INDIAN RIVER BANKING COMPANY - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2003
--------------
OR

[ ] TRANSITION REPORT PURSUANT TO 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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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

772.569.9200
----------------------------------------------------
(Registrant's telephone number, including area code)

N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[X] Yes [ ] No

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

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.

As of April 24, 2003, the registrant had 2,171,992 shares of Common
Stock outstanding.

Item 1 - Financial Statements

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

March 31, December 31,
ASSETS 2003 2002
- ----------------------------------------------------------------------------
(Unaudited)

Cash and due from banks $ 15,011 $ 18,856
Federal funds sold 1,732 1,001
-------------------
Total cash and cash equivalents 16,743 19,857

Securities available for sale 228,070 176,383
Securities held to maturity 7,980 9,742
Other securities 2,570 2,370
Loans held for sale 8,104 13,186
Loans, net of allowance for loan loss 231,454 229,588
Bank premises and equipment, net 4,312 4,084
Accrued interest receivable 2,266 2,207
Other assets 1,074 780
-------------------
TOTAL ASSETS $502,573 $458,197
===================

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Noninterest-bearing demand deposits $ 58,986 $ 66,883
Interest-bearing deposits:
NOW and money market 85,497 51,777
Savings 115,560 116,028
Time deposits 136,416 130,205
-------------------
TOTAL DEPOSITS 396,459 364,893
Guaranteed preferred beneficial interests
in Company's subordinated debentures 7,000 7,000
Other borrowings 61,574 50,269
Other liabilities 1,916 1,186
-------------------
TOTAL LIABILITIES 466,949 423,348
-------------------
Stockholders' Equity
Common stock 2,172 2,163
Capital surplus 27,604 27,427
Retained earnings 4,221 2,979
Accumulated other comprehensive income 1,627 2,280
-------------------
TOTAL STOCKHOLDERS' EQUITY 35,624 34,849
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $502,573 $458,197
===================

See Notes to Condensed Consolidated Financial Statements.

2

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)

(In Thousands, Except Per Share Data)
2003 2002
- ---------------------------------------------------------------------------
Interest income:

Loans and fees on loans $4,172 $4,170
Investment securities and due from banks 1,965 2,055
Federal funds sold 34 77
----------------
6,171 6,302
----------------
Interest expense:
Deposits 1,570 2,208
Other 530 382
----------------
2,100 2,590
----------------
NET INTEREST INCOME 4,071 3,712
Provision for loan losses 175 130
----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,896 3,582
----------------
Other income:
Service charges and fees 570 398
Gain on sale of securities 147 691
Gain on sale of loans 581 297
Other 197 162
----------------
1,495 1,548
----------------
Other expense:
Salaries and benefits 1,742 1,377
Occupancy and equipment 430 381
Data processing 368 352
Other operating expenses 848 688
----------------
3,388 2,798
----------------
INCOME BEFORE INCOME TAXES 2,003 2,332
Provision for income taxes 748 878
----------------
NET INCOME $1,255 $1,454
================
Basic earnings per share $ 0.58 $ 0.68
================
Diluted earnings per share $ 0.56 $ 0.66
================
Dividends per share $ -- $ --
================

See Notes to Condensed Consolidated Financial Statements.

3

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)

(In Thousands)

See Notes to Condensed Consolidated Financial Statements

4

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)

(In Thousands)
2003 2002
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 1,255 $ 1,454
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 153 143
Provision for loan losses 175 130
Proceeds from sale of loans originated
for resale 29,870 16,776
Origination of loans for resale (24,207) (14,065)
Gain on sale of loans (581) (297)
Stock-based compensation 16 --
Amortization of premiums and discounts, net 511 (9)
Gain on sale of securities (147) (691)
Decrease (increase) in accrued interest
receivable (59) 164
Decrease in other assets 90 8
Increase in other liabilities 730 797
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,806 4,410
-----------------------
Cash Flows From Investing Activities
Cash flows from securities, net (51,526) (27,696)
Loan originations, net of collections (2,041) (5,372)
Purchases of premises and equipment (381) (60)
-----------------------
NET CASH USED BY INVESTING ACTIVITIES (53,948) (33,128)
-----------------------
Cash Flows From Financing Activities
Net increase in deposits 31,566 18,057
Net increase in other borrowings 11,305 2,667
Proceeds from exercise of stock options 170 21
Cash paid for fractional shares (13) (8)
-----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 43,028 20,737
-----------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,114) (7,981)
Cash and cash equivalents:
Beginning 19,857 23,367
-----------------------
Ending $ 16,743 $ 15,386
=======================

See Notes to Condensed Consolidated Financial Statements.

5

INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of Indian River
Banking Company, which are unaudited, except for the condensed consolidated
balance sheet at December 31, 2002, which is derived from the audited
consolidated balance sheet at that date, have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statement presentation. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 2003, are not necessarily indicative of the results that may be
expected for the full year. For further information, refer to Indian River
Banking Company's consolidated financial statements and the notes thereto for
the year ended December 31, 2002.

The accompanying condensed 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 and its wholly owned subsidiary
Indian River Real Estate, LLC, Indian River Title Company, LLC, IRNB Insurance
Services, LLC, and Indian River Capital Trust I, collectively referred to as
"Indian River". All significant intercompany accounts and transactions have been
eliminated in consolidation.

NOTE 2. INVESTMENT SECURITIES

Securities held to maturity: The amortized cost and fair values of securities
held to maturity as of March 31, 2003 and December 31, 2002 are summarized as
follows.

(In Thousands) March 31, 2003
------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------
Mortgage-backed securities $ 694 $ -- $ -- $ 694
State, county and municipal
securities 7,286 233 -- 7,519
------------------------------------------------
$ 7,980 $ 233 $ -- $ 8,213
================================================

December 31, 2002
------------------------------------------------
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
================================================

6

Securities available for sale: The amortized cost and fair values of securities
available for sale as of March 31, 2003 and December 31, 2002 are summarized as
follows:

(In Thousands) March 31, 2003
------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------
U.S. Government corporations
and agencies $ 19,056 $ 1,031 $ -- $ 20,087
Corporate securities 4,933 306 -- 5,239
Mortgage-backed securities 201,498 1,609 (363) 202,744
------------------------------------------------
$ 225,487 $ 2,946 $ (363) $ 228,070
================================================

December 31, 2002
------------------------------------------------
Estimated Estimated Estimated
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
================================================

Note 3. Loans

The composition of net loans is as follows at March 31, 2003 and December 31,
2002:

(In Thousands) March 31, December 31,
2003 2002
------------------------
Real estate:
Construction, land development and other land loans $ 43,756 $ 45,913
Farmland 2,087 3,181
One to four family residential 91,053 87,841
Multifamily residential 2,259 2,506
Nonfarm, nonresidential 68,156 64,458
Agriculture 1,291 1,788
Commercial and industrial 13,195 13,257
Consumer 11,092 11,645
Other 1,972 2,262
----------------------
234,861 232,851
Less: Allowance for loan losses (3,403) (3,259)
Unearned discounts and loan fees (4) (4)
----------------------
Loans, net $ 231,454 $ 229,588
======================

Indian River's recorded investment in impaired loans for which a specific
allowance was recognized was $807 thousand and $585 thousand at March 31, 2003
and December 31, 2002, respectively. The specific allowance associated with
these loans was $175 thousand and $100 thousand at March 31, 2003 and December
31, 2002, respectively. The average recorded investment in impaired loans during
the first quarter of 2003 was $269 thousand compared to $140 thousand for
comparable quarter in 2002. Interest income recognized on impaired loans,
recognized for cash payments during the first quarter of 2003 and 2002 was not
significant.

7

NOTE 4. ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses for the three months ended March 31,
2003 and 2002 is as follows:

(In Thousands)
2003 2002
---- ----
Balance, beginning $ 3,259 $ 2,819
------- -------
Charge-offs:
Commercial and industrial (6) (2)
Loans to individuals (5) (48)
Credit Cards (20) --
Other loans (14) (7)
------- -------
Total (45) (57)
------- -------
Recoveries:
Loans to individuals 7 12
Credit Cards 2 --
Other loans 5 1
------- -------
Total 14 13
------- -------
Net charge-offs (31) (44)
Provision for loan losses 175 130
------- -------
Balance, ending $ 3,403 $ 2,905
======= =======

NOTE 5. 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 period-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. Diluted earnings per share are calculated using the Treasury Method.

Following is information about the computation of the earnings per share data
for the three months ended March 31, 2003 and 2002 respectively (after adjusting
for 10% stock dividends in 2003 and 2002):

(In Thousands, Except Per Share Data) Common Per-Share
Net Earnings Shares Amounts
---------------------------------------------------

Three Months Ended March 31, 2003:
Basic earnings per share, income available to
common stockholders $1,255 2,163 $ 0.58
========
Effect of dilutive securities, options -- 79
-------------------------

Diluted earnings per share $1,255 2,242 $ 0.56
==============================================

Common Per-Share
Net Earnings Shares Amounts
---------------------------------------------------

Three Months Ended March 31, 2002:
Basic earnings per share, income available to
common stockholders $1,454 2,144 $ 0.68
========
Effect of dilutive securities, options -- 52
-------------------------

Diluted earnings per share $1,454 2,196 $ 0.66
==============================================

8

NOTE 6. OTHER BORROWINGS

Other borrowings consist of the following at March 31, 2003 and December 31,
2002:

(In Thousands) March 31, December 31,
2003 2002
--------------------------------

Advance under line of credit with Colonial Bank, interest
payable quarterly at an adjustable rate, 4.75% at March 31, 2003 $ -- $ --
Federal Home Loan Bank advances:
Advance, interest payable monthly at a fixed rate of 6.44%, with equal
semiannual principal payments of $142 through September 2004 428 571
Convertible advance due March 2008, interest payable quarterly at a fixed
rate of 5.51% 2,000 2,000
Convertible advance due January 2011, interest payable quarterly
at a fixed rate of 4.41% 10,000 10,000
Convertible advance due May 2011, interest payable quarterly
at a fixed rate of 3.95% 15,000 15,000
Convertible advance due November 2012, interest payable quarterly
at a fixed rate of 2.47% 6,000 6,000
Convertible advance due November 2012, interest payable quarterly
at a fixed rate of 3.35% 5,000 5,000
Securities sold under repurchase agreements 13,496 2,398
Federal funds purchased, interest payable daily at a rate that adjusts daily 9,650 9,300
-------------------------
$61,574 $50,269
=========================

NOTE 7. STOCK DIVIDEND

Stockholders' equity accounts have been retroactively adjusted in the
accompanying balance sheet as of December 31, 2002 to reflect a 10% stock
dividend declared in January 2003.

NOTE 8. TRUST PREFERRED SECURITIES

On September 30, 2002, a wholly-owned statutory business trust established by
Indian River issued $7 million in guaranteed preferred beneficial interests in
the trust ("trust-preferred securities"). The sole assets of the statutory
business trust are a series of subordinated debentures of Indian River in the
amount of $7 million and related payments. Indian River 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 Indian River. The subordinated debentures bear interest at a
variable rate of 3 month LIBOR plus 3.45%, 4.79% for the quarterly period ended
March 31, 2003 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.

9

NOTE 9. 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 March 31, 2003, the number of shares
eligible to be issued under the Plan was 366,025, and approximately 133,000
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.

The following is a summary of stock option transactions during the three-month
periods ended March 31, 2003 and 2002 (All options and option price per share
information has been adjusted to reflect the stock dividend in 2002 and 2003):

Weighted-Average
Shares Exercise Price
--------------------------
Outstanding at December 31, 2001 145,718 $ 16.68
Granted 26,776 23.14
Exercised (1,315) 16.13
--------------------------
Outstanding at March 31, 2002 171,179 $ 17.47
=========================

Outstanding at December 31, 2002 162,200 $ 18.41
Granted 50,490 32.73
Exercised (8,880) 19.07
-------------------------
Outstanding at March 31, 2003 203,810 $ 21.93
=========================

Indian River accounts for its stock option plans using the intrinsic value
method provided under APB Opinion No. 25, Accounting for Stock Issued to
Employees. Generally, Indian River 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, Indian River 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 Indian River had applied fair value recognition provisions
to stock-based employee compensation.

10

NOTE 9. STOCK BASED COMPENSATION (CONTINUED)

The fair value of each option granted is estimated on the date of the grant
using the Bank-Scholes option-pricing model with the following assumptions for
grants during 2003: risk-free interest rate of 4.9%, no dividends and expected
lives of 8 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 2003 was $11.45.

(Dollars in Thousands, except per share data) March 31, 2003 March 31, 2002
-------------------------------------

Net income, as reported $ 1,255 $ 1,454
Add total stock-based employee compensation expense
determined under the intrinsic value based method
for all awards, net of related tax effects 10 --
Deduct total stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects (133) (48)
--------------------------
Pro forma net income $ 1,132 $ 1,406
==========================

Basic earnings per share As reported $ 0.58 $ 0.68
Pro forma $ 0.52 $ 0.66

Diluted earnings per share As reported $ 0.56 $ 0.66
Pro forma $ 0.50 $ 0.64

NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Indian River, 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 Indian
River's involvement in particular classes of financial instruments.

Indian River'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. Indian River 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 March 31, 2003:

(Dollars in Thousands) 2003
--------
Commitments to extend credit $ 71,187
Credit card arrangements 4,095
Standby letters of credit 790
--------
$ 76,072
========

11

NOTE 11. ADDITIONAL CASH FLOW INFORMATION

(Dollars in Thousands) Quarter Ended March 31,
2003 2002
-----------------------
Cash flows from securities:
Securities available-for-sale:
Proceeds from sales $ 5,672 $ 60,079
Maturities, calls and paydowns 21,983 4,115
Purchases (80,729) (91,890)
Securities held to maturity:
Purchases (1,358) --
Maturities, calls and paydowns 3,106 --
Purchase of other securities (200) --
---------------------
$(51,526) $(27,696)
=====================
Supplemental disclosures of cash flow information
Cash payments for interest $ 2,096 2,680
=====================
Cash payments for income taxes $ 748 $ 878
=====================

12

Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward-Looking Statements
- --------------------------

Certain information contained in this discussion may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are generally identified by phrases such as
"Indian River expects," "Indian River believes," "Indian River anticipates,"
may, should or words of similar import. Such forward-looking statements involve
known and unknown risks including, but not limited to, changes in general
economic and business conditions, interest rate fluctuations, competition within
and from outside the banking industry, new products and services in the banking
industry, risk inherent in making loans such as repayment risks and fluctuating
collateral values, problems with technology utilized by the Indian River,
changing trends in customer profiles and changes in laws and regulations
applicable to Indian River. Although Indian River believes that its expectations
with respect to the forward-looking statements are based upon reliable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results, performance or achievements of
Indian River will not differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.

General
- -------

Indian River Banking Company ("Indian River") is a one-bank holding
company for Indian River National Bank ("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. The Bank operates
four branches in Indian River County and four branches in Brevard County. The
Bank offers deposit accounts and associated services to businesses and
individuals and makes loans and invests in qualified securities. In addition,
the Bank's income includes fees on deposit accounts and loans.

FINANCIAL CONDITION
- -------------------

Total Assets
- ------------

Indian River's total assets were $502.6 million at March 31, 2003, a
9.68% increase from $458.2 million at December 31, 2002. The increase in Indian
River's asset base was due to deposit growth and an increase in other
borrowings. Indian River anticipates that deposit growth for the remainder of
2003 will continue at more modest level.

Investments
- -----------

Indian River's investment portfolio increased $49.9 million during the
first quarter of 2003, primarily as a result of growth in deposits and other
borrowings of $42.7 million. Total loans outstanding (both portfolio loans and
loans held for sale) declined $3.2 million during the same period.

During the first quarter of 2003 Indian River purchased $84.2 million
in securities. In addition to funding growth, Indian River's existing investment
securities generated $33.3 million in cash flow from sales, maturities,
securities being called, and repayments on mortgage-backed securities. In
investing excess funds in the current rate environment Indian River attempts to
maximize return while minimizing possible adverse exposure to rising rates. In
balancing these somewhat conflicting objectives, Indian River's purchases during
the three months ended March 31, 2003 were primarily weighted towards planned
amortization class collateralized mortgage obligations and amortizing
mortgage-backed securities with final maturities of ten years or less. These
instruments should have the most stable average lives in the current rate
environment.

13

Indian River examines the investment portfolio's sensitivity to the
effects of potential rising interest rates by monitoring overall portfolio
duration. This is particularly critical during periods when excess cash results
in significant purchases of investment securities. At March 31, 2003 the
modified duration of Indian River's investment portfolio was 2.92 years as
compared to 2.54 years at December 31, 2002. It is Indian River's current
strategy to maintain the portfolio's duration at three years or less. This level
is consistent with Indian River's overall asset/liability management policies.

Indian River anticipates that the investment portfolio will continue
generate considerable cash flow as consumers refinance the residential mortgages
underlying the securities in the portfolio. This will consequently result in
significant investment security purchases during the remainder of 2003,
irrespective of excess funds generated from deposit growth

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

Loans were $231.5 million at March 31, 2003, an increase of $1.9
million, or 0.81%, from December 31, 2002. Loan increases since December 31,
2002 were in the category of non farm, non residential real estate ($3.7 million
or 5.74%) and in the category of one-to-four family residential real estate
loans ($3.2 million, or 3.66%). There were also several loan categories that
experienced decreases, those being in construction, land development and other
land loans ($2.2 million, or 4.70%), farmland ($1.1 million, or 34.4%), multi
family residential ($246 thousand, or 9.84%), agriculture ($496 thousand, or
27.76%), commercial loans ($62 thousand, or 0.47%), consumer loans ($553
thousand, or 4.75%), and other loans ($291 thousand, or 12.84%).

Deposits
- --------

Indian River's deposits increased $31.6 million, or 8.65%, from $364.9
million at December 31, 2002 to $396.5 million at March 31, 2003. Increases
occurred in NOW and money market accounts ($33.7 million, or 65.13%) and time
deposits ($6.2 million, or 4.77%). The increase in NOW and money market account
balances can be primarily attributed to a special money market rate that was
offered with the opening of the new Sarno Branch, Indian River's eighth branch,
during the first quarter of 2003. Time deposits increases can be attributed to
several new time deposits, at current offering rates, with balances greater than
$1 million that were opened during the first three months of 2003. These
accounts were the result of new public deposit accounts as well as new personal
accounts. These customers also established other deposit accounts with Indian
River.

In the first quarter of 2003, savings accounts decreased slightly by
$468 thousand, or 0.40%. There was also a $7.9 million, or 11.81%, decrease in
non interest bearing demand deposits. This can be primarily attributed to the
movement of over $10 million from a non interest bearing deposit to an overnight
repurchase agreement account at the beginning of 2003. At year end 2002 the
funds were moved out of the repurchase agreement account and into a non interest
bearing deposit account and moved back into a repurchase agreement account at
the beginning of 2003.

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

Total stockholders' equity increased by $775 thousand, or 2.22%, during
the first three months of 2003. Net income of $1.3 million was offset by a $653
thousand decrease in accumulated other comprehensive income. Accumulated other
comprehensive income for Indian River consists of the net unrealized gain or
loss on investments available for sale.

14

Results of Operations
- ---------------------

FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002

Net Income
- ----------

For the first three months of 2003, Indian River recorded net income of
$1.3 million. This was $199 thousand, or 13.68%, less than the $1.5 million in
net income recorded for the first three months of 2002. Basic earnings per share
decreased $0.10 during the three months ended March 31, 2003, to $0.58, as
compared to $0.68 per share during the comparable period of 2002 (as adjusted to
reflect the 10% stock dividend in 2003 and 2002). Diluted earnings per share
decreased from $0.66 to $0.56 during the first three months of 2003, as compared
to the same period in 2002. Before the effect of gains from security
transactions, the Indian River earned $1.2 million in the first quarter of 2003,
compared to $1.0 million earned in the first quarter of 2002. During the first
quarter of 2002, Indian River began restructuring its investment portfolio to
reduce credit and interest rate risk and exposure to corporate securities, and
as a result recognized an unusually high level of gains.

Net interest income increased $359 thousand, or 9.66%, for the first
three months of 2003 compared to the same period in 2002. This increase in net
interest income was offset by a decrease in other income of $53 thousand, or
3.44%, an increase in the provision for loan losses of $45 thousand, or 34.31%,
an increase in other expenses of $590 thousand, or 21.08%. There was a decrease
in taxes on income of $130 thousand, or 14.82%.

Net Interest Income
- -------------------

Net interest income increased to $4.1 million for the first three
months of 2003 from $3.7 million for the same period in 2002. The $359 thousand,
or 9.66%, increase in net interest income was mainly the result of a $490
thousand, or 18.93% decrease in interest expense. Yields on Indian River's
interest-earning assets decreased by 106 basis points, and the rates paid on
Indian River's interest-bearing liabilities decreased by 98 basis points. This
resulted in a decrease in the interest rate spread to 3.36% for the first three
months of 2003 from 3.44% for the first three months of 2002. Net interest
margin also decreased to 3.71% from 3.94%. The ratio of average interest-earning
assets to average interest-bearing liabilities for the first three months of
2003 was 1.18%, consistent with the 1.18% for the first three months of 2002.

Total interest income for the first three months of 2003 was $6.2
million compared to $6.3 million for the same period in 2002. The main factor in
the $132 thousand, or 2.09%, decrease in interest income is due to the 106 basis
point decrease in the average yields on interest-earning assets. This decrease
more than offset the $62.4 million, or 16.33%, increase in average
interest-earning assets.

Indian River's average loans increased $26.9 million, or 12.47%, and
the related yield decreased to 6.97% for the first three months of 2003 from
7.83% in 2002. During the same period, average investment securities increased
$42.4 million, or 28.74%, and the related yield decreased to 4.20% from 5.65%.
Yields on investment securities were impacted more dramatically due to the
increase in the total portfolio from the first quarter of 2002. Additionally,
the sale and call of investment securities during the first three months of 2002
resulted in the reinvestment of the proceeds in lower yielding securities.
Indian River's average federal funds sold decreased by $6.9 million, or 36.45%,
and the related yield decreased to 1.16% for the first three months of 2003 from
1.66% in 2002. The decrease in yields on earning assets was largely offset by
the 98 basis point decrease in average rates paid on deposits and other
borrowings.

15

Total interest expense for the first three months of 2003 was $2.1
million, a decrease of 18.93% from $2.6 million for the same period in 2002. The
decrease in total expense can be attributed to the decrease in the related rates
on deposits and other borrowings, which offset the $52.4 million, or 16.20%,
increase in the average balances outstanding of interest-bearing liabilities for
the first three months of 2003 compared to the same period in 2002. The related
rate decreased to 2.27% for the first three months of 2003 from 3.25% in 2002.
The average rate paid on certificates of deposit decreased to 2.94% for the
first three months of 2003 from 4.24% for the first three months of 2002. Rates
on other short term borrowings decreased from 1.91% in 2002 to 1.87% in 2003.
Short term borrowings include federal funds purchased and overnight repurchase
agreements. Rates on other long term borrowings decreased from 4.34% to 4.13%.
Long term borrowings include Federal Home Loan Bank advances and proceeds from
issuance of trust preferred securities.

The following table 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.

Three months Ended March 31,
2003 2002
----------------------------------------------------------------------------
(In Thousands)
Average Average Average Average
Assets: Balance Interest Yield Balance Interest Yield
------- -------- ------- ------- -------- --------

Investments (1) $189,736 $ 1,965 4.20% $147,384 $ 2,055 5.65%
Federal funds sold 11,980 34 1.16% 18,850 77 1.66%
Loans receivable (2) less loans
in process 242,832 4,172 6.97% 215,914 4,170 7.83%
-------- ---------------------- -------- -----------------
Total interest-earning assets 444,548 6,171 5.63% 382,148 6,302 6.69%
---------------------- -----------------
Noninterest-earning assets 31,610 19,545
-------- --------
Total $476,158 $401,693
======== ========

Liabilities and Stockholders'
Equity:
Interest-bearing liabilities
NOW & money market accts $ 65,498 $ 163 1.01% $ 44,019 $ 118 1.09%
Savings accounts 115,794 431 1.51% 116,616 856 2.98%
Certificates of deposit 134,748 976 2.94% 117,909 1,234 4.24%
Other short term borrowings 14,356 66 1.87% 16,594 78 1.91%
Other long term borrowings 45,551 464 4.13% 28,396 304 4.34%
-------- ---------------------- -------- -----------------
Total interest-bearing
liabilities 375,947 2,100 2.27% 323,534 2,590 3.25%
---------------------- -----------------

Noninterest-bearing
Liabilities 64,714 50,170
Stockholders' equity 35,497 27,989
-------- --------
Total $476,158 $401,693
======== ========

Net interest income and net yield
on interest-earning assets $ 4,071 3.71% $ 3,712 3.94%
====================== =================

(1) Includes investment securities and Federal Reserve Bank, Federal 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.

16

Other Income
- ------------

Other income decreased by $53 thousand, or 3.44%, for the first three
months of 2003 compared to the same period of 2002. This was partly a result of
a decrease in gain on sale of securities of $544 thousand, or 78.74%. The large
gain on sale of securities for the first three months of 2002 is due primarily
to the sale of $48.8 million of corporate investment securities. Offsetting this
decrease in gains on sale of securities was a $172 thousand, or 43.15%, increase
in service charges and fees. This is a result of the $59.6 million, or 17.69%,
increase in deposits since March 2002. Also contributing to this increase is an
increase in fees earned on debit card transactions. These fees increased as a
result of renegotiating a contract with a third party processor that allowed a
greater percentage of network fees to be passed through to Indian River. There
was also a $284 thousand, or 95.71%, increase in gain on sale of loans, which is
a result of the increase in 1-4 family real estate loans originated and then
sold in the secondary market. There was a $35 thousand, or 21.21%, increase in
other income. This includes an investment services income increase of $10
thousand and a lockbox service fee increase of $7 thousand. Of these sources of
other income, gains and fees on mortgage loans held for sale are the most
volatile. This source of income is highly sensitive to fluctuations in interest
rates, consumer confidence, economic conditions nationally and in our market,
and housing market conditions.

Other Expenses
- --------------

Indian River's other expenses increased $590 thousand, or 21.08%, for
the first three months of 2003 compared to the same period in 2002. The increase
was primarily the result of a $365 thousand, or 26.53%, increase in salaries and
benefits. This is largely the result of the hiring of employees to staff the new
Sarno Branch, which opened in February 2003. The new branch also has a loan
operation department, requiring additional staff. There was a $160 thousand, or
23.33%, increase in other operating expenses, primarily due to the increase in
advertising and public relation expenses associated with the opening of the new
Sarno Branch. There was a $16 thousand, or 4.43%, increase in data processing
expense for the three months ended March 31, 2003 as compared to the same period
2002. There was also a $49 thousand, or 12.72%, increase in occupancy and
equipment expense for the first three months of 2003 compared to the same period
in 2002.

Provision for Loan Losses
- -------------------------

Indian River makes provisions for loan losses in amounts deemed
necessary to maintain the allowance for loan losses at an appropriate level as
determined by management. At March 31, 2003, total nonperforming loans totaled
$644 thousand, or 0.28% of total loans, compared to $738 thousand, or 0.32% of
total loans at December 31, 2002.

The allowance for loan losses is a valuation reserve established by
management in an amount it deems adequate to provide for losses in the
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 nonperforming 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 uncollectable 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. As of March 31, 2003, Indian River had three loans
with specific allocations in the aggregate amount of $807 thousand. Problem
loans are identified by the Asset Liability Committee and 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%. 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 days

17

are graded special mention, loans past due 60-89 days are graded substandard and
loans past due 90 days or more are graded doubtful. As of March 31, 2003, 9.7%
of the allowance for loan losses reflected specific loan allocations and past
due/problem loans. 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 FDIC quarterly banking profile report as of
December 31, 2002 for all institutions. Indian River feels that these factors
are a better indication of overall loan performance in the nation. The first
quarter 2003 factors are: 0.16% for real estate loans, 1.76% for all non real
estate commercial loans, 6.38% for credit card loans, 3.34% for consumer loans,
0.58% for non-real estate agricultural loans, and 0.25% for other revolving
loans. In addition to historical experience factors, Indian River also provides
for losses due to economic factors, concentration of credit and portfolio
composition changes.

The allowance for loan losses as a percentage of total loans increased
to 1.45% at March 31, 2002, compared to 1.40% at December 31, 2002. This is due
to increases in specific allocations for impaired loans and Indian River
increasing the allowance due to an analysis of current economic conditions and
their impact upon the loan portfolio. Impaired loans increased to $807 thousand
at March 31, 2003, from $585 thousand at December 31, 2002.

The following table allocates the allowance for loan losses by loan
category, along with the percent of actual loans per category as of March 31,
2003 and December 31, 2002. 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.

(In Thousands) March 31, 2003 December 31, 2002
---------------------------------------------------
Amount % Amount %
---------------------------------------------------

Commercial, Agricultural $ 394 6 % $ 420 6 %
Real estate construction 509 18 484 19
Real estate mortgage 1,771 70 1,617 69
Consumer, other 640 6 646 6
Unallocated 89 -- 92 --
--------------------- ---------------------
Total Allowance for loan losses $3,403 100.0 % $3,259 100 %
===================== =====================

See Note 4, Allowance for Loan Losses, in the Notes to Unaudited
Condensed Consolidated Financial Statements for additional information.

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 $644 thousand at March 31, 2003 compared to
$738 thousand at December 31, 2002. The percentage of non-performing assets to
total assets decreased to 0.13% at March 31, 2003 from 0.17% at December 31,
2002.

Non-performing assets at March 31, 2003 consisted of non-accrual loans
in the amount of $637 thousand and loans past due over 90 days of $7 thousand.

Indian River did not have any other real estate owned as of March 31,
2003 or December 31, 2002. Generally, Indian River would evaluate the fair value
of each OREO property annually. These evaluations may be appraisals or other
market studies.

18

Indian River places credit card loans on non-accrual status when they
are 180 days delinquent. All other consumer and commercial loans are placed on
nonaccrual at 90 days delinquent or when determined uncollectable by management.
The following table allocates the non-performing loans by loan type.

(In Thousands)
March 31, 2003 December 31, 2002
----------------------------------------------------
Nonaccrual Loans Amount % Amount %
- -----------------------------------------------------------------------------------------------------

Real estate mortgage $637 100 % $678 100 %
Installment -- -- -- --

Accrual Loans - past due 90 days or
more March 31, 2003 December 31, 2002
- -----------------------------------------------------------------------------------------------------
Amount % Amount %
-----------------------------------------------------
Real estate mortgage $ -- -- % $ 39 65 %
Installment 7 100 21 35

For the three months ended March 31, 2003, $13 thousand in gross
interest income would have been recorded if the $637 thousand of nonaccrual
loans had been accruing interest throughout this period.

At March 31, 2003, 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 doubt as to the
ability of the borrowers to comply with the present loan repayment terms.

Taxes on Income
- ---------------

Indian River's tax expense was $748 thousand, or 37.35% of income
before taxes, for the first three months of 2003 and $879 thousand, or 37.67% of
income before taxes, for the same period in 2002.

Liquidity
---------

Liquidity management enables us to maintain sufficient cash flow to
fund operations and to meet financial obligations to depositors and borrowers.
Indian River'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'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 and securities
available for sale of $229.8 million at March 31, 2003, reflected an increase of
$52.4 million from December 31, 2002, or 29.38%. Funds available through
short-term borrowing and asset maturities are considered adequate to meet all
current needs. At March 31, 2003, Indian River had available credit of $20.4
million under lines of credit at correspondent banks. Although management
believes that the liquidity position is adequate, increased loan demand could
have an adverse impact on liquidity. Indian River also has a $53.8 million
borrowing line with the Federal Home Loan Bank of Atlanta. The outstanding
balance on this line decreased to $38.4 million as of March 31, 2003, from $38.6
at December 31, 2002. This line has been utilized by Indian River as a funding
source at a lower cost, by locking in borrowings at lower rates. 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.

19

CAPITAL RESOURCES
- -----------------

In the first three months of 2003, total stockholders' equity increased
$775 thousand, or 2.22%, as a result of earnings and an increase in accumulated
other comprehensive income. Earnings contributed $1.3 million to stockholders'
equity for this three month period. Accumulated other comprehensive losses
decreased stockholders' equity by $653 thousand during this three month period.

Bank holding companies are required to maintain capital ratios in
accordance with guidelines adopted by the Federal Reserve Board ("FRB"). The
guidelines are commonly known as Risk-Based Capital Guidelines. On March 31,
2003, Indian River exceeded all capital requirements, having a total risk-based
capital ratio of 16.41%, a Tier 1 risk-based capital ratio of 15.16%, and a
leverage ratio of 8.67%. These ratios have increased in part due to the issuance
of $7 million aggregate liquidation amount of trust preferred securities, which
are included in Tier 1 capital. See Note 8 to the Unaudited Consolidated
Financial Statements for additional information. As of March 31, 2003, Indian
River Bank also met the criteria for categorization as a "well-capitalized"
institution under the prompt corrective action rules promulgated under the
Federal Deposit Insurance Act, having total and tier 1 risk based capital ratios
of 13.65% and 12.40%, and a leverage ratio of 7.20%. Designation of the Bank as
a "well-capitalized" institution under these regulations does not constitute a
recommendation or endorsement of Indian River Bank by Federal bank regulators.

EFFECTS OF INFLATION
- --------------------

The unaudited consolidated financial statements and related unaudited
financial data presented herein have been prepared in accordance with accounting
principles generally accepted in the United States of America and practices
within the banking industry 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.
Unlike most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk is that portion of the variation in Indian River's
performance attributable to changes in interest rates. Management closely
monitors Indian River'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
Indian River'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.

20

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 (but not
below 0%) 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.

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:

March 31, 2003 March 31, 2002
--------------------------------------------- ---------------------------------------------
Percentage Percentage
Change in Percentage Change in Percentage Change in
Interest Rates Change in Percentage Market Value Change in Percentage Market Value
(Basis Points) Net Interest Change in of Portfolio Net Interest Change in of Portfolio
income Net Income Equity income Net Income Equity
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------

+200 -13.78% -28.92% -13.59% -7.92% -15.78% -16.85%
+100 -6.87% -14.42% -5.37% -3.83% -7.62% -8.18%
0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-100 3.17% 6.63% 2.84% 0.03% 0.06% 3.44%
-200 0.19% 0.36% 5.06% -3.76% -7.49% -2.55%

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. The Bank's GAP position has improved since the quarter
ended March 31, 2002 when the Bank was susceptible to lower earnings in either a
rising or a declining rate scenario (a condition known as negative convexity).
The improvement in a declining rate scenario is a result of two factors: (1) the
Bank's cost of funds has declined to the point that in the hypothetical downward
shifts contemplated in the table, much of the bank's deposits would not earn any
interest which would further reduce the cost of funds and (2) the Bank's
projected loan growth has increased to the point that increased interest income
would exceed the effects of accelerated repayments of loans and investments that
are inherent in significant downward shifts in market rates. In a rising rate
environment the Bank would be susceptible to lower net interest income (and
consequently to lower net income) due to funding costs rising faster than the
Bank's ability to reprice earning assets resulting in margin compression.
Although the Bank's static GAP position has improved somewhat, a significant
increase in rates would slow down anticipated cash flows from both the loan and
investment portfolios resulting less interest income from reinvesting those cash
flows at higher rates.

Indian River has been in a liability sensitive position during 2003 and
2002, which is reflected in the above tables. The nature of Indian River's
current asset and liability structure is such that it will be liability
sensitive for the foreseeable future. Indian River monitors its GAP position and
interest sensitivity position monthly to insure they stay within the established
ranges.

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.

21

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

Item 4 - Controls and Procedures

Within the ninety days prior to the filing of this report, the
Company's management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company'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 the Company's disclosure controls and procedures were
adequate. There were no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the Company's
internal controls or in other factors subsequent to the date of the evaluation
that could significantly affect those controls.

PART II OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

From time to time the Company is a participant in various
legal proceedings incidental to its business. In the opinion of management, the
liabilities (if any) resulting from such legal proceedings will not have a
material effect on the financial position of the Company.

ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

22

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) 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(4)
10(c) Employment Agreement between Indian River National Bank and
Jeffrey R. Morton(4)
10(d) Change in Control Agreement between Indian River Banking
Company, Indian River National Bank and Diana L. Walker(4)
11 Statement of Computation of Per Share Earnings
Please refer to Note 5 to the Condensed Consolidated
Financial Statements
21 Subsidiaries of the Registrant
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)
(4) Incorporated by reference to exhibit of same number to Indian River's Annual
Report on Form 10-K for the year ended December 31, 2002.

(b) Reports on Form 8-K

On January 21, 2003, Indian River filed a report on Form 8-K, under
Item 5 thereof, reporting a 10% stock dividend.

On January 24, 2003, Indian River filed a report on Form 8-K, under
Item 5 thereof reporting earnings for the year ended Decembrer 31, 2002.

On April 9, 2003, Indian River filed a report on Form 8-K, under Item 5
thereof, reporting earnings for the quarter ended March 31, 2003.

On April 15, 2003, Indian River filed a report on Form 10-K, under Item
4 thereof, regarding a change in its certifying accountant.

23

SIGNATURES

Pursuant to the requirements 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
(Registrant)

May 1, 2003 By: /s/ Paul A. Beindorf
---------------------------------------------------
Paul A. Beindorf, President and Chief Executive
Officer

May 1, 2003 By: /s/ Phillip Tasker
--------------------------------------------------
Phillip Tasker, Chief Financial Officer

24

CERTIFICATION

I, Paul A. Beindorf, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Indian River Banking
Company;

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers 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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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 officers 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 function):

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 officers and I have indicated in this
quarterly 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: May 1, 2003 /s/ Paul A. Beindorf
-------------------------------------
President and Chief Executive Officer

CERTIFICATION

I, Phillip L. Tasker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Indian River Banking
Company;

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers 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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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 officers 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 function):

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 officers and I have indicated in this
quarterly 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: May 1, 2003 /s/ Phillip L. Tasker
------------------------------------
Chief Financial Officer