidity management enables us to maintain sufficient cash flow to
fund operations and to meet financial obligations to depositors and borrowers.
Indian River Bank's liquidity is enhanced by its ability to attract and retain
deposits and by principal and interest payments on loans and maturing securities
in the investment portfolio. Indian River Bank's core deposit base, consisting
of demand deposits, money market, and savings accounts supplemented by other
deposits of varying maturities and rates, contributes to liquidity. Our
liquidity position, those assets invested in federal funds, mortgage backed
securities, and obligations of the U.S. Government, its agencies and sponsored
entities available for sale, of $166.5 million at December 31, 2002, reflected
an increase of $85.2 million from December 31, 2001, or 95.5%. Funds available
through short-term borrowings and asset maturities are considered adequate to
meet all current needs. At December 31, 2002, Indian River had available credit
of $25.7 million under lines of credit with correspondent banks. Although
management believes that the liquidity position is adequate, increased loan
demand could have an adverse impact on liquidity. Indian River Bank also has
available credit of $4.3 million under its line with the Federal Home Loan Bank
of Atlanta. This line may be utilized as a supplementary source of funding
growth for the Bank. In addition, the Asset Liability Management Committee has
established minimum standards and key ratios of asset quality and performance.
These standards and ratios provide the framework for guidance and measurement.
Management evaluates these standards and ratios on an ongoing basis.

In addition to periodic gap reports comparing the sensitivity of
interest-earning assets and interest-bearing liabilities to changes in interest
rates, management uses a quarterly model which measures Indian River's exposure
to interest rate risk. The model calculates the present value of assets,
liabilities, off-balance sheet financial instruments and equity at current
interest rates, and at hypothetical higher and lower interest rates at various
intervals. The present value of each major category of financial instrument is
calculated by the model using estimated cash flows based upon weighted average
contractual rates and terms at discount rates representing the estimated current
market interest rate for similar financial instruments. The resulting present
value of longer term fixed-rate financial instruments are more sensitive to
change in a higher or lower market interest rate scenario, while adjustable-rate
financial instruments largely reflect only a change in present value
representing the difference between the contractual and discounted rates until
the next interest rate repricing opportunity.

26

The following table presents Indian River's exposure over the
subsequent twelve month periods to immediate, hypothetical changes in interest
rates at the dates indicated:

December 31, 2002 December 31, 2001
--------------------------------------------- ------------------------------------------
Percentage Percentage
Change in Change in Change in
Interest Percentage Market Percentage Market
Rates Change in Percentage Value of Change in Percentage Value of
(Basis Net Interest Change in Portfolio Net Interest Change in Portfolio
Points) income Net Income Equity income Net Income Equity
---------------------------------------------------------------------------------------------------------

+200 -12.94% -21.63% -13.77% -4.68% -10.06% -6.90%
+100 -6.44% -10.76% -4.29% -2.06% -4.43% -2.80%
0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-100 3.55% 5.90% 1.84% 0.46% -0.99% 4.01%
-200 2.39% 4.00% 4.90% -1.09% -2.35% 5.92%

As the table indicates, the Bank is susceptible to lower earnings in a
rising rate environment and will experience slightly higher earnings in a
declining rate situation. The Bank has a negative GAP position which is
reflected in the table.

Indian River has been in a liability sensitive position during 2001 and
2002, which is reflected in the above tables. The Company has developed
strategies to bring the balance sheet into a more neutral position and will
continue to implement these actions in 2003, although there can be no assurance
that we will be successful in implementing such strategies, or that they will be
appropriate strategies in light of future events and circumstances. The Company
is sensitive to the economic environment and will restructure the repricing
characteristics in a gradual manner to minimize major asset purchases at the
bottom of the rate cycle.

Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or repricing periods, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features that restrict changes in interest rates on a short-term
basis and over the life of the loan. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the tables. Finally, the ability
of many borrowers to service their debt may decrease in the event of a
significant interest rate increase.

In addition, the previous table does not necessarily indicate the
impact of general interest rate movements on Indian River's net interest income
because the repricing of certain categories of assets and liabilities are
subject to competitive and other pressures beyond the Company's control. As a
result, certain assets and liabilities indicating as maturing or otherwise
repricing within a stated period may in fact mature or reprice at different
times and at different volumes.

Management uses the model to ascertain general levels of risk and to
consider specific strategies to mitigate that risk.

27

The following table reflects the shorter of the maturity or repricing
date as of December 31, 2002.

More than 3
Months but 1 Year
3 Months Less than 1 through 5 More than 5
or Less Year Years Years Total
---------- ----------- --------- ----------- ---------
(Dollars in Thousands)

ASSETS
Investment Securities (at
Amortized Cost) $ 11,308 $ 35,154 $ 102,279 $ 36,135 $ 184,876
Federal funds sold 1,001 -- -- -- 1,001
Loans 83,007 36,311 113,961 12,754 246,033
---------- ---------- --------- --------- ---------
Total earning assets $ 95,316 $ 71,465 $ 216,240 $ 48,889 $ 431,910
---------- ---------- --------- --------- ---------

LIABILITIES
Certificates of deposit $ 23,925 $ 67,526 $ 38,517 $ 237 $ 130,205
Money market accounts 2,105 -- -- -- 2,105
Transactions accounts 49,672 -- -- -- 49,672
Savings accounts 116,028 -- -- -- 116,028
Federal funds purchased 11,698 -- -- -- 11,698
FHLB advances -- 286 285 38,000 38,571
---------- ---------- --------- --------- ---------
Total interest-bearing liabilities $ 203,428 $ 67,812 $ 38,802 $ 38,237 $ 348,279
---------- ---------- --------- --------- ---------

Interest sensitivity gap:

Amount $ (108,112) $ 3,653 $ 177,438 $ 10,652 $ 83,631
Cumulative Gap $ (108,112) $ (104,459) $ 72,979 $ 83,631 $ 83,631
Gap as % of Total Assets (23.60)% 0.80 % 38.73% 2.33% 18.26%
Cumulative Gap as % of Total Assets (23.60)% (22.80)% 15.93% 18.26% 18.26%

Ratio of rate sensitive assets to
rate sensitive liabilities 0.47 % 1.05 % 5.57% 1.28% 1.24%

Cumulative ratio of rate sensitive
assets to rate sensitive liabilities 0.47 % 0.62 % 1.24% 1.24% 1.24%

The amount of assets and liabilities shown which re-price or mature during a
particular period were determined in accordance with the earlier of term to
re-pricing or the contractual terms of the asset or liability. Indian River Bank
has assumed that its savings, interest checking, and money market accounts
re-price daily. At December 31, 2002, the bank's one-year interest sensitivity
gap (the difference between the amount of interest-earning assets and interest
bearing liabilities, anticipated by the bank, based on certain assumptions, to
mature or re-price within one year) as a percentage to total assets was -22.80%.
This negative gap position means the bank had $104.5 million more liabilities
than assets re-pricing within one year. This generally indicates that in a
period of increasing interest rates, the bank's net interest income may be
negatively affected. Conversely, in a declining interest rate environment, the
bank's net interest income may increase. However, this approach assumes that all
re-pricing assets and liabilities will re-price the same way. Historical data
indicates that certain deposit liabilities such as interest checking, savings,
and money market deposits do not re-price the same way as other products and
interest gap analysis tend to be more accurate when adjusted to reflect such
behavior. No adjustments are included in the table presented. Indian River also
monitors its exposure to changes in interest rates using models which measure
the impact of assumed changes.

CAPITAL ADEQUACY. Total stockholders' equity was $34.8 million at
December 31, 2002 compared to $27.7 million at December 31, 2001. The change
represents an increase of $7.1 million or 25.80%. This change is a result of
earnings of $5.5 million, net unrealized holding gains on investment securities
of $1.3 million, and stock issued of $0.3 million in 2002.

28

At December 31, 2002, Indian River Bank's ratio of Tier 1 capital to
total average assets equaled 7.40%, which exceeded the minimum leverage capital
ratio of 4.00% by 3.40% and the minimum leverage ratio for "well capitalized"
banks of 5.00% by 2.40%.

The ratio of Indian River's average equity to average assets for the
years ended December 31, 2002, 2001 and 2000 was 7.39%, 6.96% and 5.32%,
respectively.

Indian River monitors its capital levels and those of Indian River Bank
in light of regulatory guidelines and requirements, and the anticipated nature
and level of growth in assets. The ability of Indian River Bank to continue
growth is dependent on its ability to increase its regulatory capital levels,
through retained earnings, holding company borrowing, or the issuance of
additional equity or debt securities. In the event that Indian River is unable
to obtain additional capital on a timely basis, the growth of Indian River and
Indian River Bank may be curtailed, and they could be required to reduce their
level of assets in order to maintain compliance with regulatory capital
requirements. Under those circumstances net income and the rate of growth of net
income may be adversely affected. Indian River does not currently anticipate the
inability to maintain compliance with regulatory capital requirements.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and Notes thereto 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 the
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of operations. Unlike
most industrial companies, nearly all of our assets and liabilities are monetary
in nature. As a result, interest rates have a greater impact on our performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods or services.

IMPACT OF NEW ACCOUNTING STANDARDS

Recently issued accounting standards are not expected to materially
affect Indian River's financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Please refer to Item 7 of this report, "Management's Discussion and
Analysis", under the caption "Asset/Liability Management and Quantitative and
Qualitative Disclosures about Market Risk."

29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
Indian River Banking Company
Vero Beach, Florida

We have audited the accompanying consolidated balance sheets of Indian River
Banking Company and subsidiaries (the "Bank") as of December 31, 2002 and 2001,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the each of the three years in the period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

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

/s/ McGladrey & Pullen, LLP

Fort Lauderdale, Florida
January 27, 2003

30

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

(Dollars in Thousands)
ASSETS 2002 2001
- -----------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents
Cash and due from banks (Notes 2 and 18) $ 18,856 $ 13,334
Federal funds sold (Note 18) 1,001 10,033
----------------------------
TOTAL CASH AND CASH EQUIVALENTS 19,857 23,367

Investment Securities (Note 3 and 9)
Securities available-for-sale 176,383 128,758
Securities held to maturity (market value 2002 $9,983;
2001 $13,505) 9,742 13,562
Other securities, at cost 2,370 1,899
----------------------------
TOTAL INVESTMENT SECURITIES 188,495 144,219

Loans Held for Sale 13,186 5,795
Loans (Notes 4, 9, 12, 17 and 18) 232,847 210,863
Less allowance for loan losses (Note 5) (3,259) (2,820)
----------------------------
LOANS, NET 229,588 208,043

Bank Premises and Equipment, net (Note 6) 4,084 4,052

Accrued Interest Receivable 2,207 2,783

Other Assets (Note 8) 780 886
----------------------------

TOTAL ASSETS $ 458,197 $ 389,145
============================

See Notes to Consolidated Financial Statements.

31

LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
- --------------------------------------------------------------------------------------------------------------

Liabilities
Noninterest-bearing demand deposits $ 66,883 $ 49,062
Interest-bearing deposits:
NOW 49,672 37,221
Money market 2,105 3,170
Savings 116,028 108,628
Time deposits, $100,000 and over (Note 7) 43,751 34,306
Other time deposits (Note 7) 86,454 86,419
----------------------------
TOTAL DEPOSITS 364,893 318,806
Federal funds purchased and securities sold under
repurchase agreements (Note 9) 11,698 13,156
Guaranteed preferred beneficial interests in Company's subordinated
debentures (Note 9) 7,000 --
Other borrowings (Note 9) 38,571 28,427
Other liabilities (Note 8) 1,186 1,052
----------------------------

TOTAL LIABILITIES 423,348 361,441
----------------------------

Commitments and Contingencies (Notes 9, 13, and 17)

Stockholders' Equity (Notes 10, 11, 16 and 23)
Common stock, $1 par value; 10,000,000 shares
authorized; issued and outstanding 2002 2,162,631 shares;
2001 1,948,642 shares, 2,163 1,949
Capital surplus 27,427 20,878
Retained earnings 2,979 3,879
Accumulated other comprehensive income 2,280 998
----------------------------
TOTAL STOCKHOLDERS' EQUITY 34,849 27,704
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 458,197 $ 389,145
============================

32

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Thousands)
2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------

Interest income:
Loans and fees on loans $ 16,876 $ 17,623 $ 15,973
Investment securities and due from banks 8,496 8,170 8,020
Federal funds sold 137 248 16
--------------------------------------------
25,509 26,041 24,009
--------------------------------------------
Interest expense:
Deposits 7,472 10,774 10,692
Other 1,741 1,942 1,832
--------------------------------------------
9,213 12,716 12,524
--------------------------------------------
NET INTEREST INCOME 16,296 13,325 11,485
Provision for loan losses (Note 5) 620 600 660
--------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,676 12,725 10,825
--------------------------------------------
Other income:
Service charges and fees 1,877 1,657 1,338
Gain on sales of securities (Note 3) 813 222 12
Gain on sale of loans 1,492 1,370 696
Other 827 683 506
--------------------------------------------
5,009 3,932 2,552
--------------------------------------------
Other expense:
Salaries 5,147 4,805 3,903
Employee benefits 820 764 695
Occupancy 861 824 688
Furniture and equipment 728 688 820
Other operating expenses (Note 14) 4,275 3,783 3,212
--------------------------------------------
11,831 10,864 9,318
--------------------------------------------
INCOME BEFORE INCOME TAXES 8,854 5,793 4,059
Provision for income taxes (Note 8) 3,323 2,111 1,428
--------------------------------------------
NET INCOME $ 5,531 $ 3,682 $ 2,631
============================================

Basic earnings per share (Note 11) $ 2.57 $ 1.72 $ 1.37
============================================

Diluted earnings per share (Note 11) $ 2.51 $ 1.69 $ 1.34
============================================

See Notes to Consolidated Financial Statements

33

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Thousands)

Common Stock
-------------------------- Capital
Shares Amount Surplus
- ---------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999 634 634 $ 8,686
10% stock dividend 63 63 1,303
Fractional shares -- -- --
2 for 1 stock split 697 697 (697)
Stock options exercised 2 2 37
Issuance of common stock (Note 21) 208 208 4,866
Comprehensive income:
Net income -- -- --
Other comprehensive income, unrealized
gain on securities, net of tax (Note 3) -- -- --

COMPREHENSIVE INCOME
---------------------------------------------
Balance, December 31, 2000 1,604 1,604 14,195
10% stock dividend 160 160 2,177
Fractional shares -- -- --
Stock options exercised 7 7 77
Stock-based compensation -- -- 8
Comprehensive income:
Net income -- -- --
Other comprehensive income, unrealized
gain on securities, net of tax (Note 3) -- -- --

COMPREHENSIVE INCOME
---------------------------------------------
Balance, December 31, 2001 1,772 1,772 16,456
10% stock dividend 177 177 4,422
Fractional shares -- -- --
Stock options exercised 17 17 219
Stock-based compensation -- -- 104
Comprehensive income:
Net income -- -- --
Other comprehensive income, unrealized
gain on securities, net of tax (Note 3) -- -- --

COMPREHENSIVE INCOME
---------------------------------------------
Balance, December 31, 2002 1,966 1,966 21,201
Retroactive effect of stock dividend (Note 23) 197 197 6,226
---------------------------------------------
Balance, December 31, 2002, as adjusted 2,163 2,163 $ 27,427
=============================================

See Notes to Consolidated Financial Statements.

34

Accumulated
Other Total
Retained Comprehensive Stockholders' Comprehensive
Earnings Income (Loss) Equity Income (Loss)
- ---------------------------------------------------------------------------
$ 5,876 $ (1,604) $ 13,592

(1,366) -- --

(4) -- (4)

-- -- --

-- -- 39

-- -- 5,074

2,631 -- 2,631 $ 2,631

-- 1,869 1,869 1,869
-------
$ 4,500
- --------------------------------------------------------------- =======
7,137 265 23,201

(2,337) -- --

(4) -- (4)

-- -- 84

-- -- 8

3,682 -- 3,682 $ 3,682

-- 733 733 733
-------
$ 4,414
- --------------------------------------------------------------- =======
8,478 998 27,704
(4,599) -- --
(8) -- (8)
-- -- 236
-- -- 104

5,531 -- 5,531 $ 5,531

-- 1,282 1,282 1,282
-------
$ 6,814
- --------------------------------------------------------------- =======
9,402 2,280 34,849
(6,423) -- --
- ----------------------------------------------------
$ 2,979 $ 2,280 $ 34,849
====================================================

35

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Thousands)
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------

Cash Flows From Operating Activities
Net income $ 5,531 $ 3,682 $ 2,631
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 601 638 713
Provision for loan losses 620 600 660
Other real estate owned losses -- -- 15
Deferred income taxes (218) (109) (192)
Proceeds from sale of loans originated for resale 74,037 65,547 10,476
Origination of loans for resale (79,936) (67,100) (12,857)
Gain on sale of loans (1,492) (1,370) (696)
Stock-based compensation 104 8 --
Amortization of premiums and discounts, net 534 40 94
Gain on sale of securities (813) (222) (12)
Decrease (increase) in accrued interest receivable 576 207 (730)
(Increase) decrease in other assets (240) 110 (171)
Increase (decrease) in other liabilities (56) 109 218
------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (752) 2,140 149
------------------------------------------
Cash Flows From Investing Activities
Cash flows from securities (Note 19) (41,961) (22,347) (28,394)
Loan originations, net of collections (22,165) (19,015) (28,632)
Proceeds from sale of loans -- 5,094 --
Proceeds from the sale of other real estate owned and land -- -- 315
Purchases of premises and equipment (633) (873) (444)
------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (64,759) (37,141) (57,155)
------------------------------------------
Cash Flows From Financing Activities
Net increase in deposits 46,087 34,262 45,699
Net increase (decrease) in fed funds purchased
and repurchase agreements (1,458) (2,088) 7,444
Proceeds from other borrowings 11,125 25,600 10,600
Proceeds from issuance of trust preferred securities 7,000 -- --
Principal payments on borrowings (981) (10,316) (7,731)
Proceeds from issuance of stock (Note 21) -- -- 5,074
Proceeds from exercise of stock options 236 84 39
Cash paid for fractional shares (8) (4) (4)
------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,001 47,538 61,121
------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,510) 12,537 4,115
Cash and cash equivalents:
Beginning 23,367 10,830 6,715
------------------------------------------
Ending $ 19,857 $ 23,367 $ 10,830
==========================================

See Notes to Consolidated Financial Statements (Additional cash flow information
- - Note 19).

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business: Indian River Banking Company and its wholly-owned
subsidiaries (collectively referred to as the "Bank") provide a full range of
banking services to individual and corporate customers through its various
locations in Indian River and Brevard Counties in Florida. Segment information
is not presented since all of the Bank's revenue is attributed to a single
reportable segment. The Bank is subject to competition from other financial
institutions and nonfinancial institutions providing financial products. Indian
River Banking Company is a financial holding company incorporated in the State
of Florida.

Principles of consolidation: The accompanying consolidated financial statements
include the accounts of Indian River Banking Company ("Indian River") and its
wholly-owned subsidiaries, Indian River National Bank ("Indian River Bank"), a
federally-chartered independent community bank, Indian River Title Company, LLC,
IRNB Insurance Services, LLC, and Indian River Capital Trust I, collectively
referred to as the "Bank". All significant intercompany accounts and
transactions have been eliminated in consolidation.

Basis of accounting: The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles generally accepted in
the United States of America and general practice within the banking industry.
In preparing the consolidated financial statements, the Bank's management is
required to make estimates and assumptions which significantly affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates,
which are particularly susceptible to change in a short period of time, include
the determination of the allowance for loan losses and the fair value of
securities. Actual results could differ from those estimates.

Cash and cash equivalents: Cash and cash equivalents include cash on hand,
amounts due from banks (including cash items in process of clearing), and
federal funds sold. For purposes of reporting cash flows, loans and deposits are
reported net. The Bank maintains amounts due from banks which, at times, may
exceed federally-insured limits. The Bank has not experienced any losses in such
accounts.

Investment in debt securities: Management determines the appropriate
classification of securities as each individual security is acquired. In
addition, the appropriateness of such classification is reassessed at each
balance sheet date. The Bank's classifications of debt securities and related
accounting policies are as follows:

Securities held to maturity: Held to maturity securities are those securities
which the Bank has the ability and intent to hold until maturity. All other
securities not included in held to maturity are classified as
available-for-sale. Held to maturity securities are reported at amortized
cost. The amortization of premiums and accretion of discounts, computed by
the interest method over their contractual lives, are recognized in interest
income.

Available-for-sale securities: Securities classified as available-for-sale
are those debt securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity
mix of the Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Securities available-for-sale are carried at fair value. Unrealized gains or
losses, net of the related deferred tax effect, are reported as a separate
component of accumulated other comprehensive income. Realized gains or
losses, determined on the basis of the cost of specific securities sold, are
included in earnings. The amortization of premiums and accretion of
discounts, computed by the interest method over their contractual lives, are
recognized in interest income.

Loans held for sale: Loans held for sale are carried at the lower of cost or
market value in the aggregate. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to income.

Loans and allowance for loan losses: Loans are stated at the amount of unpaid
principal, reduced by unearned discounts and fees and an allowance for loan
losses.

Loan origination and commitment fees and certain direct loan origination costs
are being deferred and amortized, using the interest method, as an adjustment of
the related loan's yield. The Bank is amortizing these amounts over the
contractual lives of the loans, adjusted for prepayments. Commitment fees which
are based upon a percentage of a customer's unused line of credit and fees
related to standby letters of credit are recognized over the commitment period.

Interest on loans is recognized over the terms of the loans and is calculated
using the simple-interest method on principal amounts outstanding. For impaired
loans, accrual of interest is generally discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to make
payments as they become due. Interest on these loans is recognized only when
actually paid by the borrower if collection of the principal is likely to occur.
Accrual of interest is generally resumed when the customer is current on all
principal and interest payments.

The allowance for loan losses is maintained to provide for estimated losses in
the loan portfolio that have been incurred as of the balance sheet date. In
establishing the allowance, management (1) makes specific allocations for
certain non-performing loans based on management's estimates of collateral
shortfall, (2) applies loss factor percentages to the balances of identified
loans in each category of problem and past due loans, and (3) applies loss
factor percentages to balances of performing loans in each category of loans.
Loss factor percentages are determined taking into consideration the risk
characteristics of the loan portfolio, past charge-off experience of the Bank
and its peer group, general economic conditions, and other factors that warrant
current recognition. While management uses the best information available to
make its evaluation, the allowance could change materially within the next year
if there are significant changes in economic conditions.

As adjustments to the allowance for loan losses become necessary, they are
reflected as a provision for loan losses in current-period earnings. Actual loan
charge-offs are deducted from and subsequent recoveries are added to the
allowance.

A loan is considered to be impaired when it is probable that the Bank will be
unable to collect all principal and interest amounts according to the
contractual terms of the loan agreement. Under this definition, management
considers loans that have been placed on nonaccrual status or which have been
renegotiated in a troubled debt restructuring to be impaired. Larger groups of
smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual consumer and
residential loans for impairment disclosures.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The allowance for loan losses related to loans identified as impaired is based
on discounted expected future cash flows (using the loan's initial effective
interest rate), the observable market value of the loan, or the estimated fair
value of the collateral for certain collateral dependent loans.

Transfers of financial assets: Transfers of financial assets are accounted for
as sales only when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Bank, (2) the transferee obtains the right to pledge or
exchange the assets it received, and no condition both constrains the transferee
from taking advantage of its right to pledge or exchange and provides more that
a modest benefit to the transferor, and (3) the Bank does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity or the ability to unilaterally cause the holder to return
specific assets.

Credit related financial instruments: In the ordinary course of business, the
Bank has entered into commitments to extend credit, including commitments under
standby letters of credit. Such financial instruments are recorded when they are
funded.

Bank premises and equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using accelerated and
straight-line methods over the following estimated useful lives:

Years
-----------
Land improvements 3 - 20
Buildings and improvements 5 - 39
Leasehold improvements 5 - 15
Furniture, fixtures and equipment 3 - 10

Income taxes: Indian River and its subsidiaries file consolidated income tax
returns. Deferred taxes are provided on an asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
operating loss or tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the amounts of assets and liabilities recorded for income
tax and financial reporting purposes. Deferred tax assets are reduced by a
valuation allowance when management determines that it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.

Other revenue recognition: Revenue from insurance, realty, trust and services
and services charges and fees on customer deposits is recognized as the services
are provided.

Stock-based compensation: The Bank has three stock-based employee compensation
plans, which are described more fully in Note 10. The Bank accounts for those
plans using the intrinsic value method provided under APB Opinion No. 25,
Accounting for Stock Issued to Employees. Generally, the Bank has recognized no
compensation cost for stock options granted, as all options granted had an
exercise price equal to the estimated market value of the underlying common
stock on the date of grant. Option holders may elect a "cashless exercise" of
their vested options, under which they receive shares of common stock with a
fair value equal to the intrinsic value of the options at the date of exercise,
without any payment. Those option awards expected to be exercised via this
cashless exercise are accounted for as variable plan awards and, as such, the
Bank recognizes compensation expense equal to the change in the intrinsic value
of such options during the period. The following table illustrates the effect on
net income and earnings per share if the Bank had applied fair value recognition
provisions to stock-based employee compensation.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(Dollars in Thousands, except per share data) 2002 2001 2000
----------------------------------------

Net income, as reported $ 5,531 $ 3,682 $ 2,631
Add total stock-based employee compensation expense
determined under the intrinsic value based method
for all awards, net of related tax effects 66 5 --
Deduct total stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects (192) (93) (174)
----------------------------------------
Pro forma net income $ 5,405 $ 3,594 $ 2,457
========================================

Basic earnings per share As reported 2.57 1.72 1.37
Pro forma 2.52 1.68 1.28

Diluted earnings per share As reported 2.51 1.69 1.34
Pro forma 2.46 1.65 1.25

Earnings per share: Basic earnings per-share amounts are computed by dividing
net income (the numerator) by the weighted-average number of common shares
outstanding adjusted for stock dividends and splits occurring subsequent to
year-end (the denominator). Diluted earnings per-share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce the loss or increase the income per common share
from continuing operations, and is determined using the treasury stock method.

Fair value of financial instruments: The Bank discloses fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Certain financial instruments and all
nonfinancial assets and liabilities have been excluded from the disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.

The fair value estimates presented are based on pertinent information available
to management as of December 31, 2002 and 2001. Although management is not aware
of any factors that would significantly affect the estimated fair value amount,
such amounts have not been comprehensively revalued for purposes of these
financial statements since these dates and therefore, current estimates of fair
value may differ significantly from the amounts presented in these financial
statements.

Reclassification: Certain amounts in the Consolidated Statements of Income for
year ended December 2001 have been reclassified to conform to classifications
for year ended December 31, 2002.

Recently issued accounting standards: Recently issued accounting standards are
not expected to materially affect the Bank's financial statements.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. CASH AND DUE FROM BANKS

The Bank is required to maintain reserve balances in cash or with the Federal
Reserve Bank, based on a percentage of certain deposits. The total required
reserve balances as of December 31, 2002 and 2001 were approximately $4.6
million and $4.2 million respectively.

NOTE 3. INVESTMENT SECURITIES

Securities held to maturity: The amortized cost and fair values of securities
held to maturity as of December 31, 2002 and 2001 are summarized as follows.

DECEMBER 31, 2002
---------------------------------------------------------------------
(Dollars in Thousands) ESTIMATED ESTIMATED ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------------------------------------------------------------------

Mortgage-backed securities $ 3,814 $ -- $ (11) $ 3,803
State, county and municipal
securities 5,928 252 -- 6,180
---------------------------------------------------------------------
$ 9,742 $ 252 $ (11) $ 9,983
=====================================================================

December 31, 2001
---------------------------------------------------------------------
(Dollars in Thousands) Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------

U.S. Government agency securities $ 3,232 $ -- $ (12) $ 3,220
Mortgage-backed securities 5,037 38 -- 5,075
State, county and municipal
securities 5,293 38 (121) 5,210
---------------------------------------------------------------------
$ 13,562 $ 76 $ (133) $ 13,505
=====================================================================

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENT SECURITIES (CONTINUED)

The amortized cost and fair values of securities held to maturity at December
31, 2002, by contractual maturity, are shown below. Mortgage-backed securities
are excluded from the maturity categories because they are not due at a single
due date. In addition, mortgage-backed securities may mature earlier than their
contractual maturities because of prepayments.

Estimated
(Dollars in Thousands) Amortized Market
Cost Value
----------------------------
Due less than ten years $ 635 $ 635
Due after ten years 5,293 5,545
Mortgage-backed securities 3,814 3,803
----------------------------
$ 9,742 $ 9,983
===========================

Securities available-for-sale: The amortized cost and fair values of securities
available-for-sale as of December 31, 2002 and 2001 are summarized as follows:

DECEMBER 31, 2002
-----------------------------------------------------------------------
ESTIMATED ESTIMATED ESTIMATED
(Dollars in Thousands) AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------

U.S. Government corporations
and agencies $ 26,060 $ 1,172 $ -- $ 27,232
Corporate securities 10,470 422 (5) 10,887
Mortgage-backed securities 136,234 2,139 (109) 138,264
-----------------------------------------------------------------------
$ 172,764 $ 3,733 $ (114) $ 176,383
=======================================================================

December 31, 2001
-----------------------------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------------

U.S. Government corporations
and agencies $ 58,972 $ 1,145 $ (397) $ 59,720
Corporate securities 56,768 904 (193) 57,479
Mortgage-backed securities 11,434 166 (41) 11,559
-----------------------------------------------------------------------
$ 127,174 $ 2,215 $ (631) $ 128,758
=======================================================================

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENT SECURITIES (CONTINUED)

The amortized cost and fair values of securities available for sale at December
31, 2002, by contractual maturity, are shown below. Mortgage-backed securities
are excluded from the maturity categories because they are not due at a single
due date. In addition, mortgage-backed securities may mature earlier than their
contractual maturities because of prepayments.

Estimated
Amortized Market
(Dollars in Thousands) Cost Value
-------------------------

Due in less than one year $ 2,496 $ 2,512
Due after one year through five years 29,022 30,390
Due after five years through ten years 5,012 5,217
Mortgage-backed securities 136,234 138,264
-------------------------
$ 172,764 $ 176,383
========================

Securities available for sale with a carrying amount of $33.1 million and $40.2
million at December 31, 2002 and 2001, respectively, were pledged as collateral
on public deposits, various lines of credit (see Note 9), repurchase agreements,
and for other purposes as required or permitted by law.

Gross gains of $813 thousand, $222 thousand, and $12 thousand were realized from
the sale of securities available for sale in the years ended December 31, 2002,
2001 and 2000, respectively. The income tax impact of these gains was $305
thousand, $83 thousand and $4 thousand for the years ended December 31, 2002,
2001 and 2000, respectively.

Unrealized gains (losses) on securities available for sale for the years ended
December 31, 2002, 2001 and 2000 are as follows:

(Dollars in Thousands) 2002 2001 2000
-----------------------------------------------

Unrealized holding gains arising during the period $ 2,848 $ 1,385 $ 2,927
Less reclassification adjustment for gains realized
in net income 813 222 12
-----------------------------------------------
Net unrealized gains, before tax expense 2,035 1,163 2,915
Tax expense (753) (430) (1,046)
-----------------------------------------------
Other comprehensive income $ 1,282 $ 733 $ 1,869
===============================================

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENT SECURITIES (CONTINUED)

Other securities consist primarily of nonmarketable equity securities as follows
at December 31, 2002 and 2001:

(Dollars in Thousands) 2002 2001
-----------------------
Federal Reserve Bank stock $ 182 $ 182
Federal Home Loan Bank stock 2,178 1,707
Other securities 10 10
-----------------------
$ 2,370 $ 1,899
=======================

The Bank, as a member of the Federal Home Loan Bank ("FHLB") system, is required
to maintain an investment in capital stock of the FHLB in an amount equal to the
greater of 1% of its outstanding home loans or 5% of advances from the FHLB. No
ready market exists for the FHLB stock, and it has no quoted market value.

NOTE 4. LOANS

The composition of loans is as follows at December 31, 2002 and 2001:

(Dollars in Thousands) 2002 2001
--------------------------
Real estate:
Construction and land development $ 45,913 $ 32,778
Farmland 3,181 2,943
One to four family residential 87,841 74,917
Multifamily residential 2,506 3,521
Nonfamily, nonresidential 64,458 62,660
Agriculture 1,788 2,455
Commercial and industrial 13,257 14,948
Consumer 11,645 14,421
Other 2,262 2,225
--------------------------

232,851 210,868
Unearned discounts and loan fees (4) (5)
--------------------------
$ 232,847 $ 210,863
==========================

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS (CONTINUED)

The Bank's recorded investment in impaired loans for which a specific allowance
was recognized was $585 thousand and $133 thousand at December 31, 2002 and
2001, respectively. The specific allowance associated with these loans was $100
thousand and $50 thousand at December 31, 2002 and 2001, respectively. The
average recorded investment in impaired loans during 2002 and 2001 was $316
thousand and $148 thousand, respectively. Interest income recognized on impaired
loans, recognized for cash payments received in 2002, 2001 and 2000 was not
significant.

Loans on non-accrual status totaled $678 thousand and $133 thousand at December
31, 2002 and 2001, respectively. Loans past due 90 days or more and still
accruing interest totaled $60 thousand and $157 thousand at December 31, 2002
and 2001, respectively.

NOTE 5. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the years ended December 31, 2002,
2001 and 2000 are as follows:

(Dollars in Thousands) 2002 2001 2000
---------------------------------
Balance, beginning $ 2,820 $ 2,453 $ 1,904
Provision for loan losses 620 600 660
Loans charged off (226) (267) (153)
Recoveries of amounts charged off 45 34 42
---------------------------------
Balance, ending $ 3,259 $ 2,820 $ 2,453
=================================

NOTE 6. BANK PREMISES AND EQUIPMENT

The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:

(Dollars in Thousands) December 31,
-------------------
2002 2001
-------------------
Land and improvements $ 1,699 $ 1,691
Buildings and improvements 1,528 1,423
Leasehold improvements 708 701
Furniture, fixtures and equipment 4,798 4,297
-------------------
8,733 8,112
Less accumulated depreciation and amortization 4,649 4,060
-------------------
$ 4,084 $ 4,052
===================

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. TIME DEPOSITS

At December 31, 2002, the scheduled maturities of time deposits are as follows:

(Dollars in Thousands)

Year Ending December 31, Amount
- ------------------------------------------------------
2003 $ 91,443
2004 27,463
2005 4,033
2006 2,951
2007 4,077
Thereafter 238
---------
$ 130,205
=========

NOTE 8. INCOME TAXES

The net deferred tax effects of the primary temporary differences are as shown
in the following table:

--------------------
(Dollars in Thousands) December 31,
--------------------
2002 2001
--------------------
Deferred tax assets:
Loan loss allowances $ 1,120 $ 970
Other 110 17
--------------------
Total deferred tax assets 1,230 987
--------------------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities (1,339) (586)
Other (80) (55)
--------------------
Total deferred tax liabilities (1,419) (641)
--------------------
Net deferred tax assets (liabilities) $ (189) $ 346
====================

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. INCOME TAXES (CONTINUED)

The provision for income taxes charged to operations for the years ended
December 31, 2002, 2001 and 2000 consists of the following:

(Dollars in Thousands) December 31,
--------------------------------------
2002 2001 2000
--------------------------------------
Current tax expense
Federal $ 3,055 $ 1,894 $ 1,377
State 486 326 243
Deferred tax expense (218) (109) (192)
--------------------------------------
$ 3,323 $ 2,111 $ 1,428
======================================

The provision for income taxes differs from the amount of income tax determined
by applying the U. S. federal income tax rate to pretax income as follows:

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

Computed "expected" federal tax expense $ 3,099 35.0 % $ 2,028 35.0 % $ 1,421 35.0 %

Increase in income taxes resulting from:
State income taxes, net of federal tax
benefit 317 3.6 204 3.5 137 3.4
Other (93) (1.1) (121) (2.1)% (130) (3.2)
--------------------------------------------------------------------
Provision for income taxes $ 3,323 37.5 % $ 2,111 36.4 % $ 1,428 35.2 %
====================================================================

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. BORROWINGS AND PLEDGED ASSETS

Fed Funds Purchased and Securities Sold under Repurchase Agreements:

Indian River Bank had $5 million of overnight advances under the line of credit
with the Federal Home Loan Bank at December 31, 2002 and no advances as of
December 31, 2001, in addition to the advances discussed above.

Indian River Bank also has lines of credit of $30 million available for federal
funds purchases with other correspondent banks. There were $4.3 million of
advances at December 31, 2002 and no advances at December 31, 2001.

Indian River Bank has pledged securities with a carrying amount of approximately
$22.6 million as collateral for repurchase agreements at December 31, 2002, with
borrowings of $2.4 million and $13.2 million at December 31, 2002 and 2001,
respectively.

Guaranteed preferred beneficial interests in Company's subordinated debentures:

On September 30, 2002, a wholly-owned statutory business trust established by
the Company issued $7 million in guaranteed preferred beneficial interest in the
trust ("trust-preferred securities"). The sole assets of the statutory business
trust are a series of subordinated debentures of the Company in the amount of $7
million and related payments. The Company has fully and unconditionally
guaranteed the statutory business trust's obligations under the trust-preferred
securities, to the extent set forth in the guarantee agreement.

The subordinated debentures are unsecured and subordinate to all senior debt (as
defined) of the Company. The subordinated debentures bear interest at a variable
rate of 3 months LIBOR plus 3.45%, 5.34% for the quarterly period ended December
31, 2002, and mature on November 7, 2032. They are redeemable in whole or in
part on or after November 7, 2007. The trust preferred securities are subject to
mandatory redemption, in whole or in part, upon repayment of the debentures at
their maturity or earlier redemption.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. BORROWINGS AND PLEDGED ASSETS (CONTINUED)

Other borrowings consist of the following at December 31, 2002 and 2001:

(Dollars in Thousands)

--------------------------
2002 2001
--------------------------

Advance under line of credit with Colonial Bank, interest payable quarterly
at an adjustable rate, 4.75% at December 31, 2002 $ -- $ 570
Federal Home Loan Bank advances (a):
Advance due May 25, 2011, interest payable
quarterly at a fixed rate of 3.95% 15,000 15,000
Advance due January 25, 2011, interest payable
quarterly at a fixed rate of 4.41% 10,000 10,000
Advance, interest payable monthly at a fixed rate of 6.44%,
with equal semiannual principal payments of $143 thousand
through September 2004 571 857
Convertible advance due March 2008, interest payable
quarterly at a fixed rate of 5.51%. In March 2003, the
advance can be called at the option of the lender, at which
time it can be converted into various other advance terms
by the Bank 2,000 2,000
Convertible advance due November 5, 2012, interest payable
quarterly at a fixed rate of 2.47%. In November 2005, the
advance can be called at the option of the lender, at which
time it can be converted into various other advance terms
by the Bank 6,000 --
Convertible advance due November 7, 2012, interest payable
quarterly at a fixed rate of 3.35%. In November 2007, the
advance can be called at the option of the lender, at which
time it can be converted into various other advance terms
by the Bank 5,000 --
--------------------------
$ 38,571 $28,427
==========================

(a) Indian River Bank has a secured line of credit with the Federal Home Loan
Bank under which Indian River Bank can borrow up to a specified percentage of
pledged assets or approximately $4.3 million at December 31, 2002. Advances
under the line are collateralized by residential first mortgage loans with a
balance of approximately $63.9 million at December 31, 2002 and Indian River
Bank's stock in the Federal Home Loan Bank in the amount of $2.2 million at
December 31, 2002.

The aggregate amounts of other borrowings and trust-preferred securities
maturing in future years (based on the outstanding balance and interest rates as
of December 31, 2002) are as follows: 2003 $286 thousand; 2004 $285 thousand;
after 2007 $45.0 million.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK BASED COMPENSATION

Under the terms of the 1999 Stock Option Plan, options to purchase shares of
Indian River's common stock may be granted to directors and key
officers/employees at a price that is not less than the fair market value of
such stock at the date of the grant. Options granted to employees under the plan
may be designated as incentive stock options. All options expire no more than
ten years from the date of the grant, or three months after an employee's
termination. In accordance with the plan, the aggregate number of shares for
which options may be granted, the number of shares covered for each outstanding
option, and the exercise price per share for each such option shall be
proportionately adjusted for the payment of stock dividends or similar
adjustments to the number of shares of common stock effected without the receipt
of consideration by Indian River. At December 31, 2002, the number of shares
eligible to be issued under the Plan was 366,025, and approximately 163,000
shares remained available for granting.

In December 1999, the Board of Directors adopted the Director Fee Stock Option
Plan, under which each director is entitled to receive options to purchase
shares of common stock in lieu of cash compensation for attendance at committee
meetings. Options granted have an exercise price equal to the fair value of the
common stock at the date of grant.

In 2001, Indian River adopted the Employee Tenure Stock Grant Plan, under which
non-executive officer employees are granted one share of common stock for each
year of service upon the anniversary date of their employment with Indian River,
commencing with their fifth anniversary. In 2001, 315 shares of stock were
granted. In 2002, 5,500 shares of common stock were authorized for issuance
under this plan and 426 were granted.

A summary of the options activity for the years ended December 31, 2002, 2001
and 2000 is presented below (after adjusting for 10% stock dividends in 2002,
2001 and 2000, a 2 for 1 stock split effective March 31, 2000, and a 10% stock
dividend declared in January 2003).

WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
---------------------------------

Outstanding at December 31, 1999 142,913 $ 13.23
Granted 59,151 16.36
Exercised (16,339) 12.35
Forfeited (825) 11.68
---------------------------------
Outstanding at December 31, 2000 184,900 14.32
Granted 51,355 19.53
Exercised (84,266) 13.79
Forfeited (6,271) 15.25
---------------------------------
Outstanding at December 31, 2001 145,718 16.68
Granted 39,432 23.92
Exercised (19,030) 13.62
Forfeited (3,920) 16.25
---------------------------------
Outstanding at December 31, 2002 162,200 $ 18.41
=================================

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK BASED COMPENSATION (CONTINUED)

At December 31, 2002, the total options outstanding and exercisable were as
follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ---------------------------------
RANGE OF WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
PRICES OUTSTANDING LIFE (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------

$13 - 17 75,269 5.82 $ 14.91 61,039 $ 15.10
19 - 22 49,960 8.03 19.61 49,960 19.61
23 - 26 36,971 9.11 23.93 19,902 23.58
------------------------------------------------------------------------------------
Total 162,200 7.25 $ 18.41 130,901 $ 18.11
====================================================================================

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002, 2001, and 2000, respectively: risk-free
interest rates of 4.8%, 5.1%, and 6.4%, no dividends and expected lives of 8
years, 7 years, and 7 years. Volatility was assumed to be zero because there is
currently no market for Indian River's stock. The weighted-average fair value of
options granted during 2002, 2001, and 2000 were $7.67, $6.71, and $5.77,
respectively.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. EARNINGS PER SHARE

Following is information about the computation of the earnings per share data
for the years ended December 31, 2002, 2001 and 2000 (after adjusting for 10%
stock dividends in 2002, 2001 and 2000, a 2 for 1 stock split effective March
31, 2000 and a 10% stock dividend declared in January 2003):

(In Thousands, except per share data)
PER-SHARE
NUMERATOR DENOMINATOR AMOUNTS
--------------------------------------------

Year Ended December 31, 2002:
Basic earnings per share, income available to
common stockholders $ 5,531 2,148 $ 2.57
======
Effect of dilutive securities, options -- 53
-------------------------

Diluted earnings per share, income available
to common stockholders plus assumed
exercise of options $ 5,531 2,201 $ 2.51
============================================

Year Ended December 31, 2001:
Basic earnings per share, income available to
common stockholders $ 3,682 2,137 $ 1.72
======
Effect of dilutive securities, options -- 41
-------------------------

Diluted earnings per share, income available
to common stockholders plus assumed
exercise of options $ 3,682 2,178 $ 1.69
============================================

Year Ended December 31, 2000:
Basic earnings per share, income available to
common stockholders $ 2,631 1,915 $ 1.37
======
Effect of dilutive securities, options -- 43
-------------------------
Diluted earnings per share, income available
to common stockholders plus assumed
exercise of options $ 2,631 1,958 $ 1.34
===========================================

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. RELATED PARTY TRANSACTIONS

Some of the directors of the Bank are also owners or executive officers in other
business organizations. The Bank has made loans to these individuals and related
companies, as well as to officers of the Bank which, in the opinion of
management, are on the same terms as comparable transactions with others.
Aggregate loans to these related parties totaled approximately $4.7 million and
$3.8 million at December 31, 2002 and 2001, respectively. Aggregate borrowings
on these loans totaled $2.9 million and repayments totaled $2.0 million for the
year ended December 31, 2002. Commitments to extend additional credit to these
related parties totaled approximately $2.6 million and $1.8 million at December
31, 2002 and 2001, respectively.

NOTE 13. LEASES

The Bank leases various office facilities under operating leases expiring
through 2012. Several of these leases have one or more options to renew for
periods of three to five years each. Several of these leases provide for
increases in rent in accordance with changes in the Consumer Price Index.

Future minimum rental payments required under the operating leases at December
31, 2002 were as follows:

(Dollars in Thousands)
Year Ending
December 31, Amount
- -------------------------------------------------
2003 $ 436
2004 389
2005 383
2006 297
2007 260
Thereafter 1,457
-------
$ 3,222
=======

Total rent expense (including basic operating expenses) recorded by the Bank for
the years ended December 31, 2002, 2001 and 2000, was $361 thousand, $378
thousand and $311 thousand, respectively.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. OTHER OPERATING EXPENSES

A summary of other operating expenses is as follows for the years ended December
31, 2002, 2001 and 2000:

(Dollars in Thousands) 2002 2001 2000
------------------------------
Data processing $1,317 $1,288 $ 875
Advertising and business development 598 206 313
Professional fees 294 298 138
Supplies and postage 465 595 414
Directors' fees 228 165 166
Miscellaneous 1,373 1,231 1,306
------------------------------
$4,275 $3,783 $3,212
==============================

NOTE 15. SALARY SAVINGS 401(K) PLAN

The Bank sponsors a Salary Savings 401(k) Plan under which the Bank may elect to
make discretionary contributions as may be determined by the Board of Directors.
The Bank contributed $121 thousand, $106 thousand, and $82 thousand for the
years ended December 31, 2002, 2001, and 2000, respectively.

NOTE 16. RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS

Indian River Bank is subject to the dividend restrictions set forth by the
Office of the Comptroller of the Currency ("OCC"). Under such restrictions, the
Bank may not, without the prior approval of the OCC, declare dividends in excess
of the sum of the current year's earnings (as defined) plus the retained
earnings (as defined) from the prior two years. The dividends, as of December
31, 2002, that the Bank could declare, without the approval of the OCC, amounted
to approximately $9 million.

Indian River (on a consolidated basis) and Indian River Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, Indian River and Indian River 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. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require Indian River and Indian River Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets (all as defined in
the regulations). Management believes Indian River and Indian River Bank meet
all capital adequacy requirements to which they are subject as of December 31,
2002.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS (CONTINUED)

As of December 31, 2002, the most recent notification from the OCC categorized
Indian River Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an institution must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table below. There are no conditions or events since that
notification that management believes have changed Indian River Bank's category.

Indian River's and Indian River Bank's actual capital amounts and ratios as of
December 31, 2002 and 2001 are also presented in the table.

(Dollars in Thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------------------------

As of December 31, 2002:
Total Capital (to Risk-Weighted Assets):
Consolidated $ 42,828 16.2% $ 21,132 8.0% n/a
Indian River National Bank 35,411 13.4 21,111 8.0 $ 26,388 10.0%
Tier I Capital (to Risk-Weighted Assets):
Consolidated 39,569 15.0 10,566 4.0 n/a
Indian River National Bank 32,152 12.2 10,555 4.0 15,833 6.0
Tier I Capital (to Average Assets):
Consolidated 39,569 9.1 17,396 4.0 n/a
Indian River National Bank 32,152 7.4 17,386 4.0 21,732 5.0
As of December 31, 2001:
Total Capital (to Risk-Weighted Assets):
Consolidated 29,525 10.7 22,149 8.0 n/a
Indian River National Bank 29,314 10.6 22,144 8.0 27,680 10.0
Tier I Capital (to Risk-Weighted Assets):
Consolidated 26,705 9.6 11,075 4.0 n/a
Indian River National Bank 26,495 9.6 11,072 4.0 16,608 6.0
Tier I Capital (to Average Assets):
Consolidated 26,705 7.0 15,201 4.0 n/a
Indian River National Bank 26,495 7.0 15,199 4.0 18,999 5.0

If Indian River Bank fails to remain categorized as well capitalized, Indian
River's designation as a financial holding company may be lost.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank, in the normal course of business, is a party to financial instruments
with off-balance-sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized on the balance sheet. The
contractual amounts of these instruments reflect the Bank's involvement in
particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

These commitments were as follows at December 31, 2002 and 2001:

(Dollars in Thousands) 2002 2001
--------------------------
Commitments to extend credit $ 55,436 $ 41,955
Credit card arrangements 3,968 4,000
Standby letters of credit 863 2,029
--------------------------
$ 60,267 $ 47,984
==========================

Commitments to extend credit: Commitments to extend credit are commitments to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if any, is based on management's credit
evaluation of the counterparty. Collateral held varies, but may include cash,
accounts receivable, inventory, property, plant and equipment, and residential
and commercial real estate.

Standby letters of credit: Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Those guarantees generally have terms of one year or less. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds collateral, which may
include accounts receivable, inventory, equipment, and real estate, supporting
those commitments if deemed necessary. In the event the customer does not
perform in accordance with the terms of the agreement with the third party, the
Bank would be required to fund the commitment. The maximum potential amount of
future payments the Bank could be required to make is represented by the
contractual amount shown in the summary above. If the commitment is funded the
Bank would be entitled to seek recovery from the customer. At December 31, 2002
and 2001 no amounts have been recorded as liabilities for the Bank's potential
obligations under these guarantees.

Credit card arrangements: Credit card arrangements represent unsecured
commitments to extend credit, which may be terminated by the Bank.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18. CONCENTRATIONS OF RISK

Most of the Bank's business activity is with customers located within its
primary market area, which generally includes Central Florida. Included in the
Bank's loan portfolio (see Note 4) is a concentration of loans related to real
estate, a significant portion of which relates to residential real estate. A
substantial portion of its debtors' abilities to honor their contracts is
dependent upon the local economy. The economy of the Bank's primary market area
is not heavily dependent on any individual economic sector.

Concentration by institution: The Bank also has a substantial concentration of
funds with two banks at December 31, 2002. Such concentration consisted of
federal funds sold and a deposit account balance that totaled $10.5 million and
$18.8 million, at December 31, 2002 and 2001, respectively. The Bank has not
experienced any losses on such accounts.

NOTE 19. ADDITIONAL CASH FLOW INFORMATION

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

Cash flows from securities:
Securities available-for-sale:
Proceeds from sales $ 82,635 $ 13,318 $ 3,013
Maturities, calls and paydowns 40,628 88,276 26,324
Purchases (168,692) (121,969) (52,272)
Securities held to maturity:
Purchases (635) (6,399) (5,031)
Maturities, calls and paydowns 4,574 4,624 476
Purchase of other securities (471) (197) (904)
-----------------------------------------------
$ (41,961) $ (22,347) $ (28,394)
================================================
Supplemental disclosures of cash flow information
Cash payments for interest $ 9,430 $ 12,654 $ 12,374
===============================================
Cash payments for income taxes $ 3,323 $ 2,685 $ 1,717
===============================================
Supplemental schedule of noncash investing and
financing activities
10% stock dividend $ 4,599 $ 2,337 $ 1,366

2-for-1 stock split -- -- 697

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Bank in estimating the
fair value of its financial instruments:

Cash and cash equivalents: The carrying amounts reported in the consolidated
balance sheets for cash and short-term instruments approximated their fair
values.

Investment securities (including mortgage-backed securities): Fair values for
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.

Loans receivable: For variable-rate loans that re-price frequently and with no
significant change in credit risk, values are based on carrying values. Fair
values for other loans are estimated based on discounted cash flows, using
interest rates currently being offered for loans with similar terms to borrowers
with similar credit quality. Management believes that the allowance for loan
losses is an appropriate indication of the applicable credit risk associated
with determining the fair value of its loan portfolio and the allowance has been
deducted from the estimate fair value of loans.

Accrued interest receivable: The carrying amount of accrued interest receivable
approximates its fair value.

Deposit liabilities: The fair values of demand deposits and passbook savings
equal their carrying amounts which represent the amount payable on demand. The
carrying amounts for variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair value at the reporting date. Fair
values for fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.

Other borrowings and trust preferred securities: The fair value of borrowings
with variable interest rates approximates their recorded book value due to
interest rates that are near market rates. Fair values for fixed-rate borrowings
are estimated using a discounted cash flow calculation that applies interest
rates currently available on similar borrowings to a schedule of aggregated
expected monthly payments due on those borrowings.

Other liabilities: The carrying amount of other liabilities approximates their
fair value.

Commitments to extend credit and other off-balance-sheet financial instruments:
Consideration of the fair value of commitments to extend credit and letters of
credit is based on fees charged to enter into similar agreements. Since the fees
charged by the Bank are nominal, the estimate of fair value is negligible.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Following is a summary of the carrying amounts and approximate fair values of
the Bank's financial instruments at December 31, 2002 and 2001:

DECEMBER 31, 2002 December 31, 2001
----------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
----------------------------------------------------

Cash and cash equivalents $ 19,857 $ 19,857 $ 23,367 $ 23,367
Investment securities (including
Federal Reserve Bank and
Federal Home Loan Bank stock) 188,495 188,736 144,219 144,162
Loans receivable and loans held
for sale 242,774 243,887 213,838 219,133
Accrued interest receivable 2,207 2,207 2,783 2,783
Deposits 364,893 366,635 318,806 320,486
Federal funds purchased, securities
sold under repurchase agreements
and other borrowings 50,269 53,968 41,583 43,244
Trust preferred securities 7,000 7,000 -- --
Other liabilities 1,399 1,399 1,052 1,052
Commitments to extend credit -- -- -- --

NOTE 21. STOCK ISSUANCE

Indian River offered to sell up to 300,000 newly issued shares of common stock
at a price of $25 per share during 2000. Proceeds of $5,195,700 from the sale of
207,828 shares, less issuance costs of $121,739, are included in the financial
statements.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22. PARENT COMPANY ONLY FINANCIAL STATEMENTS

Condensed financial statements for Indian River Banking Company only are
presented below:

INDIAN RIVER BANKING COMPANY
PARENT COMPANY ONLY BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

(Dollars in Thousands)
ASSETS 2002 2001
----------------------

Cash $ 6,575 $ 213
Investment in wholly-owned subsidiaries 34,694 27,507
Other assets 865 561
----------------------
$ 42,134 $ 28,281
======================

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Notes payable and other borrowings $ 7,217 $ 570
Other liabilities 68 8
----------------------
TOTAL LIABILITIES 7,285 578

Stockholders' equity 34,849 27,703
----------------------
$ 42,134 $ 28,281
======================

INDIAN RIVER BANKING COMPANY
PARENT COMPANY ONLY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Thousands) 2002 2001 2000
-----------------------------------

Equity in net income of wholly-owned subsidiaries, net $ 5,687 $ 4,003 $ 2,812
Interest income 10 24 22
Other income 4 -- --
-----------------------------------
5,701 4,027 2,834
-----------------------------------
Expenses:
Interest expense 115 18 170
Other expenses 148 520 142
-----------------------------------
263 538 312
-----------------------------------
INCOME BEFORE INCOME TAXES 5,438 3,489 2,522
Provision for income taxes (benefit) (93) (193) (109)
-----------------------------------
NET INCOME $ 5,531 $ 3,682 $ 2,631
===================================

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22. PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)

INDIAN RIVER BANKING COMPANY
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Thousands)
2002 2001 2000
-----------------------------------

Cash flow from operating activities:
Net income $ 5,531 $ 3,682 $ 2,631
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in net income of wholly-owned subsidiaries, net (5,687) (4,003) (2,812)
Stock-based compensation 104 8 --
Other (244) (185) (231)
-----------------------------------
NET CASH USED IN OPERATING ACTIVITIES (296) (498) (412)
-----------------------------------

Cash flow from investing activities:
Investment in subsidiaries (217) -- (2,800)
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (217) -- (2,800)
-----------------------------------

Cash flow from financing activities:
Increase (decrease) in notes payable and other borrowings,
net 6,647 570 (1,845)
Proceeds from issuance of stock -- -- 5,074
Proceeds from exercise of stock options 236 84 39
Cash paid for fractional shares (8) (4) (4)
-----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,875 650 3,264
-----------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,362 152 52
Cash and cash equivalents:
Beginning 213 61 9
-----------------------------------
Ending $ 6,575 $ 213 $ 61
===================================

NOTE 23. SUBSEQUENT STOCK DIVIDEND

The number of shares outstanding and the related stockholders' equity accounts
have been retroactively adjusted in the accompanying balance sheet as of
December 31, 2002 to reflect a 10% stock dividend declared January 15, 2003.

NOTE 24. LEGAL CONTINGENCIES

Various legal claims arise from time to time in the normal course of business,
which, in the opinion of management, will have no material effect on the Bank's
consolidated financial statements.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 25. QUARTERLY DATA (UNAUDITED)

Year Ended December 31,
-----------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------
(Dollars in thousands, except per share data)

Interest income $ 6,267 $ 6,434 $ 6,506 $ 6,302 $ 6,596 $ 6,619 $ 6,436 $ 6,390
Interest expense 2,128 2,162 2,333 2,590 2,879 3,281 3,239 3,317
-----------------------------------------------------------------------------
Net interest income 4,139 4,272 4,173 3,712 3,717 3,338 3,197 3,073
Provision for loan losses 180 180 130 130 180 180 120 120
-----------------------------------------------------------------------------
Net interest income, after
provision for loan losses 3,959 4,092 4,043 3,582 3,537 3,158 3,077 2,953
Noninterest income 1,251 1,100 1,100 1,548 1,322 871 1,002 737
Noninterest expense 3,149 2,957 2,927 2,798 2,810 2,459 3,103 2,492
-----------------------------------------------------------------------------
Income before taxes 2,061 2,235 2,226 2,332 2,049 1,570 976 1,198
Provision for income taxes 772 838 835 878 749 560 349 453
-----------------------------------------------------------------------------
Net income $ 1,289 $ 1,397 1,391 $ 1,454 $ 1,300 $ 1,010 $ 627 $ 745
=============================================================================

Earnings per common share
Basic $ 0.59 $ 0.65 $ 0.65 $ 0.68 $ 0.60 $ 0.47 $ 0.30 $ 0.35
=============================================================================
Diluted $ 0.57 $ 0.64 $ 0.64 $ 0.66 $ 0.60 $ 0.46 $ 0.29 $ 0.34
=============================================================================

62

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated by reference to
the material appearing at pages 6 to 7, 12 and 16 of Indian River's definitive
proxy statement for the Annual Meeting of Shareholders to be held on April 30,
2003 under the captions "Election of Directors - Nominees for Election as
Directors, and "- Executive Officers who are not Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934".

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to
the material appearing at pages 8 to 15 of Indian River's definitive proxy
statement for the Annual Meeting of Shareholders to be held on April 30, 2003,
under the captions "Directors' Compensation", "Executive Compensation", "Report
of the Compensation Committee, and Stock Performance Comparison.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information regarding options and other securities
issuable and issued under our plans under which stock options or other equity
based compensation may be granted.

Equity Compensation Plan Information

Number of securities remaining
Number of securities to Weighted average available for future issuance
be issued upon exercise exercise price of under equity compensation
of outstanding options, outstanding options, plans (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a)
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)

Equity compensation plans
approved by security holders (1) 132,816 $18.31 162,923
Equity compensation plans not
approved by security holders 29,384 (2) $18.86 5,074 (3)
Total 162,200 $18.41 167,997

(1) Reflects the 1995 and 1999 Stock Option Plan described further in Note
10 to the Consolidated Financial Statements and in response to Item 11.

(2) Reflect options granted under the Directors Fee Stock Options Plan (the
Director). No specific number of shares has been reserved for future
issuances under the Director Plan. Under the Plan, every three years,
the directors are granted options to purchase an aggregate of 2,100
shares for committee service for the upcoming three year period.

(3) Represents shares available for issuance under the Employee Tenure
Stock Grant Plan. This plan annually awards one share of common stock
for each year of service to non executive officer employees upon the
anniversary date of their employment with Indian River, commencing with
their fifth anniversary. The Board of Directors may terminate the plan
at any time.

The other information required by this Item is incorporated by
reference to the material appearing at pages 4 to 5 of Indian River's definitive
proxy statement for the Annual Meeting of Shareholders to be held on April 30,
2003 under the caption "Voting Securities and Principal Shareholders".

63

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference to
the material appearing at page 13 of Indian River's definitive proxy statement
for the Annual Meeting of Shareholders to be held on April 30, 2003 under the
caption "Certain Relationships and Related Transactions".

ITEM 14. CONTROLS AND PROCEDURES

Within the ninety days prior to the filing of this report, Indian
River's management, under the supervision and with the participation of the
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of Indian River's disclosure controls and
procedures, as defined in Rule 13a-14 under the Securities Exchange Act of 1934.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that Indian River's disclosure controls and procedures were
adequate. There were no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in Indian River's
internal controls or in other factors subsequent to the date of the evaluation
that would significantly affect those controls.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

Consolidated Balance Sheets at December 31, 2001 and 2002
Consolidated Statements of Income for the years ended December
31, 2000, 2001 and 2002
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 2000, 2001 and 2002
Notes to the Consolidated Financial Statements
Report of Independent Auditors

(2) Financial Statement Schedules

All financial statement schedules have been omitted as the required
information is either inapplicable or included in the consolidated
financial statements or related notes.

64

(3) Exhibits

Exhibit No. Description of Exhibits
- ----------- -----------------------
3(a) Articles of Incorporation of Indian River, as amended (1)
3(b) Bylaws of Indian River (1)
4(a) Indenture, dated as of September 30, 2002 between Indian River
Banking Company and Wells Fargo Bank, National Association, as
trustee (2)
4(b) Amended and Restated Declaration of Trust, dated as of September
30, 2002 among Indian River Banking Company, Wells Fargo Bank,
National Association as Property Trustee, and Paul A. Beindorf,
Diana L. Walker and Phillip L. Tasker as Administrative Trustees
(2)
4(c) Guarantee Agreement dated as of September 30, 2002, between Indian
River Banking Company and Wells Fargo Bank, National Association,
as trustee (2)
10(a) Indian River 1999 Stock Option Plan (3)
10(b) Employment Agreement between Indian River National Bank and Paul
A. Beindorf
10(c) Employment Agreement between Indian River National Bank and
Jeffrey R. Morton
10(d) Change in Control Agreement between Indian River Banking Company,
Indian River National Bank and Diana L. Walker
11 Statement of Computation of Per Share Earnings See Note 11 to the
Consolidated Financial Statements
21 Subsidiaries of the Registrant
23 Consent of McGladrey & Pullen, LLP, Independent Auditors
99(a) Certification of Paul A. Beindorf
99(b) Certification of Phillip L. Tasker

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

(1) Incorporated by reference to exhibit of same number to Indian River's
registration statement on Form SB-2 (No. 333-36688)

(2) Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
Regulation SK. Indian River agrees to provide a copy of these documents
to the Commission upon request.

(3) Incorporated by reference to exhibit 10(d) to Indian River's
registration statement on Form SB-2 (No. 333-36688)

(B) REPORTS ON FORM 8-K

On October 18, 2002, Indian River filed a report on Form 8-K, under
Item 5, disclosing the issuance of a press release announcing third quarter
earnings.

65

SIGNATURES

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

INDIAN RIVER BANKING COMPANY

Dated March 3, 2003 By: /s/ Paul A. Beindorf
-----------------------------
Paul A. Beindorf, President
and Chief Executive Officer

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 dates indicated.

SIGNATURE TITLE DATE

/s/ Paul A. Beindorf President, Chief Executive Officer March 3, 2003
- -------------------------- and Director (Principal Executive Officer)
Paul A. Beindorf

/s/ William C. Graves, IV Director March 3, 2003
- --------------------------
William C. Graves, IV

/s/ Robert A. Grice Director March 3, 2003
- --------------------------
Robert A. Grice

/s/ Griffin A. Greene Chairman of the Board March 3, 2003
- --------------------------
Griffin A. Greene

/s/ William B. Marine Director March 3, 2003
- --------------------------
William B. Marine

/s/ John L. Minton Director March 3, 2003
- --------------------------
John L. Minton

/s/ Keith H. Morgan Director March 3, 2003
- --------------------------
Keith H. Morgan, Jr.

/s/ Daniel R. Richey Director March 3, 2003
- --------------------------
Daniel R. Richey

/s/ Mary M. Rogers Director March 3, 2003
- --------------------------
Mary M. Rogers

66

/s/ John David Smith Director March 3, 2003
- --------------------------
John David Smith

/s/ Phillip L. Tasker Treasurer and Chief March 3, 2003
- --------------------------
Phillip L. Tasker Financial Officer

67

CERTIFICATION

I, Paul A. Beindorf, certify that:

1. I have reviewed this annual report on Form 10-K of Indian River Banking
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
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) Evaluated the effectiveness of the registrant'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 our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant'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 registrant's internal controls; and

6. The registrant's other certifying officer and 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 internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 3, 2003 /s/ Paul A. Beindorf
--------------------
President and Chief Executive Officer

68

CERTIFICATION

I, Phillip L. Tasker, certify that:

1. I have reviewed this annual report on Form 10-K of Indian River Banking
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
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) Evaluated the effectiveness of the registrant'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 our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant'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 registrant's internal controls; and

6. The registrant's other certifying officer and 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 internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 3, 2003 /s/ Phillip L. Tasker
---------------------
Treasurer and Chief Financial Officer

69