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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 September 30, 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 |X| No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
As of October 31, 2003, the registrant had 2,187,402 shares of Common
Stock outstanding.
Part I Financial Information
Item 1 - Financial Statements
INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS September 30, 2003 December 31, 2002
- ----------------------------------------------------------------------------------------------
(Unaudited)
Cash and due from banks $ 11,533 $ 18,856
Federal funds sold 329 1,001
--------- ---------
Total cash and cash equivalents 11,862 19,857
Securities available for sale 244,205 176,383
Securities held to maturity 7,648 9,742
Other securities 2,106 2,370
Loans held for sale 1,409 13,186
Loans, net of allowance for loan loss 242,456 229,588
Bank premises and equipment, net 4,295 4,084
Accrued interest receivable 2,385 2,207
Other assets 2,430 780
--------- ---------
TOTAL ASSETS $ 518,796 $ 458,197
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing demand deposits $ 64,167 $ 66,883
Interest-bearing deposits:
NOW and money-market 110,257 51,777
Savings 117,634 116,028
Time deposits 118,093 130,205
--------- ---------
TOTAL DEPOSITS 410,151 364,893
Guaranteed preferred beneficial interests in Company's
subordinated debentures 7,000 7,000
Other borrowings 63,891 50,269
Other liabilities 1,456 1,186
--------- ---------
TOTAL LIABILITIES 482,498 423,348
--------- ---------
Stockholders' Equity
Common stock 2,178 2,163
Capital surplus 27,757 27,427
Retained earnings 6,676 2,979
Accumulated other comprehensive (loss) income (313) 2,280
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 36,298 34,849
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 518,796 $ 458,197
========= =========
See Notes to Condensed Consolidated Financial Statements.
2
INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
(In Thousands, Except Per Share Data)
2003 2002
- --------------------------------------------------------------------------------
Interest income:
Loans and fees on loans $4,006 $4,253
Investment securities and due from banks 1,648 2,167
Federal funds sold 3 14
------ ------
5,657 6,434
------ ------
Interest expense:
Deposits 1,469 1,738
Other 579 424
----- ------
2,048 2,162
----- ------
NET INTEREST INCOME 3,609 4,272
Provision for loan losses 90 180
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,519 4,092
------ ------
Other income:
Service charges and fees 650 448
Gain on sale of securities -- 62
Gain on sale of loans 589 347
Other 363 243
------ ------
1,602 1,100
------ ------
Other expense:
Salaries and benefits 1,597 1,561
Occupancy and equipment 483 408
Data processing 399 294
Other operating expenses 680 694
----- ------
3,159 2,957
----- ------
INCOME BEFORE INCOME TAXES 1,962 2,235
Income taxes 710 838
------ ------
NET INCOME $1,252 $1,397
====== ======
Basic earnings per share $ 0.58 $ 0.65
====== ======
Diluted earnings per share $ 0.56 $ 0.64
====== ======
Dividends per share $ -- $ --
====== ======
See Notes to Condensed Consolidated Financial Statements.
3
INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
(In Thousands, Except Per Share Data)
2003 2002
- -----------------------------------------------------------------------------
Interest income:
Loans and fees on loans $12,229 $12,639
Investment securities and due from banks 5,746 6,484
Federal funds sold 42 119
------- -------
18,017 19,242
------- -------
Interest expense:
Deposits 4,695 5,894
Other 1,647 1,191
------- -------
6,342 7,085
------- -------
NET INTEREST INCOME 11,675 12,157
Provision for loan losses 355 440
------- -------
NET INTEREST INCOME AFTER PROVISION 11,320 11,717
FOR LOAN LOSSES ------- -------
Other income:
Service charges and fees 1,821 1,273
Gain on sale of securities 167 813
Gain on sale of loans 1,822 1,034
Other 793 638
------- -------
4,603 3,758
------- -------
Other expense:
Salaries and benefits 5,140 4,404
Occupancy and equipment 1,398 1,174
Data processing 1,164 970
Other operating expenses 2,334 2,133
------- -------
10,036 8,681
------- -------
INCOME BEFORE INCOME TAXES 5,887 6,794
Income taxes 2,177 2,552
------- -------
NET INCOME $ 3,710 $ 4,242
======= =======
Basic earnings per share $ 1.71 $ 1.98
======= =======
Diluted earnings per share $ 1.65 $ 1.94
======= =======
Dividends per share $ -- $ --
======= =======
See Notes to Condensed Consolidated Financial Statements.
4
INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
(In Thousands)
Accumulated
Common Stock Other Total Comprehen-
------------------ Capital Retained Comprehensive Stockholders' sive
Shares Amount Surplus Earnings Income (loss) Equity Income
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2002 1,772 $ 1,772 $ 16,456 $ 8,478 $ 998 $ 27,704
10% stock dividend, applied
retroactively 177 177 4,422 ( 4,599) -- --
-------------------------------------------------------------------------------------------
Balance, January 1, 2002, as
adjusted 1,949 1,949 20,878 3,879 998 27,704
Fractional shares -- -- -- (8) -- (8)
Stock options exercised 5 5 92 -- -- 97
Stock-based compensation -- -- 8 -- -- 8
Comprehensive Income:
Net income -- -- -- 4,242 -- 4,242 $ 4,242
Other comprehensive
income, unrealized gain
on securities, net of tax -- -- -- -- 1,079 1,079 1,079
-------------
Comprehensive Income $ 5,321
------------------------------------------------------------------------------=============
Balance, September 30, 2002 1,954 $ 1,954 $ 20,978 $ 8,113 $ 2,077 $ 33,122
===============================================================================
Balance, January 1, 2003 1,966 $ 1,966 $ 21,201 $ 9,402 $ 2,280 $ 34,849
10% stock dividend, applied
retroactively 197 197 6,226 (6,423) -- --
------------------------------------------------------------------------------
Balance, January 1, 2003, as adjusted 2,163 2,163 27,427 2,979 2,280 34,849
Fractional shares -- -- -- (13) -- (13)
Stock options exercised 15 15 281 -- -- 296
Stock-based compensation -- -- 49 -- -- 49
Comprehensive Income:
Net income -- -- -- 3,710 -- 3,710 $ 3,710
Other comprehensive
income, unrealized loss
on securities, net of tax
benefit -- -- -- -- (2,593) (2,593) (2,593)
---------
Comprehensive Income $ 1,117
------------------------------------------------------------------------------=============
Balance, September 30, 2003 2,178 $ 2,178 $ 27,757 $ 6,676 $ (313) $ 36,298
==============================================================================
See Notes to Condensed Consolidated Financial Statements
5
INDIAN RIVER BANKING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
(In Thousands)
2003 2002
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 3,710 $ 4,242
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 512 449
Provision for loan losses 355 440
Proceeds from sale of loans originated for resale 92,449 46,431
Origination of loans for resale (78,850) (43,071)
Gain on sale of loans (1,822) (1,034)
Stock-based compensation 49 8
Amortization of premiums and discounts, net 2,395 188
Gain on sale of securities (167) (813)
Increase (decrease) in accrued interest receivable (178) 569
Increase in other assets (127) (246)
Increase in other liabilities 270 462
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,596 7,625
-------- --------
Cash Flows From Investing Activities
Cash flows from securities, net (71,808) (23,151)
Loan originations, net of collections (13,223) (16,430)
Purchases of premises and equipment (723) (469)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (85,754) (40,050)
-------- --------
Cash Flows From Financing Activities
Net increase in deposits 45,258 15,264
Net increase in other borrowings 13,622 9,824
Proceeds from exercise of stock options 296 97
Cash paid for fractional shares (13) (8)
Proceeds from issuance of trust preferred securities -- 6,790
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 59,163 31,967
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,995) (458)
Cash and cash equivalents:
Beginning 19,857 23,367
-------- --------
Ending $ 11,862 $ 22,909
======== ========
See Notes to Condensed Consolidated Financial Statements.
6
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 and nine-month
periods ended September 30, 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 National 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 September 30, 2003 and December 31, 2002 are summarized
as follows.
(In Thousands) September 30, 2003
-------------------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------
State, county and municipal securities $ 7,648 $ 288 $ (38) $ 7,898
=============================================================
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
============================================================
7
Securities available for sale: The amortized cost and fair values of securities
available for sale as of September 30, 2003 and December 31, 2002 are summarized
as follows:
(In Thousands) September 30, 2003
----------------------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------------------
U. S. Government corporations and agencies $ 65,527 $ 920 $ (521) $ 65,926
Corporate securities 4,914 285 -- 5,199
Mortgage-backed securities 174,261 674 (1,855) 173,080
-----------------------------------------------------------------
$ 244,702 $ 1,879 $ (2,376) $ 244,205
=================================================================
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 September 30, 2003 and
December 31, 2002:
(In Thousands) September 30, December 31,
2003 2002
--------------------------------
Real estate:
Construction, land development and other land loans $ 46,465 $ 45,913
Farmland 2,586 3,181
One-to-four family residential 95,901 87,841
Multifamily residential 2,264 2,506
Nonfarm, nonresidential 71,090 64,458
Agriculture 2,172 1,788
Commercial and industrial 13,112 13,257
Consumer 10,332 11,645
Other 1,933 2,262
-------------------------------
245,855 232,851
Less: Allowance for loan losses (3,395) (3,259)
Unearned discounts and loan fees (4) (4)
-------------------------------
Loans, net $ 242,456 $ 229,588
==============================
Indian River's recorded investment in impaired loans for which a specific
allowance was recognized was $147 thousand and $585 thousand at September 30,
2003 and December 31, 2002, respectively. The specific allowance associated with
these loans was $40 thousand and $100 thousand at September 30, 2003 and
December 31, 2002, respectively. The average recorded investment in impaired
loans during the third quarter of 2003 was $36 thousand compared to $97 thousand
for the comparable quarter in 2002. The average recorded investment in impaired
loans for the first nine months of 2003 was $414 thousand compared to $293
thousand for the first nine months of 2002. Interest income recognized on
impaired loans, recognized for cash payments during the third quarter and the
first nine months of 2003 and 2002 was not significant.
8
NOTE 4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the three months ended September
30, 2003 and 2002 is as follows:
(In Thousands)
2003 2002
---- ----
Balance, beginning $ 3,352 $ 3,015
---------------- -----------------
Charge-offs:
Loans to individuals (16) (20)
Credit Cards (15) (10)
Other loans (34) (19)
---------------- -----------------
Total (65) (49)
---------------- -----------------
Recoveries:
Loans to individuals 5 2
Credit Cards 2 --
Other loans 11 3
---------------- -----------------
Total 18 5
---------------- -----------------
Net charge-offs (47) (44)
Provision for loan losses 90 180
---------------- -----------------
Balance, ending $ 3,395 $ 3,151
================ =================
Activity in the allowance for loan losses for the nine months ended
September 30, 2003 and 2002 is as follows:
(In Thousands)
2003 2002
---- ----
Balance, beginning $ 3,259 $ 2,819
---------------- -----------------
Charge-offs:
1-4 Family Real Estate (34) --
Nonfarm, nonresidential (62) --
Commercial and industrial (14) (2)
Loans to individuals (35) (71)
Credit Cards (44) (36)
Other loans (76) (32)
---------------- -----------------
Total (265) (141)
---------------- -----------------
Recoveries:
1-4 Family Real Estate -- 6
Commercial and Industrial -- 1
Loans to individuals 17 20
Credit Cards 6 2
Other loans 23 4
---------------- -----------------
Total 46 33
---------------- -----------------
Net charge-offs (219) (108)
Provision for loan losses 355 440
---------------- -----------------
Balance, ending $ 3,395 $ 3,151
================ =================
9
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 Stock
Method.
Following is information about the computation of the earnings per share data
for the three and nine months ended September 30, 2003 and 2002 respectively
(after adjusting for 10% stock dividends in 2003 and 2002):
(In Thousands, Except Per Share Data) Common Per-Share
Net Income Shares Amounts
-----------------------------------------
Three Months Ended September 30, 2003:
Basic earnings, income available to
common stockholders $ 1,252 2,175 $ 0.58
===========
Effect of dilutive securities, options -- 67
---------------------------
Diluted earnings per share $ 1,252 2,242 $ 0.56
=========================================
Common Per-Share
Net Income Shares Amounts
-----------------------------------------
Three Months Ended September 30, 2002:
Basic earnings, income available to
common stockholders $ 1,397 2,147 $ 0.65
=========
Effect of dilutive securities, options -- 52
-----------------------------
Diluted earnings per share $ 1,397 2,199 $ 0.64
==========================================
Common Per-Share
Net Income Shares Amounts
------------------------------------------
Nine Months Ended September 30, 2003:
Basic earnings, income available to
common stockholders $ 3,710 2,170 $ 1.71
===========
Effect of dilutive securities, options -- 75
---------------------------
Diluted earnings per share $ 3,710 2,245 $ 1.65
==========================================
Common Per-Share
Net Income Shares Amounts
------------------------------------------
Nine Months Ended September 30, 2002:
Basic earnings, income available to
common stockholders $ 4,242 2,146 $ 1.98
========
Effect of dilutive securities, options -- 52
-----------------------------
Diluted earnings per share $ 4,242 2,198 $ 1.94
=========================================
10
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following at September 30, 2003 and December 31,
2002:
(In Thousands) September 30, December 31,
2003 2002
----------------------------------
Advance under line of credit with Colonial Bank, interest payable quarterly at
an adjustable rate, 4.00% at September 30, 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 286 571
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 21,705 2,398
Federal funds purchased, interest payable daily at a rate that adjusts daily 3,900 9,300
----------------------------------
$ 63,891 $ 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 and the trust preferred
securities bear interest at a variable rate of 3 month LIBOR plus 3.45%, 4.58%
for the quarterly period ended September 30, 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.
11
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 September 30, 2003, the number of shares
eligible to be issued under the Plan was 366,025 and approximately 130,000
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 nine-month
periods ended September 30, 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 37,776 23.81
Exercised (5,951) 15.95
Forfeited (3,217) 18.55
--------------------------------
Outstanding at September 30, 2002 174,326 $ 18.28
================================
Outstanding at December 31, 2002 162,200 $ 18.41
Granted 53,590 32.75
Exercised (15,052) 19.64
Forfeited (377) 30.64
--------------------------------
Outstanding at September 30, 2003 200,361 $ 22.13
================================
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.
12
NOTE 9. STOCK BASED COMPENSATION (CONTINUED)
The fair value of each option granted is estimated on the date of the grant
using the Black-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 active market for Indian River's stock. The weighted-average fair value of
options granted during 2003 was $11.39.
(In Thousands, Except Per Share Data) Three Months Ending Three Months Ending
September 30, 2003 September 30, 2002
------------------------------------------
Net income, as reported $ 1,252 $ 1,397
Add total stock-based employee compensation expense determined
under the intrinsic value based method for all awards, net of
related tax effects 10 2
Deduct total stock-based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects (229) (48)
----------------------------------
Pro forma net income $ 1,033 $ 1,351
==================================
Basic earnings per share As reported $ 0.58 $ 0.65
Pro forma $ 0.47 $ 0.63
Diluted earnings per share As reported $ 0.56 $ 0.64
Pro forma $ 0.46 $ 0.61
Nine Months Ending Nine Months Ending
(In Thousands, Except Per Share Data) September 30, 2003 September 30, 2002
-------------------------------------------
Net income, as reported $ 3,710 $ 4,242
Add total stock-based employee compensation expense determined
under the intrinsic value based method for all awards, net of
related tax effects 31 5
Deduct total stock-based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects (334) (144)
------------------------------------
Pro forma net income $ 3,407 $ 4,103
====================================
Basic earnings per share As reported $ 1.71 $ 1.98
Pro forma $ 1.57 $ 1.91
Diluted earnings per share As reported $ 1.65 $ 1.94
Pro forma $ 1.55 $ 1.87
13
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.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Indian River evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
it is deemed necessary by Indian River upon extension of credit, is based on
management's credit evaluation of the counter party.
Standby letters of credit are conditional commitments issued by Indian River to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
A summary of the amounts of Indian River's financial instruments, with
off-balance sheet risk at September 30, 2003, follows:
(In Thousands) 2003
-----------------
Commitments to extend credit $ 63,908
Credit card arrangements 4,161
Standby letters of credit 1,552
-----------------
$ 69,621
=================
14
NOTE 11. ADDITIONAL CASH FLOW INFORMATION
(In Thousands) Nine Months Ended September 30,
2003 2002
------------------------------
Cash flows from securities:
Securities available-for-sale:
Proceeds from sales $ 21,721 $ 81,613
Maturities, calls and paydowns 109,131 27,778
Purchases (205,001) (132,542)
Securities held to maturity:
Maturities, calls and paydowns 3,800 --
Purchases (1,723) --
Other securities:
Maturities, calls and paydowns 1,325 --
Purchases (1,061) --
------------------------------
$ (71,808) $ (23,151)
==============================
Supplemental disclosures of cash flow information:
Cash payments for interest $ 6,391 $ 7,212
==============================
Cash payments for income taxes $ 2,535 $ 2,703
==============================
NOTE 12. SUBSEQUENT EVENTS
On October 15, 2003, Indian River declared a $0.50 per share cash dividend,
payable on November 17, 2003 to shareholders of record on October 31, 2003.
On October 22, 2003 Indian River entered into of a definitive agreement with
Alabama National BanCorporation ("ANB") providing for the acquisition of Indian
River by ANB. Under the agreement, Indian River shall be merged with and into
ANB, and Indian River Bank will become a wholly owned subsidiary of ANB. Under
the terms of the agreement, ANB will issue 0.9408 ANB common shares for each
share of Indian River common stock, subject to upward adjustment in accordance
with the Agreement, and subject to the ability to elect cash with respect to a
portion of the outstanding shares. Options to purchase Indian River common stock
will be converted into options to purchase ANB common stock.
15
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, and gains from
the sale of mortgage loans originated for sale in the secondary market.
On October 22, 2003 Indian River entered into of a definitive agreement
with Alabama National BanCorporation ("ANB") providing for the acquisition of
Indian River by ANB. Under the agreement, Indian River shall be merged with and
into ANB, and Indian River Bank will become a wholly owned subsidiary of ANB.
Under the terms of the agreement, ANB will issue 0.9408 ANB common shares for
each share of Indian River common stock, subject to upward adjustment in
accordance with the Agreement, and subject to the ability to elect cash with
respect to a portion of the outstanding shares. Options to purchase Indian River
common stock will be converted into options to purchase ANB common stock.
FINANCIAL CONDITION
- -------------------
Total Assets
- ------------
Indian River's total assets were $518.8 million at September 30, 2003,
a 13.2% increase from $458.2 million at December 31, 2002. The increase in
Indian River's asset base was due to deposit growth of $45.3 million and a $13.6
million increase in other borrowings.
Investments
- -----------
Indian River's investment portfolio increased $65.5 million during the
first nine months of 2003, primarily as a result of a $58.9 million growth in
deposits and other borrowings. Net loans outstanding (both portfolio loans and
loans held for sale) increased only $1.1 million during the same period.
Portfolio loans were up $12.9 million, or 5.6% in the nine month period ending
September 30, 2003 and loans held for sale declined $11.8 million, or 89.3%
during the same period. Due to processing delays with purchasers at year-end
2002, Indian River had a significantly higher amount of loans held for sale
outstanding than is normal. During the nine months ended September 30, 2003, the
average daily balance of loans held for sale was $6.1 million compared to the
$13.2 million outstanding on December 31, 2002. During the first nine months of
2003 Indian River originated $78.9 million of loans for sale, compared to $43.0
million during the comparable period in 2002.
16
During the first nine months of 2003 Indian River purchased $207.8
million in securities. In addition to funding growth, Indian River's existing
investment securities generated $136.0 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 nine months ended September 30, 2003 were primarily
weighted towards planned amortization class collateralized mortgage obligations,
callable US Government agency securities 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. 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 September 30, 2003 the modified duration
of Indian River's investment portfolio was 3.15 years compared to 2.54 years at
December 31, 2002.
Loans
- -----
Loans totaled $242.5 million at September 30, 2003, an increase of
$12.9 million, or 5.6%, from December 31, 2002. Loan growth since December 31,
2002 was in one-to-four family residential real estate loans ($8.1 million, or a
9.2% increase), construction, land development and other land loans ($552
thousand, or a 1.2% increase) nonfarm, nonresidential real estate loans ($6.6
million or a 10.3% increase) and in agricultural related loans ($384 thousand or
a 21.5% increase). Indian River experienced net loan repayments in farmland
related loans ($-595 thousand or an 18.7% decrease) as well as in multi-family
residential, commercial, consumer and other loans (-$2.0 million or a 6.8%
decrease).
Deposits
- --------
Indian River's deposits increased $45.3 million, or 12.4%, from $364.9
million at December 31, 2002 to $410.2 million at September 30, 2003. Increases
occurred in NOW and money market accounts ($58.5 million, or 113.0%). 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
Road Branch, Indian River's eighth branch, during the first quarter of 2003
Indian River has implemented a deposit reclassification program to reduce the
amount of reserves required to be maintained in accordance with Regulation D of
the Federal Reserve. At September 30, 2003 Indian River had reclassified $41.7
million of demand deposit account balances and $40.9 million in NOW account
balances as money market account balances. The deposit reclassification program
was implemented on May 25th after notification to the Federal Reserve Bank of
Atlanta and did not impact totals at December 31, 2002. Under Federal Reserve
guidelines and subject to proper customer disclosure Indian River is able to
sweep Demand deposit and NOW account balances into a corresponding money market
account nightly as long as return sweeps do not exceed Federal Reserve
limitations. Some of Indian River's demand deposit and NOW account balances are
subject to a 10% reserve requirement while money market account balances are
only subject to a 3% reserve requirement. Reclassification frees up additional
non-earning assets for investment.
In the nine months ended September 30, 2003, savings accounts increased
$1.6 million, or 1.4%, while time deposit account balances decreased $12.1
million, or 9.3%.
There was also a $2.7 million, or 4.1%, decrease in noninterest bearing
demand deposits. This can be primarily attributed to the movement of over $10
million from a noninterest-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 noninterest bearing deposit account
and moved back into a repurchase agreement account at the beginning of 2003.
Stockholders' Equity
- --------------------
Total stockholders' equity increased by $1.4 million or 4.2%, during
the first nine months of 2003. Net income of $3.7 million and option exercises
of $296 thousand were offset by a $2.6 million decrease in accumulated other
comprehensive income (loss). Accumulated other comprehensive income (loss) for
Indian River consists of the net unrealized gain or loss on securities available
for sale.
17
Results of Operations
- ---------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net Income
- ----------
For the first nine months of 2003, Indian River recorded net income of
$3.7 million. This was $532 thousand, or 12.5%, less than the $4.2 million in
net income recorded for the first nine months of 2002. Basic earnings per share
decreased $0.27 during the nine months ended September 30, 2003, to $1.71,
compared to $1.98 per share during the comparable period of 2002 (as adjusted to
reflect the 10% stock dividends in 2003 and 2002). Diluted earnings per share
decreased from $1.94 to $1.65 during the first nine months of 2003, compared to
the same period in 2002. Before the effect of gains from security transactions,
the Indian River earned $3.6 million in the first nine months of 2003, compared
to $3.7 million earned in the first nine months 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 decreased $482 thousand, or 4.0%, for the first
nine months of 2003 compared to the same period in 2002. Other income rose $845
thousand, or 22.5%, in the nine months ended September 30, 2003 compared to the
comparable period in 2002. Indian River also noted an increase in other expenses
of $1.4 million, or 15.6%, in the first nine months of 2003 compared to the
prior period. The provision for loan losses decreased $85 thousand, or 19.3%.
Net Interest Income
- -------------------
Net interest income decreased to $11.7 million for the first nine
months of 2003 from $12.2 million for the same period in 2002. Both interest
income and interest expenses fell during the nine months ended September 30,
2003 compared to same period in 2002. The $482 thousand, or 4.0%, decrease in
net interest income was mainly the result of a $1.2 million, or 6.4% decrease in
interest income exceeding the $743 thousand, or 10.5% decrease in interest
expense. Yields on Indian River's interest-earning assets decreased by 149 basis
points, and the rates paid on Indian River's interest-bearing liabilities
decreased by 73 basis points. This resulted in a decrease in the interest rate
spread to 2.94% for the first nine months of 2003 from 3.70% for the first nine
months of 2002. Net interest margin also decreased to 3.29% from 4.14%. The
ratio of average interest-earning assets to average interest-bearing liabilities
for the first nine months of 2003 was 1.13, down slightly from the 1.18 for the
first nine months of 2002.
Total interest income for the first nine months of 2003 was $18.0
million compared to $19.2 million for the same period in 2002. The main factor
in the $1.2 million, or 6.4%, decrease in interest income is due to the 149
basis point decrease in the average yields on interest-earning assets. This
decrease more than offset the $82.9 million, or 21.1%, increase in average
interest-earning assets.
Indian River's average loans outstanding balance increased $22.5
million, or 10.2%, and the related yield decreased to 6.72% for the first nine
months of 2003 from 7.65% in 2002. During the same period, average investment
securities balances increased $65.0 million, or 40.2%, and the related yield
decreased to 3.39% from 5.36%. Yields on investment securities were impacted
more dramatically due to the increase in the total portfolio size from the first
nine months of 2002. Additionally, the sale and call of investment securities
during the first nine months of 2003 resulted in the reinvestment of the
proceeds in lower yielding securities. Indian River's average federal funds sold
decreased by $4.6 million, or 47.7% and the related yield decreased to 1.13% for
the first nine months of 2003 from 1.66% in 2002. The decrease in yields on
earning assets was partially offset by the 73 basis point decrease in average
rates paid on deposits and other borrowings.
18
Total interest expense for the first nine months of 2003 was $6.3
million, a decrease of 10.5% from $7.1 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 $67.4 million, or 20.3%,
increase in the average balances outstanding of interest-bearing liabilities for
the first nine months of 2003 compared to the same period in 2002. The related
average rate decreased to 2.13% for the first nine months of 2003 from 2.86% in
2002. The 35 basis point increase in rates on NOW and money market accounts
reflect the deposit special offered in connection with the opening of the Sarno
Road office in 2003. The average rate paid on certificates of deposit decreased
to 2.79% for the first nine months of 2003, from 3.69% for the first nine months
of 2002. Rates on other short term borrowings decreased from 2.08% in 2002 to
1.71% in 2003. Short term borrowings include federal funds purchased and
overnight repurchase agreements. Rates on other long term borrowings decreased
from 4.35% to 4.09%. Long term borrowings include Federal Home Loan Bank
advances and trust preferred securities.
The following table provides certain information relating to Indian
River's average consolidated balance sheets 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.
Nine months Ended September 30,
2003 2002
---------------------------------------------------------------------------------
(Dollars In Thousands)
Average Average Average Average
Assets: Balance Interest Yield Balance Interest Yield
------------ ---------- ---------- ----------- ---------- ----------
Investments (1) $ 226,761 $ 5,746 3.39% $ 161,754 $ 6,484 5.36%
Federal funds sold 4,991 42 1.13% 9,543 119 1.66%
Loans (2) less loans in process 243,297 12,229 6.72% 220,840 12,639 7.65%
------------ ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 475,049 18,017 5.07% 395,137 19,242 6.56%
---------- ---------- ---------- ----------
Noninterest-earning assets 21,163 21,154
------------ -----------
Total $ 496,212 $ 413,291
============ ===========
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities
NOW & money market accts $ 86,266 $ 852 1.32% $ 47,331 $ 343 0.97%
Savings accounts 116,930 1,123 1.28% 115,530 2,179 2.52%
Certificates of deposit 130,181 2,720 2.79% 122,259 3,372 3.69%
Other short term borrowings 19,970 256 1.71% 18,546 288 2.08%
Other long term borrowings 45,462 1,391 4.09% 27,749 903 4.35%
------------ ---------- ---------- ----------- ---------- ----------
Total interest-bearing
liabilities 398,809 6,342 2.13% 331,415 7,085 2.86%
---------- ---------- ---------- ----------
Noninterest-bearing
liabilities 61,523 51,675
Stockholders' equity 35,880 30,201
------------ -----------
Total $ 496,212 $ 413,291
============ ===========
Net interest income and net yield
on interest-earning assets $ 11,675 3.29% $ 12,157 4.14%
========== ========== ========== ==========
- --------------------------
(1) Includes securities available for sale, securities held to maturity, other
securities and interest-bearing deposits. 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.
19
Other Income
- ------------
Other income increased by $845 thousand, or 22.5%, for the first nine
months of 2003 compared to the same period of 2002. This increase was the result
of a $548 thousand increase (+ 43.0%) in service charges and fees, a $788
thousand increase (+76.2%) in gains on the sale of loans, and an increase in
other income of $155 thousand (+ 24.3%) that Indian River recognized during the
first nine months of 2003 compared to the results for the first nine months of
2002. These increases were partially offset by a $646 thousand decrease (-79.5%)
in gain on the sale of securities.
The increase in service charge and fee income was primarily the result
of the $76.1 million, or 22.1%, increase in deposits since September 2002. Most
of this growth ($75.7 million or 99.5% of total deposit growth) has occurred in
transactional related account types (demand deposits, NOW accounts and money
market accounts) that generate fee income. 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.
As noted Indian River had a $788 thousand, or 76.2%, 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 from approximately $43.1
million to $78.9 million. The gains and fees on mortgage loans held for sale are
volatile as 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 $1.4 million, or 15.6%, for the
first nine months of 2003 compared to the same period in 2002. The increase was
primarily the result of a $736 thousand, or 16.7%, increase in salaries and
benefits. This is largely the result of the hiring of employees to staff the new
Sarno Road Branch, which opened in February 2003. The new branch also has a loan
operation department, requiring additional staff. Salaries and benefits expense
was also negatively impacted by a significant increase in group hospitalization
insurance premiums that went into effect in June 2002. These premiums were up
$107 thousand (+46.9%) in the nine months ended September 30, 2003 compared to
the same period in 2002.
There was a $224 thousand, or 19.1% increase in occupancy and equipment
expenses and a $194 thousand, or 20.0%, increase in data processing expense for
the nine months ended September 30, 2003 compared to the same period 2002. These
increases are primarily due to the opening of the Sarno Road Branch in early
2003. There was also a $201 thousand, or 9.42%, increase in other operating
expenses, also due to the increase in advertising and public relation expenses
associated with the opening of the Sarno Road Branch.
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 September 30, 2003, total nonperforming loans
totaled $360 thousand, or 0.1% of total loans, compared to $738 thousand, or
0.3% of total loans at December 31, 2002. The decrease is primarily due to the
resolution of one nonperforming loan totaling $585 thousand. The loan was sold
without recourse to a private investor resulting in a $65 thousand chargeoff to
Indian River.
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.
20
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 September 30, 2003, Indian River had two
loans with specific allocations in the aggregate amount of $40,000. 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 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
September 30, 2003, 7.38% 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 June 30, 2003 for all institutions. Indian River
feels that these factors are a better indication of overall loan performance in
the nation. The third quarter 2003 factors are: 0.12% for real estate loans,
1.37% for all non real estate commercial loans, 5.83% for credit card loans,
3.00% for consumer loans, 0.46% 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 following table allocates the allowance for loan losses by loan
category, along with the percent of actual loans per category as of September
30, 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) September 30, 2003 December 31, 2002
---------------------------------------------
Amount % Amount %
---------------------------------------------
Commercial, Agricultural $ 385 6 % $ 420 6 %
Real estate construction 488 19 484 19
Real estate mortgage 1,682 70 1,617 69
Consumer, other 731 5 646 6
Unallocated 109 -- 92 --
-------- ------- --------- -------
Total Allowance for loan losses $ 3,395 100 % $ 3,259 100 %
======== ======= ========= =======
See Note 4, Allowance for Loan Losses, in the Notes to Unaudited
Condensed Consolidated Financial Statements for additional information.
Nonperforming Assets. Indian River Bank's nonperforming assets, which
are comprised of loans delinquent 90 days or more, nonaccrual loans, and other
real estate owned ("OREO"), totaled $378 thousand at September 30, 2003 compared
to $738 thousand at December 31, 2002. The percentage of nonperforming assets to
total assets decreased to 0.1% at September 30, 2003 from 0.2% at December 31,
2002.
Nonperforming assets at September 30, 2003 consisted of nonaccrual
loans in the amount of $356 thousand, loans past due over 90 days of $4
thousand, and other real estate owned of $18 thousand.
Indian River did not have any other real estate owned as of December
31, 2002. Indian River evaluates the fair value of each OREO property annually.
These evaluations may be appraisals or other market studies.
21
Indian River charges off credit card loans when they are 120 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 nonperforming loans by loan type.
(In Thousands)
Nonaccrual Loans September 30, 2003 December 31, 2002
- ------------------------------------------------------------------------------
Amount % Amount %
---------- ------------ --------- ----------
Real estate mortgage $ 356 100 % $ 678 100 %
========== ============ ========= ==========
Accrual Loans - past due
90 days or more September 30, 2003 December 31, 2002
- ------------------------------------------------------------------------------
Amount % Amount %
---------- ------------ --------- ----------
Real estate mortgage -- $ 39 65 %
Installment -- 21 35 %
Credit cards $ 4 100 % -- --
---------- ------------ --------- ----------
$ 4 100 % $ 60 100 %
========== ============ ========= ==========
For the nine months ended September 30, 2003, $9 thousand in gross
interest income would have been recorded if the $360 thousand of nonaccrual
loans had been accruing interest throughout this period.
At September 30, 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.
Income Tax
- ----------
Indian River's income tax was $2.2 million, or 37.0% of income before
taxes, for the first nine months of 2003 and $2.6 million or 37.6% of income
before income taxes, for the same period in 2002.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net Income
- ----------
For the third quarter of 2003, Indian River recorded net income of $1.3
million. This was $145 thousand or 10.4%, less than the $1.4 million in net
income recorded for the third quarter of 2002. Basic earnings per share
decreased $0.07 during the three months ended September 30, 2003, to $0.58,
compared to $0.65 per share during the comparable period of 2002 (as adjusted to
reflect the 10% stock dividends in 2003 and 2002). Diluted earnings per share
decreased from $0.64 to $0.56 during the third quarter of 2003, compared to the
same period in 2002.
Net interest income declined $663 thousand or 15.5%, in the third
quarter of 2003 compared to the same period in 2002. Also impacting results in
the three months ended September 30, 2003 compared to the same period in 2002
was an increase in other income of $502 thousand, or 45.6%, a decrease in the
provision for loan losses of $90 thousand or 50.0%, an increase in other
expenses of $202 thousand, or 6.8%. There was a corresponding decrease in taxes
on income of $128 thousand, or 15.3%.
22
Net Interest Income
- -------------------
Net interest income declined to $3.6 million in the third quarter of
2003 from $4.3 million for the same period in 2002. The $663 thousand or 15.5%,
decrease in net interest income was the result of a $777 thousand, or 12.1%
decrease in interest income exceeding the $114 thousand or 5.3% reduction in
interest expense. Yields on Indian River's interest-earning assets decreased by
189 basis points, and the rates paid on Indian River's interest-bearing
liabilities decreased by only 58 basis points. This resulted in a decrease in
the interest rate spread to 2.54% for the third quarter of 2003 from 3.85%
earned in the third quarter of 2002. Net interest margin also decreased to 2.88%
from 4.25%. The ratio of average interest-earning assets to average
interest-bearing liabilities in the third quarter of 2003 was 1.21, compared
with the 1.18 in the third quarter of 2002.
Total interest income for the third quarter of 2003 was $5.7 million
compared to $6.4 million for the same period in 2002. The main factor in the
$777 thousand, or 12.1%, decrease in interest income is due to the 189 basis
point decrease in the average yields on interest-earning assets. This decrease
more than offset the $98.8 million, or 24.8%, increase in average
interest-earning assets. Contributing to the overall decline in average yields
was a shift in the composition of earning assets. In the third quarter of 2003,
average loans comprised 49.9% of earning assets. During the comparable period in
2002 loans averaged 56.7%.
Indian River's average loans increased $22.3 million, or 9.9% during
the third quarter of 2003 compared to the same period in 2002 and the related
yield decreased to 6.40% for the third quarter of 2003 from 7.47% in 2002.
During the same period, average investment securities increased $78.4 million,
or 46.3%, and the related yield decreased to 2.63% from 5.07%. Yields on
investment securities were impacted more dramatically due to the increase in the
size of the total portfolio in the three months ended September 30, 2003
compared to the comparable period in 2002. Additionally, the increase in
principal payments received during 2003 resulted in the reinvestment of the
proceeds in lower yielding securities. Indian River's average federal funds sold
decreased by $2.0 million, or 59.1% and the related yield decreased to 0.96% in
the third quarter of 2003 from 1.66% in 2002. The decrease in yields on earning
assets was partially offset by the 76 basis point decrease in average rates paid
on deposits and other borrowings.
Total interest expense for the three months ended September 30, 2003
was $2.0 million, a decrease of 5.3% from $2.2 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 $75.9 million,
or 22.6%, increase in the average balances outstanding of interest-bearing
liabilities in the third quarter of 2003 compared to the same period in 2002.
The related rate decreased to 1.97% for the three months ended September 30,
2003 from 2.55% in 2002. The 50 basis point increase in rates on NOW and money
market accounts reflect the deposit special offered in connection with the
opening of the Sarno Road office. The average rate paid on certificates of
deposit decreased to 2.59% in the third quarter of 2003 from 3.29% in the third
quarter of 2002. Rates on other short term borrowings decreased from 2.30% in
2002 to 1.60% in 2003. Short term borrowings include federal funds purchased and
overnight repurchase agreements. Rates on other long term borrowings decreased
from 4.39% to 4.11%. Long term borrowings include Federal Home Loan Bank
advances and trust preferred securities.
23
The following table provides certain information relating to Indian
River's average consolidated balance sheets 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 September 30,
2003 2002
---------------------------------------------------------------------------------
(Dollars In Thousands)
Average Average Average Average
Assets: Balance Interest Yield Balance Interest Yield
------------ ---------- ---------- ----------- ---------- ----------
Investments (1) $ 248,055 $ 1,648 2.63% $ 169,592 $ 2,167 5.07%
Federal funds sold 1,347 3 0.96% 3,297 14 1.66%
Loans (2) less loans in process 248,170 4,006 6.40% 225,867 4,253 7.47%
------------ ---------- ---------- ----------- ---------- ----------
Total interest-earning assets 497,572 5,657 4.51% 398,756 6,434 6.40%
---------- ---------- ---------- ----------
Noninterest-earning assets 15,758 21,800
------------ -----------
Total $ 513,330 $ 420,556
============ ===========
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities
NOW & money market accts $ 100,330 $ 355 1.40% $ 49,015 $ 111 0.90%
Savings accounts 118,208 321 1.08% 111,403 574 2.04%
Certificates of deposit 121,640 793 2.59% 127,076 1,053 3.29%
Other short term borrowings 26,932 109 1.60% 22,480 130 2.30%
Other long term borrowings 45,410 470 4.11% 26,624 294 4.39%
------------ ---------- ---------- ----------- ---------- ----------
Total interest-bearing
liabilities 412,520 2,048 1.97% 336,598 2,162 2.55%
---------- ---------- ---------- ----------
Noninterest-bearing
Liabilities 65,047 51,436
Stockholders' equity 35,763 32,522
------------ -----------
Total $ 513,330 $ 420,556
============ ===========
Net interest income and net yield
on interest-earning assets $ 3,609 2.88% $ 4,272 4.25%
========== ========== ========== ==========
- ------------------------
(1) Includes securities available for sale, securities held to maturity, other
securities and interest-bearing deposits. 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.
24
Other Income
- ------------
Other income increased by $502 thousand, or 45.6%, in the three months
ended September 30, 2003 compared to the same period of 2002. This increase was
the result of a 45.1% ($202 thousand) increase in service charges and fees on
deposit accounts in the third quarter of 2003 compared to the same period in
2002 and a $242 thousand (+69.7%) increase in gains on the sale of loans during
the same period. These increases were partially offset by a $62 thousand decline
in gains on the sale of securities in the same period in 2002.
As noted in the discussion of results for the nine months ended
September 30, 2003, the increase in service charge and fee income was primarily
the result of the $76.1 million, or 22.1%, increase in deposits since September
2002. Most of this growth ($75.7 million or 95.5% of total deposit growth) has
occurred in transactional related account types (demand deposits, NOW accounts
and money market accounts) that generate fee income. 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.
Indian River had a $242 thousand or 69.7%, 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. The gains and fees on mortgage
loans held for sale are volatile as 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 by $202 thousand, or 6.8%, in
the third quarter of 2003 compared to the same period in 2002. The increase was
primarily the result of a $36 thousand, or 2.3%, increase in salaries and
benefits.
There was a $75 thousand, or 18.4%, increase in occupancy and equipment
expense, again primarily due to the opening of the new Sarno Road Branch. There
was a $105 thousand, or 35.7%, increase in data processing expense for the three
months ended September 30, 2003 compared to the same period 2002. The rise in
data processing fees can be attributed to the increase in deposit account
balances and the cost associated with servicing additional accounts.
Income Tax
- ----------
Indian River's income tax was $710 thousand, or 36.2% of income before
taxes, in the third quarter of 2003 and $838 thousand or 37.5% 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 $244.5 million at September 30, 2003, reflected an
increase of $67.2 million from December 31, 2002, or 37.9%. Funds available
through short-term borrowing and asset maturities are considered adequate to
meet all current needs. At September 30, 2003, Indian River had available credit
of $26.1 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 $57.9
million borrowing line with the Federal Home Loan Bank of Atlanta. The
outstanding balance on this line decreased to $38.3 million as of September 30,
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.
25
Capital Resources
- -----------------
In the first nine months of 2003, total stockholders' equity increased
$1.4 million, or 4.2%, as a result of earnings and option exercises which were
partially offset by a decrease in accumulated other comprehensive income.
Earnings contributed $3.7 million to stockholders' equity for the nine month
period. Accumulated other comprehensive losses decreased stockholders' equity by
$2.6 million during this nine month period.
Bank holding companies are required to maintain capital ratios in
accordance with guidelines adopted by the Federal Reserve Board of Governors
("FRB"). The guidelines are commonly known as Risk-Based Capital Guidelines. On
September 30, 2003, Indian River exceeded all capital requirements, having a
total risk-based capital ratio of 14.4%, a Tier 1 risk-based capital ratio of
13.3%, and a leverage ratio of 8.5%. 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 September
30, 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 12.0% and 11.0%, and a leverage ratio of 7.0%.
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 condensed consolidated financial statements and related 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.
26
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:
September 30, 2003 September 30, 2002
--------------------------------------------- ---------------------------------------------
Percentage Percentage
Percentage Change in Percentage Change in
Change in Change in Percentage Market Value Change in Percentage Market Value
Interest Rates Net Interest Change in of Portfolio Net Interest Change in of Portfolio
(Basis Points) income Net Income Equity income Net Income Equity
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
+200 -4.08% -8.34% -50.14% -4.83% -10.13% -18.60%
+100 -2.03% -4.15% -24.86% -2.42% -5.06% -7.68%
0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-100 6.89% 3.41% 9.27% 2.42% 5.10% 3.06%
-200 5.99% 0.89% 10.95% 4.23% 8.86% 5.04%
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 improvement in a 100 basis point 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. In a 200 basis point declining rate
scenario, the cost of the Bank's non-fixed term liabilities would drop to zero.
However, a significant portion of the Bank's earning assets would experience
accelerated repayment/refinancing and those cash flows would have to be
reinvested at very low rates. A significant immediate 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.
The table also indicates that the Bank would experience a significant
change in the market value of portfolio equity in the event of an immediate
dramatic increase in interest rates. The Bank has experienced significant
deposit growth (+$45.3 million) in the nine months ended September 30, 2003
while loan growth has been essentially flat (+$1.1 million). This situation
combined with considerable cash flows from the investment portfolio ($142.8
million in the nine months ended September 30, 2003) has resulted in sizeable
purchase transactions in investment securities to reinvest liquidity. During the
nine months ended September 30, 2003, the Bank has made $208.8 million in
security purchases which represents 82.2% of the security portfolio. Although
these purchases were made at current market rates, a sudden, dramatic increase
in market rates would result in a similar decrease in the market value of the
investment portfolio and the subsequent impact on the Bank's equity in
mark-to-market accounting. The Bank monitors this impact monthly and implements
ongoing strategies to decrease portfolio duration which is a measure of the
mark-to-market volatility. At September 30, 2003, the duration of the available
for sale securities portfolio was 2.98 years. The Bank's goal is maintain
portfolio duration at or below 3.00 years. Mark-to-market accounting and related
adjustments have no impact upon regulatory capital measurements.
27
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.
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
Indian River's management, under the supervision and with the
participation of Indian River's Chief Executive Officer and Chief Financial
Officer, evaluated, as of the last day of the period covered by this report, the
effectiveness of the design and operation of Indian River's disclosure controls
and procedures, as defined in Rule13a-15(e) under the Securities Exchange Act of
1934. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that Indian River's disclosure controls and
procedures were adequate. There were no changes in the Company's internal
control over financial reporting (as defined in Rule 13a-15 under the Securities
Act of 1934) during the quarter ended September 30, 2003 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
28
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2 Agreement and Plan of Merger (1)
3(a) Articles of Incorporation of Indian River, as amended (2)
3(b) Bylaws of Indian River (2)
4(a) Indenture, dated as of September 30, 2002 between Indian
River Banking Company and Wells Fargo Bank,
National Association, as trustee (3)
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 (3)
4(c) Guarantee Agreement dated as of September 30, 2002, between
Indian River Banking Company and Wells Fargo
Bank, National Association, as trustee (3)
10(a) Indian River 1999 Stock Option Plan (4)
10(b) Employment Agreement between Indian River National Bank and
Paul A. Beindorf (5)
10(c) Employment Agreement between Indian River National Bank and
Jeffrey R. Morton (5)
10(d) Change in Control Agreement between Indian River Banking
Company, Indian River
National Bank and Diana L. Walker (5)
11 Statement of Computation of Per Share Earnings
Please refer to Note 5 to the Condensed Consolidated
Financial Statements
21 Subsidiaries of the Registrant
31(a) Certification of Paul A. Beindorf
31(b) Certification of Phillip L. Tasker
32(a) Certification of Paul A. Beindorf
32(b) Certification of Phillip L. Tasker
- --------------------------
(1) Incorporated by reference to Exhibit 2.1 to Indian River's Current Report n
Form 8-K filed on October 23, 2003.
(2) Incorporated by reference to exhibit of same number to Indian River's
registration statement on Form SB-2 (No. 333-36688)
(3) 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.
29
(4) Incorporated by reference to exhibit 10(d) to Indian River's registration
statement on Form SB-2 (No. 333-36688)
(5) 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 July 17, 2003, Indian River filed a report on Form 8-K, under Item
5, 9 and 12 thereof, reporting earnings for the quarter ended June 30, 2003
On October 15, 2003, Indian River filed a report on Form 8-K, under
Item 5and 9 thereof, reporting earnings for the quarter ended September 30,
2003.
On October 16, 2003, Indian River filed a report on Form 8-K, under
Item 9 thereof, reporting declaration of a cash dividend.
On October 23, 2003, Indian River filed a report on Form 8-K, under
Item 5 and 9 thereof, reporting the execution of a definitive merger agreement.
30
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)
November 6, 2003 By: /s/ Paul A. Beindorf
----------------------------------------
Paul A. Beindorf, President and
Chief Executive
Officer
November 6, 2003 By: /s/ Phillip Tasker
----------------------------------------
Phillip Tasker, Chief Financial Officer
31