Registration No. 333 - 36688
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE - EFFECTIVE AMENDMENT NO.1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INDIAN RIVER BANKING COMPANY
(Name of small business issuer in its charter)
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Florida 6021 59-2931518
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation
incorporation or organization) Classification Code Number) Number)
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958 20th Place
Vero Beach, Florida 32960
(561) 569-9200
(Address and telephone number of principal executive offices)
William A. High, President and
Chief Executive Officer
Indian River Banking Company
958 20th Place
Vero Beach, Florida 32960
(561) 569-9200
(Name, address, including zip code, and telephone number of agent for service)
Copies to:
Noel M. Gruber, Esquire
David H. Baris, Esquire
Kennedy, Baris & Lundy, L.L.P.
4701 Sangamore Road, Suite P-15
Bethesda, Maryland 20816
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /_____________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /_______________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
300,000 SHARES OF COMMON STOCK
MINIMUM PURCHASE - 100 SHARES
INDIAN RIVER BANKING COMPANY
parent company of
[graphic omitted]
Indian River Banking Company is the holding company for Indian River
National Bank, Vero Beach, Florida. Indian River Banking Company is often
referred to as "Indian River" in this prospectus, and Indian River National Bank
is often referred to as "Indian River Bank".
Indian River is offering to sell up to 300,000 newly issued shares of its
common stock at a price of $25.00 per share. There is no minimum number of
shares which must be sold in the offering. The offering is being made through
the efforts of our directors and executive officers, without the assistance of
an underwriter. Until your subscription is accepted, all funds will be placed in
an escrow account at Indian River Bank under the control of an independent third
party. There is no organized trading market for the common stock, and we do not
expect that one will exist after the offering is completed.
This offering will continue until September 30, 2000, unless extended in
the discretion of the Board of Directors.
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SHARES OF INDIAN RIVER'S COMMON STOCK ARE NOT DEPOSITS, SAVINGS ACCOUNTS, OR
OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. INVESTING IN
COMMON STOCK INVOLVES INVESTMENT RISKS.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON STOCK OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
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Per share Total
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Price to public $25.00 $7,500,000
Underwriting discounts and commissions None N/A
Net proceeds of the offering (before
expenses) $25.00 $7,500,000
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The date of this prospectus is ____, 2000
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TABLE OF CONTENTS
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PAGE
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Summary...................................................................................1
Risk Factors..............................................................................3
Selected Consolidated Financial Data......................................................6
The Offering..............................................................................7
Use of Proceeds..........................................................................11
Capitalization...........................................................................12
Regulatory Capital Requirements..........................................................13
Market for Common Stock and Dividends....................................................13
Management's Discussion and Analysis.....................................................15
Business of Indian River and Indian River Bank...........................................31
Supervision and Regulation...............................................................35
Share Ownership of Directors, Officers and Certain Beneficial Owners.....................40
Management...............................................................................42
Executive Compensation and Certain Transactions..........................................45
Shares Eligible for Future Sale..........................................................48
Description of Capital Stock.............................................................48
Legal Matters............................................................................51
Experts..................................................................................51
Additional Information About Indian River ...............................................52
Index to Consolidated Financial Statements..............................................F-1
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SUMMARY
This summary presents selected information from this prospectus. You should
carefully read this entire document in order to understand this offering. This
summary includes page references that direct you to more complete discussions
elsewhere in this document.
THE OFFERING
Shares Offered. Indian River Banking Company is offering to sell up to
300,000 newly issued shares of its common stock in this offering. After the
offering, there will be 1,695,435 shares of common stock outstanding, if all of
the shares offered are sold.
Offering Price. We are offering to sell the common stock at a price of
$25.00 per share.
No Minimum Offering. There is no minimum total number of shares which must
be sold in the offering. The offering is not underwritten and no broker or other
person is obligated to purchase any shares in the offering or to find purchasers
for any shares. See "The Offering - No Minimum Offering" at page 7.
Director and Officer Subscriptions. Directors and executive officers of
Indian River and Indian River Bank currently intend to purchase 40,000 shares in
the offering. See "The Offering - Intentions of Directors, Executive Officers
and Others" at page 10.
Minimum and Maximum Subscription. The minimum number of shares for which
any person may subscribe is 100 shares. The maximum number of shares for which
any person or any group of affiliated or related persons, may subscribe is 4,000
shares. Indian River reserves the right to permit larger or smaller
subscriptions. Indian River also reserves the right to reject any subscription,
in whole or in part.
If after the offering you would own or control more than a certain
percentage of the common stock, usually 5% or 10%, you may be required to file
applications with state or federal bank regulatory agencies as a condition of
the purchase. Indian River reserves the right to reduce or reject any
subscription which would require prior regulatory application or approval if
approval is not obtained before the end of the offering. See "The Offering -
General" at page 7.
Term of the Offering. The offering will run until September 30, 2000, or
such later date as the Board of Directors may determine, but not later than
November 30, 2000.
Proceeds of the Offering. The net proceeds of the offering to Indian River
will be approximately $7,390,000 if all of the offered shares are sold, after
deduction of estimated expenses of the offering.
Escrow Account. Until a subscription is accepted, subscription funds will
be held in an escrow account at Indian River Bank under the control of an
independent escrow agent. If the offering is not completed, or if your
subscription is not accepted, your subscription funds will be promptly returned
without interest or deduction, except that interest will be paid to the extent
that law, regulation or administrative policy of the investor's state of
residence specifically requires. See "The Offering - Escrow Account; Release of
Funds; No Interest on Subscription Funds" at page 9.
How to Subscribe. To subscribe for shares, you should complete the
subscription agreement accompanying this prospectus and submit it, along with
payment in full for the shares, to:
Mary Ruth Schaefer, Subscription Agent for
Indian River Banking Company
958 20th Place
Vero Beach, Florida 32960
prior to the expiration of the offering. Your check or other form of payment
should be made payable to: "Indian River Banking Company Escrow Account". You
should carefully follow the instructions contained in this prospectus under the
caption "The Offering" at page 8 and those included on the subscription
agreement.
Use of Proceeds. Indian River intends to use the net proceeds from the
offering for general corporate purposes, which will include a contribution to
Indian River Bank, its subsidiary bank, enabling the bank to expand into other
market areas and provide increased lending services, and repayment of all or a
portion of the outstanding balance on Indian River's line of credit with a
correspondent bank. Until we use them for these purposes, the net proceeds may
be invested in a variety of short-term, interest-bearing assets. See "Use of
Proceeds" at page 12.
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INDIAN RIVER BANKING COMPANY
INDIAN RIVER BANKING COMPANY
958 20th Place
Vero Beach, Florida 32960
(561) 569-9200
Indian River is a one-bank holding company headquartered in Vero Beach,
Florida. It provides general commercial and consumer banking services through
its wholly owned banking subsidiary, Indian River National Bank, Vero Beach,
Florida. Indian River was organized in January 1989 to be the holding company
for Indian River Bank. Indian River Bank was organized as a national banking
association in March 1985, and became a wholly owned subsidiary of Indian River
in April 1989. At March 31, 2000, Indian River had total assets of $299.5
million, deposits of $261.2 million, and stockholders' equity of $14.0 million.
See "Selected Consolidated Financial Data" at page 6, "Management's Discussion
and Analysis" at page 15, and "Consolidated Financial Statements" at pages F-1 -
F-38.
Indian River Bank, Indian River's sole subsidiary, is an independent,
community oriented full service financial institution. It conducts a general
commercial and consumer banking business. These services include the usual
deposit functions of commercial banks, including business and personal checking
accounts, "NOW" accounts and savings accounts, business and commercial loans,
residential mortgages and consumer loans and investment services. Indian River
Bank is a national banking association, and its deposits are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation. See "Business of
Indian River and Indian River Bank" at page 31.
Indian River Bank markets its services in its primary service area of
Indian River and Brevard counties and surrounding communities, through its main
office in Vero Beach, Florida, and five branch offices located in Vero Beach,
Sebastian, Roseland, Palm Bay, and Melbourne, Florida.
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RISK FACTORS
An investment in the common stock involves various risks. You should
carefully consider the risk factors listed below. These risk factors may cause
Indian River's future earnings to be lower or its financial condition to be less
favorable than it expects. In addition, other risks of which we are not aware,
or which we do not believe are material, may cause our earnings to be lower, or
hurt our future financial condition. You should read this section together with
the other information in this prospectus.
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK DOES NOT CURRENTLY EXIST, AND
WILL PROBABLY NOT EXIST AFTER THE OFFERING. AS A RESULT, SHAREHOLDERS MAY NOT BE
ABLE TO SELL THEIR COMMON STOCK EASILY.
While the common stock will be freely transferable by most shareholders, we
do not expect that there will be an active market for trading the common stock
following the offering. We cannot be sure that an active or established trading
market will develop following completion of the offering, or if one develops,
that it will continue, or whether the price of the common stock will be higher
or lower than the offering price. The common stock will not be listed on The
Nasdaq National Market, The Nasdaq SmallCap Market or any other securities
market upon completion of the offering. There can be no assurance that trading
in the over-the-counter market, through brokers or through market makers will
develop. As a result, an investment in the common stock may be relatively
illiquid. See "The Offering - Limited Market for Common Stock" at page 9.
NO BROKER HAS AGREED TO PURCHASE ANY OF THE COMMON STOCK AND INDIAN RIVER
MAY NOT BE ABLE TO COMPLETE THE OFFERING. INDIAN RIVER'S RESULTS MAY BE
ADVERSELY AFFECTED IF LESS THAN ALL OF THE OFFERED SHARES ARE SOLD.
The common stock is being sold directly, through the efforts of the
directors and officers of Indian River and Indian River Bank. No broker-dealer
or other person has any obligation to purchase, or find purchasers for, any
shares of common stock. See "The Offering - Manner of Distribution" at page 11.
Because the offering is not underwritten, there can be no assurance that
any particular number of shares will be sold. If less than all of the shares
offered are subscribed for, Indian River and Indian River Bank will have less
capital to fund operations and growth, which could result in restricted or
slower growth for Indian River Bank, slower expansion of activities, and lower
shareholder returns. Indian River could be required to raise additional capital
earlier than it would if all of the shares offered are sold. See "The Offering"
at page 7.
OUR ORGANIZATIONAL DOCUMENTS HAVE PROVISIONS WHICH MAY PREVENT AN
ACQUISITION OF THE COMPANY EVEN IF A MAJORITY OF SHAREHOLDERS FAVOR THE
ACQUISITION.
Indian River's Articles of Incorporation and Bylaws contain provisions
which may be seen as having an "antitakeover" effect. These provisions, which
include provisions that require the vote of 80% of the outstanding shares in
order to approve certain business combinations and amendments to the Articles of
Incorporation, in addition to the statutory majority vote requirement; a
classified board of directors; and the vote of 75% of the outstanding shares and
cause to remove directors; may have the effect of entrenching current
management. As a result of these provisions, shareholder efforts to make changes
in the conduct of Indian River's business or to sell the company may be
defeated, even if those shareholders hold a majority of the common stock, or if
their efforts are in the best interests of a majority of shareholders. The
overall effect of these provisions could:
o make Indian River less attractive to a potential acquiror;
o deter a non-negotiated offer to acquire Indian River which a majority of
shareholders might view as being in their best interests, and which
could include substantial premium over the market price for the common stock;
o result in a lower market price of the common stock.
See "Management" at page 42 and "Description of Capital Stock - Certain
Provisions of the Articles of Incorporation and Florida Law" at page 50.
AS A RESULT OF THEIR LEVEL OF SHARE OWNERSHIP, OUR DIRECTORS AND OFFICERS
COULD DECIDE THE OUTCOME OF MATTERS SUBMITTED TO SHAREHOLDER VOTE, INCLUDING
VOTES ON SOME ACQUISITIONS OF THE COMPANY, WITHOUT THE VOTES OF OTHER
SHAREHOLDERS. THE RESULTS OF THE VOTE MAY BE CONTRARY TO THE DESIRES OR
INTERESTS OF THE PUBLIC SHAREHOLDERS.
Following completion of the offering, directors, directors emeritus, and
officers of Indian River and Indian River Bank and their affiliates will own at
least 521,972 outstanding shares of common stock, assuming that they purchase
the number of shares in the offering which they currently intend. These
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persons may purchase a greater or lesser number of shares in the offering. If
these persons purchase the number of shares indicated, then at least 30.82% of
the outstanding common stock, and possibly as much as 36.41% of the outstanding
common stock, will be owned by directors and officers of Indian River and Indian
River Bank and their affiliates. See "Share Ownership of Directors, Officers and
Certain Beneficial Owners" at page 40.
By voting against a proposal submitted to shareholders, the directors and
officers of Indian River and Indian River Bank, as a group, would be able to
block approval of any proposal submitted to shareholders which requires a 75% or
80% vote of shareholders, including certain business combinations, certain
amendments to the Articles of Incorporation, and removal of directors, and make
approval more difficult for proposals requiring the vote of a majority of
shareholders, such as mergers, share exchanges, certain asset sales, and certain
amendments to Indian River's Articles of Incorporation. See "Share Ownership of
Directors, Officers and Certain Beneficial Owners" at page 40 and "Description
of Capital Stock - Certain Provisions of the Articles of Incorporation and
Florida Law" at page 50.
CONSUMMATION OF THE OFFERING IS NOT SUBJECT TO THE RECEIPT OF SUBSCRIPTIONS
FOR A MINIMUM NUMBER OF SHARES. SUBSCRIBERS WILL BE REQUIRED TO PURCHASE SHARES
EVEN IF LESS THAN ALL OF THE SHARES OFFERED ARE SOLD.
There is no minimum number of shares that must be sold in the offering, and
subscriptions, once received, are irrevocable. The offering may be completed
even if substantially less than the total number of shares offered is sold. If
this happens, our capital would not be increased to the extent it would be if
all of the shares being offered were sold. Once made, subscriptions will not be
revocable by subscribers, and we intend to accept subscriptions even if the
offering has not been fully subscribed. See "The Offering" at page 7 and
"Capitalization" at page 12.
AS THE BOOK VALUE OF A SHARE OF COMMON STOCK AFTER THE OFFERING WILL BE
LOWER THAN $25, YOU WILL EXPERIENCE IMMEDIATE DILUTION.
If all of the shares being offered are sold, then book value per share at
March 31, 2000, after giving effect to completion of the offering, will be
$12.63 per share, assuming the sale of 300,000 shares. The post-offering book
value is less than the offering price of $25 per share, and accordingly,
investors in the offering will experience dilution of $12.37, or 49.48%, per
share, calculated on the basis of the difference between the offering price and
book value. See "Capitalization" at page 12.
THE OFFERING PRICE WAS DETERMINED BY THE BOARD OF DIRECTORS IN ITS
DISCRETION, AND DOES NOT NECESSARILY REFLECT THE FAIR MARKET VALUE OF THE COMMON
STOCK. AFTER THE OFFERING, YOU MAY NOT BE ABLE TO SELL THE COMMON STOCK FOR THE
OFFERING PRICE OR MORE.
The Board of Directors considered a number of factors in determining the
offering price for the common stock, including, but not limited to, the price of
recent trades known to have occurred, the book value of the common stock, the
price to earnings and price to book ratios of other institutions we deemed to be
comparable, and our estimate of our earnings prospects. No independent third
party or negotiations were involved in the determination of the offering price,
and therefore the price does not necessarily reflect the market value of the
common stock. The price at which the common stock trades after the offering may
be higher or lower than the offering price.
IF ECONOMIC CONDITIONS IN OUR MARKET DETERIORATE, OUR INCOME AND GROWTH
RATE MAY DECLINE, AND OUR LEVELS OF PROBLEM LOANS AND CHARGE-OFFS MAY INCREASE,
WHICH COULD HAVE AN ADVERSE AFFECT ON THE PRICE AT WHICH YOU CAN SELL THE COMMON
STOCK.
We make loans, and most of our assets are located, in the Indian River
County and Brevard County markets. Adverse changes in economic conditions in
these areas could hurt our ability to collect loans, could reduce the demand for
loans, and otherwise could negatively affect our performance and financial
condition.
A SUBSTANTIAL PORTION OF INDIAN RIVER BANK'S LOANS ARE IN REAL ESTATE
RELATED LOANS IN INDIAN RIVER AND BREVARD COUNTIES, AND ADVERSE CHANGES IN THOSE
REAL ESTATE MARKETS COULD LEAD TO HIGHER LEVELS OF PROBLEM LOANS AND
CHARGE-OFFS, AND ADVERSELY AFFECT INDIAN RIVER'S EARNINGS AND FINANCIAL
CONDITION.
Indian River Bank has a substantial amount of real estate related loans,
including residential, commercial owner occupied, and construction loans. At
March 31, 2000, 43.6% of our loans were residential real estate loans, 32.7%
were commercial real estate loans and 2.8% involved loans to individuals and
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businesses in the citrus industry. These concentrations expose us to the risk
that adverse developments in the real estate market could increase the levels of
nonperforming loans and charge-offs, and reduce loan demand and deposit growth.
In each case, however, the concentrations are spread among a large number of
borrowers with relatively low loan balances.
MANAGEMENT WILL HAVE DISCRETION IN ALLOCATING A SUBSTANTIAL PORTION OF THE
PROCEEDS OF THE OFFERING, AND MAY USE THEM FOR PURPOSES NOT SPECIFICALLY SET
FORTH IN THIS PROSPECTUS.
Our Boards of Directors will have substantial discretion in the use of the
proceeds of the offering among the purposes indicated, and could use them for
purposes not specifically contemplated and discussed in the prospectus, subject
to the requirements of safe and sound banking practices.
THERE CAN BE NO ASSURANCE THAT INDIAN RIVER WILL HAVE SUFFICIENT EARNINGS
TO BE LEGALLY ABLE TO PAY DIVIDENDS. ALTHOUGH LEGALLY ABLE TO PAY DIVIDENDS,
INDIAN RIVER HAS NOT HISTORICALLY PAID CASH DIVIDENDS.
Indian River Bank is the principal revenue producing operation of Indian
River. As a result, Indian River's ability to pay dividends largely depends on
receiving dividends from Indian River Bank. The amount of dividends that Indian
River Bank may pay is limited by state and federal laws and regulations. Even if
Indian River Bank or Indian River has earnings in an amount sufficient to pay
dividends, the Board of Directors may decide to retain earnings for the purpose
of financing growth. Indian River has not historically paid cash dividends. No
assurance can be given that Indian River Bank's earnings will continue to permit
the payment of dividends to Indian River or that Indian River's earnings will
permit the payment of dividends to shareholders, or that Indian River will
choose to pay dividends. See "Description of Capital Stock - Limitations on
Payment of Dividends" at page 49, "The Offering - Limited Market for Common
Stock" at page 9, and "Market for Common Stock and Dividends" at page 14.
THERE IS NO ASSURANCE THAT INDIAN RIVER WILL BE ABLE TO SUCCESSFULLY
COMPETE WITH OTHERS FOR ITS BUSINESS.
Indian River and Indian River Bank compete for loans, deposits, and
investment dollars with other banks and other kinds of financial institutions
and enterprises, such as securities firms, insurance companies, savings and loan
associations, credit unions, mortgage brokers, and private lenders, many of
which have substantially greater resources. Recent legislation expanding the
array of firms that can own banks may result in increased competition for Indian
River and Indian River Bank. The differences in resources and regulations may
make it harder for Indian River and Indian River Bank to compete profitably,
reduce the rates that they can earn on loans and investments, increase the rates
they must offer on deposits and other funds, and adversely affect Indian River's
overall financial condition and earnings. See "Business of Indian River and
Indian River Bank - Competition" at page 34 and "Supervision and Regulation" at
page 35.
THE LOSS OF THE SERVICES OF ANY KEY EMPLOYEES COULD ADVERSELY AFFECT
INVESTOR RETURNS.
The business of Indian River and Indian River Bank are service-oriented,
and their success depends to a large extent upon the services of William A. High
, President and Chief Executive Officer of Indian River and Indian River Bank,
and Paul A. Beindorf, Vice President of Indian River and Executive Vice
President of Indian River Bank. The loss of the services of Mr. High or Mr.
Beindorf could adversely affect the business of Indian River and Indian River
Bank. See "Management" at page 42.
INDIAN RIVER CAN ELECT TO DELAY CLOSING OF THE OFFERING UNTIL AS LATE
AS NOVEMBER 30, 2000, AND CAN DECIDE TO NOT ACCEPT ALL OR A PART OF YOUR
SUBSCRIPTION. UNTIL THAT DECISION IS MADE, YOU WILL NOT HAVE USE OF YOUR FUNDS.
We reserve the right to extend the offering until as late as November 30,
2000. We will have broad discretion in determining which subscriptions, other
than those of our directors and officers, to accept, in whole or in part,
including if the offering is oversubscribed. In deciding which subscriptions to
accept, we may consider the order in which subscriptions are received, a
subscriber's potential to do business with, or to direct business to, Indian
River Bank, and the desire to have a broad distribution of stock ownership. As a
result, a subscriber cannot be assured of receiving the full number of shares
subscribed for, and may forego use of all or a portion of such subscriber's
funds pending allocation of available shares. See "The Offering - General" at
page 7 and "- Acceptance and Refunding of Subscriptions" at page 9.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table shows selected historical consolidated financial data
for Indian River. You should read it in connection with the historical
consolidated financial information contained in the Consolidated Financial
Statements for the years ended December 31, 1999 and 1998 which are audited, and
for the three months ended March 31, 2000, which are not audited, included in
this prospectus and with the other information provided in this prospectus. See
"Consolidated Financial Statements" at pages F-1 - F-38 and "Management's
Discussion and Analysis" at page 15. The consolidated financial statements for
the years ended December 31, 1997, 1996 and 1995 were also audited, but are not
included in this prospectus.
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Three Months Ended Year Ended December 31,
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March 31, 2000 1999 1998 1997 1996 1995
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(Dollars in Thousands)
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RESULTS OF OPERATIONS:
Total interest income $ 5,407 $ 17,946 $ 15,341 $ 13,515 $ 11,326 10,225
Total interest expense 2,620 8,025 7,135 6,307 5,143 4,891
Net interest income 2,787 9,921 8,206 7,208 6,183 5,334
Provision for loan/lease losses 165 590 375 385 415 445
Net interest income after provision for 2,622 9,331 7,831 6,823 5,768 4,889
Other income 575 2,455 2,217 1,299 1,272 1,295
Other expenses 2,184 8,641 6,740 4,952 4,222 4,128
Income before income taxes 1,014 3,145 3,308 3,170 2,817 2,056
Income tax expense 361 1,143 1,209 1,172 1,033 701
Net income 652 2,003 2,099 1,998 1,784 1,355
EARNINGS PER SHARE:
Basic earnings per common share(1) $ 0.47 $ 1.44 $ 1.51 $ 1.43 $ 1.27 1.13
Diluted earnings per common share(1) 0.46 1.43 1.50 1.43 1.27 1.13
PERIOD-ENDING BALANCES:
Total loans $ 174,478 $ 168,550 $ 144,364 $ 117,641 $ 103,439 96,007
Total assets 299,498 271,236 223,116 191,468 165,069 133,737
Total deposits 261,201 238,846 200,397 172,812 153,203 124,216
Stockholders' equity 14,001 13,591 13,784 11,597 9,214 7,994
Stockholders' equity per share(1) 10.05 9.75 9.89 8.30 6.56 6.67
Average weighted shares outstanding at period
end:
Basic(1) 1,393,730 1,393,902 1,393,612 1,394,080 1,365,212 1,443,950
Diluted(1) 1,429,173 1,401,780 1,397,522 1,395,080 1,365,212 1,443,950
ASSET QUALITY RATIOS:
Allowance for loan losses to loans 1.18 % 1.13 % 1.05 % 1.12 % 1.16 % 1.11 %
Nonperforming loans to loans 0.06 % 0.06 % 0.28 % 0.08 % 0.58 % 0.44 %
Allowance for loan losses to nonperforming 1852.20 % 1796.23 % 594.60 % 1760.91 % 627.08 % 2790.56 %
Nonperforming assets to loans and other real 0.06 % 0.06 % 0.28 % 0.11 % 0.67 % 0.55 %
Net loan charge-offs to average loans(2) 0.03 % 0.13 % 0.15 % 0.24 % 0.28 % 0.42 %
CAPITAL RATIOS:
Tier I risk-based capital ratio 8.34 % 8.40 % 9.40 % 9.71 % 9.43 % 9.12 %
Total risk-based capital ratio 9.42 % 9.50 % 10.50 % 10.87 % 10.68 % 10.33 %
Leverage ratio 5.55 % 5.90 % 6.20 % 6.05 % 6.00 % 6.04 %
SELECTED RATIOS:(2)
Return on average total assets 0.92 % 0.84 % 1.05 % 1.16 % 1.23 % 1.01 %
Yield on average earning assets 8.17 % 8.03 % 8.31 % 8.36 % 8.20 % 8.16 %
Return on average stockholders' equity(3) 19.09 % 14.34 % 16.42 % 19.26 % 21.34 % 18.96 %
Average stockholders' equity to average total
assets 4.82 % 5.89 % 6.41 % 6.00 % 5.74 % 5.33 %
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(1) Per share data and average weighted shares have been adjusted to reflect
10% stock dividends paid in each year through 2000, and to reflect the two
for one stock split in the form of a dividend paid in March 2000.
(2) Annualized for period ended March 31, 2000.
(3) Represents the return on average stockholders' equity including unrealized
gains and losses on securities available for sale. If the return on average
stockholders' equity were calculated without including these unrealized
gains and losses, then it would be 16.73% for the three months ended March
31, 2000, and 12.83%, 17.21%, 20.25%, 21.65%, and 18.94% for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995.
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THE OFFERING
GENERAL
Securities Offered. Indian River is offering to sell up to 300,000 newly
issued shares of its common stock, at a price of $25.00 per share.
No Minimum Offering. There is no minimum number of shares which must be
sold in the offering. The offering will be consummated if any valid
subscriptions are received, unless the Board of Directors has terminated the
offering in its entirety.
Expiration Time. Subscriptions to purchase shares must be received no later
than 5:00 p.m., Eastern time, on September 30, 2000, unless we terminate the
offering earlier or extend it. Indian River reserves the right to terminate the
offering at any time prior to September 30, 2000, or to extend the termination
date for periods of up to thirty (30) days each, without notice to subscribers.
Under no circumstances will the offering be extended beyond November 30, 2000.
See "The Offering - Procedure for Subscribing to Common Stock in the Offering"
at page 7 and " - Acceptance and Refunding of Subscriptions" at page 9.
Minimum and Maximum Subscription. Investors must subscribe for the purchase
of a minimum of 100 shares, for a minimum investment of $2,500. The maximum
number of shares which any person or group of affiliated persons will be
permitted to purchase is 4,000, for a maximum investment of $100,000. We may,
however, allow larger or smaller subscriptions. We intend to permit members of
the Board of Directors, including directors emeritus, and their affiliates to
purchase more than 4,000 shares in the offering. We reserve the right to reject
any subscription in whole or in part.
In considering whether to accept a subscription, we may consider the number
of shares purchased by a subscriber in other capacities, the potential of the
subscriber to do business with, or direct business to, Indian River Bank, and
other factors relating to a particular subscription, and the number of shares
which have not been subscribed for at the time a subscription is accepted. In
determining whether to permit a larger subscription, we may also consider the
identity of the subscriber and the subscriber's intentions with respect to the
operation, management and direction of Indian River.
WE RESERVE THE RIGHT TO ACCEPT OR REJECT ANY SUBSCRIPTION IN WHOLE OR IN
PART. IN DETERMINING WHETHER TO ACCEPT ANY SUBSCRIPTION, IN WHOLE OR IN PART,
THE DIRECTORS MAY TAKE INTO ACCOUNT:
o THE ORDER IN WHICH SUBSCRIPTIONS ARE RECEIVED,
o A SUBSCRIBER'S POTENTIAL TO DO BUSINESS WITH, OR TO DIRECT CUSTOMERS TO,
INDIAN RIVER BANK,
o OUR DESIRE TO HAVE A BROAD DISTRIBUTION OF STOCK OWNERSHIP, AND
o LEGAL OR REGULATORY RESTRICTIONS. YOU MAY NOT REVOKE YOUR SUBSCRIPTION
AFTER IT IS RECEIVED.
PROCEDURE FOR SUBSCRIBING TO COMMON STOCK IN THE OFFERING
If you wish to participate in the offering and invest in Indian River, you
may do so by completing and signing the subscription agreement accompanying this
prospectus and delivering the completed subscription prior to the termination of
the offering, together with payment in full of the offering price of all shares
for which you have subscribed. Payment in full must be by:
(a) check or bank draft drawn upon a U.S. bank; or
(b) postal, telegraphic or express money order,
in either case, payable to "Indian River Banking Company Escrow Account".
7
<PAGE>
The offering price will be deemed to have been received only upon:
(a) clearance of any uncertified check, or
(b) receipt of any certified check or bank draft drawn upon a U.S.
bank or of any postal, telegraphic or express money order.
A postage paid, addressed envelope is included for the return of the
subscription agreement.
If you are paying by uncertified personal check, please note that the funds
paid thereby may take at least five business days to clear. If you wish to pay
the offering price by means of uncertified personal check, we urge you to
deliver your subscription and payment sufficiently before the end of the
offering to ensure that payment is received and clears before the end of the
offering. All funds received in payment of the subscription price will be
deposited in the Indian River Banking Company Escrow Account and, until closing
of the offering, will be invested at the direction of Indian River.
The address to which subscription agreements and payment of the offering
price should be delivered is:
Mary Ruth Schaefer, Subscription Agent
Indian River Banking Company
958 20th Place
Vero Beach, Florida 32960
(561) 569-9200
If the amount you send with your subscription is insufficient to purchase
the number of shares that you indicate are being subscribed for, or if you do
not specify the number of shares to be purchased, we will treat your
subscription as one to purchase shares to the full extent of the payment sent.
If the amount you send with your subscription exceeds the amount necessary to
purchase the number of shares that you indicate are being subscribed for, then
we will treat your subscription as one to purchase shares to the full extent of
the excess payment send. Indian River reserves the right to reject, in whole or
in part, any subscription. In determining whether to accept any subscription, in
whole or in part, the directors may take into account the order in which
subscriptions are received, a subscriber's potential to do business with, or to
direct customers to, Indian River Bank and our desire to have a broad
distribution of stock ownership, as well as legal or regulatory restrictions. We
may also consider the identity of the subscriber and the subscriber's intentions
with respect to the operation, management and direction of Indian River.
FAILURE TO INCLUDE THE FULL OFFERING PRICE WITH THE APPLICATION MAY CAUSE
INDIAN RIVER TO REJECT THE SUBSCRIPTION.
The method of delivery of subscription agreements and payment of the
offering price will be at your election and risk. If you send your subscription
by mail, we recommend that you use registered mail, return receipt requested,
and that you allow a sufficient number of days to ensure delivery and clearance
of payment prior to the end of the offering. You will have to pay the additional
delivery cost of registered mail.
We will decide all questions concerning the timeliness, validity, form and
eligibility of subscription agreements, and our decisions will be final and
binding. Indian River may, but is not required to, waive any defect or
irregularity, may permit any defect or irregularity to be corrected within such
time as it may determine, or may reject the purported subscription. We will not
consider a subscription agreement to have been received or accepted until all
irregularities have been waived or cured. Neither Indian River nor any other
person or firm will be under any duty to give a subscriber notice of any defect
or irregularity in the submission of subscription agreements, or incur any
liability for failure to give such notice.
SUBSCRIPTIONS FOR COMMON STOCK WHICH ARE RECEIVED BY INDIAN RIVER MAY NOT
BE REVOKED BY SUBSCRIBERS.
8
<PAGE>
ESCROW ACCOUNT; RELEASE OF FUNDS; NO INTEREST ON SUBSCRIPTION FUNDS
All funds received in payment of the offering price will be promptly
deposited into an escrow account at Indian River Bank under the control of
Christopher H. Marine, Esquire, Escrow Agent, until consummation or termination
of the offering. Funds in the escrow account will be invested in short-term
obligations of the United States government or a sweep account collateralized by
U.S. government or agency securities. Subscription funds will be released from
the escrow account to Indian River only upon receipt by the escrow agent of the
certification of the President of Indian River that subscriptions relating to
such funds have been accepted and that shares of common stock will be issued to
subscribers in respect of such subscriptions. Earnings on funds in the escrow
account will be retained by Indian River whether or not the offering is
consummated.
Subscriptions for common stock which are received by the subscription agent
may not be revoked. No interest will be paid to subscribers on subscription
funds, even if the offering is terminated in its entirety or an individual
subscription is rejected. By submitting a subscription, subscribers will forego
interest they otherwise could have earned on the funds for the period during
which their funds are held in escrow. We will, however, pay interest to the
extent that law, regulation or administrative policy of an investor's state of
residence specifically requires in the event that the offering is not completed.
Prior to the time the offering is completed or terminated, we will be entitled
to request, from time to time, that the escrow agent distribute to us accrued
earnings on the escrowed funds for general corporate purposes.
ACCEPTANCE AND REFUNDING OF SUBSCRIPTIONS
Subscription agreements are not binding on Indian River until accepted by
Indian River. We reserve the right to reject, in whole or in part, any
subscription agreement or, if the offering is oversubscribed, to allot a lesser
number of shares than the number for which a person has subscribed. In
determining the number of shares to allot to each subscriber if the offering is
oversubscribed, the directors may take into account the order in which
subscriptions are received, a subscriber's potential to do business with, or to
direct customers to, Indian River Bank, and Indian River's desire to have a
broad distribution of stock ownership, as well as legal or regulatory
restrictions. We may also consider the identity of the subscriber and the
subscriber's intentions with respect to the operation, management and direction
of Indian River. Indian River will decide which subscription agreements to
accept within ten days after the termination of the offering. Once made, a
subscription is irrevocable by the subscriber during the period of the offering,
including extensions, if any.
Indian River may elect, at any time and from time to time, to accept any or
all of the subscriptions it has received to date, issue shares of common stock
for those subscriptions, and continue the offering with respect to any remaining
shares.
If Indian River rejects all or a portion of any subscription, the escrow
agent will promptly refund to the subscriber by check, sent by first-class mail,
all, or the appropriate portion of, the amount submitted with the subscription
agreement, without interest or deduction, except that interest will be paid to
the extent that law, regulation or administrative policy of an investor's state
of residence specifically requires. If the offering is not completed, all
subscription funds will be promptly refunded to subscribers without interest or
deduction, except that interest will be paid to the extent that law, regulation
or administrative policy of an investor's state of residence specifically
requires.
After all refunds have been made, the escrow agent, Indian River, Indian
River Bank and their respective directors, officers, and agents will have no
further liabilities to subscribers. Certificates representing shares duly
subscribed and paid for will be issued by Indian River as soon as practicable
after funds are released to Indian River by the escrow agent.
LIMITED MARKET FOR COMMON STOCK
Except for common stock held by Indian River's directors and certain
officers of Indian River and Indian River Bank, the common stock will be freely
transferable immediately upon issuance and will not be subject to any transfer
restrictions. There does not currently exist an active or organized public
market for the common stock. No broker-
9
<PAGE>
dealers currently offer to make a market in the common stock. The common stock
has been the subject of only sporadic trades. There can be no assurance that an
over-the-counter market will develop for the common stock. It is not anticipated
that the common stock will be listed on any stock exchange or be designated for
trading on the Nasdaq system upon completion of the offering or in the immediate
future.
DETERMINATION OF OFFERING PRICE
The offering price has been determined by the Board of Directors of Indian
River after consideration of various factors which it deemed relevant. These
factors included, among other things, Indian River's current financial condition
and operating performance as presented in its financial statements, recent
trades of the common stock, the market value, and price to earnings and price to
book value ratios of the common stock of other banking organizations which we
deem comparable, and pro forma financial position after giving effect to the
offering. NEITHER THE BOARD OF DIRECTORS NOR MANAGEMENT HAS EXPRESSED AN OPINION
OR HAS MADE ANY RECOMMENDATION AS TO WHETHER ANYONE SHOULD PURCHASE SHARES OF
COMMON STOCK IN THE OFFERING. ANY DECISION TO INVEST IN THE COMMON STOCK MUST BE
MADE BY EACH INVESTOR BASED UPON HIS OR HER OWN EVALUATION OF THE OFFERING IN
THE CONTEXT OF HIS OR HER BEST INTERESTS.
There can be no assurance that, following completion of the offering and
the issuance of the common stock, a shareholder will be able to sell shares
purchased in the offering at a price equal to or greater than the offering
price. Moreover, until certificates for shares of common stock are delivered,
shareholders may not be able to sell the shares of common stock that they have
purchased in the offering. See "- Issuance of Common Stock" at page 11.
INTENTIONS OF DIRECTORS, EXECUTIVE OFFICERS AND OTHERS
Directors, including a director emeritus, and executive officers of Indian
River and Indian River Bank have indicated that they intend to subscribe for an
aggregate of 40,000 shares of common stock in the offering. Any shares purchased
by directors and executive officers are intended to be held as an investment.
These intentions are not commitments and could change based upon individual
circumstances. See "Share Ownership of Directors, Officers and Certain
Beneficial Owners" at page 40.
REGULATORY LIMITATION
If you would own ten percent (10%) or more of the common stock after the
offering, or five percent (5%) in some circumstances, you may be required to
provide certain information to, or seek the prior approval of, state and federal
bank regulators. We will not be required to issue shares of common stock in the
offering to any person who, in our opinion, would be required to obtain prior
clearance or approval from any state or federal bank regulatory authority to own
or control such shares if, at the termination date, clearance or approval has
not been obtained or any required waiting period has not expired. Indian River
reserves the right to reduce or reject, in whole or in part, any subscription
which would require prior regulatory application or approval if it has not been
obtained prior to the termination date. See "The Offering - Acceptance and
Refunding of Subscriptions" at page 10.
RIGHT TO AMEND OR TERMINATE THE OFFERING
We expressly reserve the right to amend the terms and conditions of the
offering. In the event of a material change to the terms of the offering, we
will file an amendment to the registration statement, of which this prospectus
is a part, and resolicit subscribers to the extent required by the SEC. If we
resolicit subscribers, we will promptly return funds to any subscriber who does
not provide the subscription agent with an affirmative reconfirmation of the
subscription. We expressly reserve the right, at any time prior to delivery of
shares of common stock offered hereby, to terminate the offering if the offering
is prohibited by law or regulation or if the Board of Directors concludes in its
judgment that it is not in the best interests of Indian River to complete the
offering under the circumstances. The offering may be terminated by Indian River
giving oral or written notice thereof to the subscription agent and making a
public announcement thereof. If the offering is so terminated, all funds
received will be promptly refunded, without interest.
ISSUANCE OF COMMON STOCK
10
<PAGE>
Certificates representing shares of common stock purchased in the offering
will be delivered to purchasers, via registered or certified mail, as soon as
practicable after the expiration time and after all prorations and adjustments
contemplated by the offering have been effected. No fractional shares will be
issued in the offering.
REQUESTS FOR ADDITIONAL INFORMATION
If you have questions or require additional information concerning the
offering, contact:
William A. High
President and Chief Executive Officer
Indian River Banking Company
958 20th Place
Vero Beach, Florida 32960,
Telephone: (561) 569-9200 or toll free (888) 569-9233
MANNER OF DISTRIBUTION
Certain directors and officers of Indian River and Indian River Bank will
assist in the offering. None of our directors and officers will receive
compensation for these services. Our directors and officers are not authorized
to make statements about Indian River or Indian River Bank unless such
information is set forth in this prospectus, nor will they render investment
advice. None of our directors or officers are registered as securities brokers
or dealers under the federal or applicable state securities laws, except for
certain directors and officers registered pursuant to exemptions from
examination requirements under Florida law, nor are any of them affiliated with
any broker or dealer. Because they are not in the business of either effecting
securities transactions for others or buying and selling securities for their
own account, they are not required to register as brokers or dealers under the
federal securities laws. In addition, the proposed activities of our directors
and officers are excepted from registration pursuant to a specific safe-harbor
provision under Rule 3a4-1 under the Securities Exchange Act of 1934, as
amended. Substantially similar exemptions from registration are available under
applicable state securities laws.
NO BROKER-DEALER OR OTHER PERSON IS OBLIGATED TO PURCHASE ANY OF THE SHARES
OFFERED, OR TO FIND PURCHASERS FOR ANY SHARES. THERE CAN BE NO ASSURANCE THAT
ANY MINIMUM NUMBER OF SHARES WILL BE SOLD.
USE OF PROCEEDS
The gross proceeds to Indian River from the sale of the common stock
offered hereby will be $7,500,000 if all of the shares being offered are sold,
before deducting expenses of the offering, which are estimated at $110,000.
The proceeds of the offering will strengthen Indian River's capital base
and position it to continue to exceed minimum regulatory capital ratios, which
will allow for future growth through expansion of its existing business. We plan
to use the net proceeds for general corporate purposes, which will include:
o repayment of Indian River's outstanding balance on its line of credit with
a correspondent bank, and
o immediate contribution of the remaining proceeds to Indian River Bank,
where they will be available for general corporate purposes and for use in
its lending and investment activities.
The outstanding balance on the line of credit was $2,945,381 as of March 31,
2000. The line of credit has a floating interest rate based on the London
Inter-Bank Offering Rate, and was 7.4587% as of March 31, 2000.
If less than all of the shares offered are sold, Indian River will
contribute the first $2,000,000 of net proceeds to Indian River Bank, and use
the proceeds in excess of $2,000,000 to reduce the outstanding balance on Indian
River's line of credit. Any remaining proceeds would be used for additional
contributions to Indian River Bank or other corporate purposes.
11
<PAGE>
The offering will enable Indian River Bank to establish additional branch
locations, to expand into desirable market areas, and to provide increased
lending services to its existing customers and markets. In May 2000, Indian
River Bank has entered into an agreement for a site in Rockledge in Brevard
County where it intends to establish a new branch in a building to be
constructed. The terms of the lease under which Indian River Bank will occupy
the site have not been determined as of the date of this prospectus. There can
be no assurance that any additional branches will be established, or if
established that they will be successful. Until we use them for these purposes,
the net proceeds may be invested in a variety of short-term, interest-bearing
assets including federal funds transactions, interest-bearing deposits in other
banks and similar investments.
The following table reflects the anticipated allocation of the net proceeds
of the offering, after deducting estimated expenses of $110,000. The
presentation assumes the sale of all 300,000 shares.
<TABLE>
<CAPTION>
% of
Amount Proceeds(1)
------------- ---------------
<S> <C> <C>
INDIAN RIVER:
Net proceeds $ 7,390,000 100%
Reduction of outstanding balance on line 2,945,381 39.86%
Capital contribution to Indian River Bank 4,444,619 60.14%
INDIAN RIVER BANK
Proceeds of capital contributions by 4,444,619 60.14%
Working capital(3) 4,444,619 60.14%
</TABLE>
(1) Represents, in case of Indian River Bank, percentage of total net proceeds
of offering.
(2) Represents the outstanding balance on the line of credit as of March 31,
2000.
(3) Represents funds available for use in Indian River Bank's lending and
investment businesses, and for other corporate purposes.
CAPITALIZATION
The following table shows (1) the consolidated capitalization of Indian
River at December 31, 1999, as adjusted to reflect the 10% stock dividend paid
in January 2000 and the two for one stock split in the form of a stock dividend
paid in March 2000; and (2) the consolidated capitalization of Indian River on a
pro forma basis giving effect to the issuance of 300,000 shares and the receipt
of the net proceeds from the offering, as if the sale of the shares had been
consummated on March 31, 2000. We cannot be certain that particular number of
shares will be sold in the offering. If fewer than all of the shares offered are
sold, the actual capitalization of Indian River after the offering will be lower
than reflected below.
<TABLE>
<CAPTION>
At March 31, 2000
------------------------------
Actual Pro Forma
------------- -------------
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $1.00 par value;
500,000 shares authorized, None
outstanding actual and pro forma $ -- $ --
Common stock, par value $1.00 per
share; 10,000,000 shares authorized;
1,393,730 shares issued and
outstanding actual, and 1,693,730
shares issued and outstanding 1,393,730 1,693,730
pro forma
Capital surplus 9,292,285 16,382,285
Retained earnings 5,158,176 5,158,176
Accumulated other comprehensive income (1,843,517) (1,843,517)
Total stockholders' equity $14,000,674 $21,390,674
Book value per share $ 10.05 $ 12.63
</TABLE>
12
<PAGE>
REGULATORY CAPITAL REQUIREMENTS
For capital adequacy purposes, the Board of Governors of the Federal
Reserve requires bank holding companies such as Indian River to maintain two
separate capital ratios, both of which compare certain capital account items to
total assets and off-balance-sheet instruments, as adjusted to reflect their
relative credit risks ("Total Risk-Weighted Assets"). These are called
"Risk-Based Capital Ratios." The first of these is the "Total Risk-Based Capital
Ratio", which compares the total capital account, which may include a limited
amount of general reserves for loan losses to Total Risk-Weighted Assets. The
minimum level for this ratio is 8.0%. The second of these is the "Tier 1
Risk-Based Capital Ratio," in which "Tier 1 Capital," (which must constitute at
least one-half of total capital) defined as common equity, retained earnings,
non-cumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock, less goodwill, is compared to Total Risk-Weighted
Assets. The minimum level for this ratio is 4.0%.
The Federal Reserve also has established an additional capital adequacy
guideline referred to as the "Leverage Capital Ratio," which measures the ratio
of Tier 1 Capital (as defined above) to total assets, less goodwill. Although
the most highly-rated bank holding companies are required to maintain a minimum
Leverage Capital Ratio of 3.0%, most bank holding companies, such as Indian
River, are required to maintain Leverage Capital Ratios of 4.0% to 5.0%. The
actual required ratio is based on the Federal Reserve's assessment of the
individual bank holding company's asset quality, earnings performance,
interest-rate risk and liquidity. There can be no assurance, however, that
Indian River will not be required to maintain a higher Leverage Capital Ratio.
See "Supervision and Regulation - Indian River Bank - Capital Adequacy
Guidelines" at page 37.
The OCC has promulgated regulations and adopted a statement of policy
regarding the capital adequacy of national banks such as Indian River Bank.
These requirements are substantially similar to those adopted by the Federal
Reserve regarding bank holding companies, as set forth above.
The following table sets forth the actual regulatory capital ratios of
Indian River and Indian River Bank at March 31, 2000, and as adjusted to give
effect to the receipt of the estimated net proceeds from the sale of the common
stock offered hereby, based on the assumptions set forth in the footnote and
Indian River incurring expenses of $110,000 in the offering. The as adjusted
capital ratios are calculated assuming that all amounts contributed are invested
in assets having a 100% risk weighting under applicable regulatory capital
calculations. If the assets actually invested in are assumed to have a lower
risk weighting, the adjusted capital ratios will be higher.
<TABLE>
<CAPTION>
March 31, 2000
----------------------------------------------
Regulatory
Actual As Adjusted(1) Minimum
----------- -------------- -------------
<S> <C> <C> <C>
INDIAN RIVER:
Total Risk-Based Capital Ratio 9.4 % 12.8 % 8.0 %
Tier 1 Risk-Based Capital Ratio 8.3 % 11.8 % 4.0 %
Leverage Capital Ratio 5.6 % 7.9 % 4.0-5.0 %
INDIAN RIVER BANK:
Total Risk-Based Capital Ratio 10.8 % 12.9 % 8.0 %
Tier 1 Risk-Based Capital Ratio 9.8 % 11.8 % 4.0 %
Leverage Capital Ratio 6.5 % 7.9 % 4.0-5.0 %
------------------------------------
</TABLE>
(1) Assumes the sale of 300,000 shares in the offering and the immediate
contribution of $4,445,000 to Indian River Bank. There can be no assurance
that any particular number of shares will be sold in the offering.
MARKET FOR COMMON STOCK AND DIVIDENDS
There does not currently exist an organized public trading market for
shares of Indian River common stock. Trading in the common stock has been
sporadic and consists mainly of private trades conducted without brokers. We are
aware of 18 trades of the common stock since January 1, 1998, at prices ranging
from $20 to $30 per share, as adjusted
13
<PAGE>
for the two for one stock split paid in March 2000. The last trade known to
Indian River was a trade of 100 shares at $25.00 per share on March 15, 2000.
There may be other trades of which we are either not aware, or for which we are
not aware of the price. These trades and transactions do not necessarily reflect
the intrinsic or market values of the common stock. As of March 31, 2000, there
were 1,393,730 shares of common stock outstanding, held of record by
approximately 445 shareholders.
As of March 31, 2000, there were outstanding options to purchase 149,973
shares of common stock pursuant to Indian River's stock option plans, of which
65,169 are presently exercisable.
The following table shows information relating to Indian River's share
price history for the past two fiscal years. Prices have been adjusted to
reflect the 10% stock dividends paid in January 1998, 1999 and 2000, and the two
for one stock split in the form of a dividend paid in March 2000. High and low
sales prices reflect trades known to Indian River, and do not necessarily
reflect all trades which occurred. Indian River has not paid any cash dividends
during the past two fiscal years, electing to retain earnings to fund the growth
of Indian River Bank.
<TABLE>
<CAPTION>
2000 1999 1998
-------------------- ------------------- -----------------
Period Ended High Low High Low High Low
--------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31 $25.00 $22.50 $19.09 $18.18 $17.36 $14.46
June 30 $30.00 $25.00 $22.72 $19.09 -- --
September 30 -- -- $16.53 $14.46
December 31 $22.72 $21.59 $17.36 $16.53
</TABLE>
Dividends. Holders of the common stock are entitled to receive dividends as
and when declared by the Board of Directors. Indian River has paid stock
dividends for each of the last eleven years and currently intends to continue
the payment of such dividends. Indian River has not paid cash dividends during
such period, electing to retain earnings to support growth. Future dividends
will depend primarily upon Indian River Bank's earnings, financial condition,
and need for funds, as well as governmental policies and regulations applicable
to Indian River and Indian River Bank. There can be no assurance, however, that
Indian River and Indian River Bank will continue to have earnings at a level
sufficient to support the payment of dividends or that either entity will in the
future elect to pay dividends. As Indian River Bank is the primary source of
funds for payment of dividends by Indian River, the inability of Indian River
Bank to pay dividends could adversely affect the ability of Indian River to pay
dividends.
Regulations of the OCC place a limit on the amount of dividends Indian
River Bank may pay without prior approval. Prior approval of the OCC is required
to pay dividends which exceed Indian River Bank's net profits for the current
year plus its retained net profits for the preceding two calendar years, less
required transfers to surplus. At March 31, 2000, the amount available for the
payment of dividends without prior approval was approximately $4.8 million. The
Federal Reserve and the OCC also have authority to prohibit a bank from paying
dividends if the Federal Reserve or the OCC deems such payment to be an unsafe
or unsound practice.
The Federal Reserve has established guidelines with respect to the
maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that Indian River may pay in the future. In 1985, the Federal Reserve issued a
policy statement on the payment of cash dividends by bank holding companies. In
the statement, the Federal Reserve expressed its view that a holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income, or which could only be funded in ways that weakened the holding
company's financial health, such as by borrowing.
As a depository institution, the deposits of which are insured by the FDIC,
Indian River Bank may not pay dividends or distribute any of its capital assets
while it remains in default on any assessment due the FDIC. Indian River Bank is
not currently in default under any of its obligations to the FDIC.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Indian River is a one-bank holding company for Indian River Bank and is
headquartered in Vero Beach, Florida. Indian River Bank is a growing community
bank serving individuals and small to medium sized businesses with special focus
on real estate related lending and the professional community. Indian River Bank
operates four branches in Indian River County and two branches in Brevard
County. Indian River Bank offers deposit accounts and associated services to
businesses and individuals and makes loans and invests in qualified securities.
In addition, Indian River Bank's income includes fees on deposit accounts and
loans.
RESULTS OF OPERATIONS
NET INCOME. Indian River had income before income taxes of $3.1 million for
the year ended December 31, 1999 compared to $3.3 million for the year ended
December 31, 1998. Net income totaled $2.0 million the year ended December 31,
1999, a decrease of $100 thousand or 4.8% compared to net income in 1998.
Earnings per share basic were $2.87 in 1999 compared to $3.01 in 1998, as
adjusted for the 10% stock dividends and two for one stock split. The decrease
in net income is attributable to several one time events that increased
non-interest expense. These are, before tax, prepaid compensation for the
retiring CEO of $203 thousand, a write down of a piece of property (vacant land)
to fair market value, resulting in a loss of $103 thousand, search firm expense
for a new CEO of $57 thousand, relocation expense for the new CEO and CFO of $57
thousand, and Y2K expense of $50 thousand.
Income before taxes of $1.0 million for the quarter ended March 31, 2000
compared to $800 thousand for the quarter ended March 31, 1999. Net income
totaled $652 thousand for the quarter ended March 31, 2000, an increase of $115
thousand or 21.4% over the same period in 1999. Earnings per share basic were
$0.47 through March 31, 2000 compared to $0.39 through March 31, 1999, as
adjusted for the 10% stock dividends and 2 for 1 stock split. The increase in
net income is attributed to an increase in net interest income after provision
for loan losses of $428 thousand before taxes.
NET INTEREST INCOME. Net interest income is the difference between interest
income on earning assets and interest expense on deposits and other borrowed
funds. Net interest income for the year ended December 31, 1999 totaled $9.9
million compared to $8.2 million in 1998, reflecting an increase of $1.7 million
or 20.7%. Total interest income totaled $17.9 million in 1999 compared to $15.3
million in 1998. This increase was primarily the result of increases of $1.8
million in interest and fees on loans, and $800 thousand in interest on fed
funds and other investments. The increase in earnings on loans was due to an
increase in average outstanding loan balances from $127.4 million in 1998 to
$153.3 million in 1999 offset by a decrease in the interest rate earned, which
decreased to 8.69% in 1999 from 9.01% in 1998. The increase in interest on
investments was due to increases in average outstanding balances of
approximately $12.2 million. As a result of a 20.4% increase in average
interest-bearing deposits and other borrowed funds, interest expense increased
by $890 thousand from 1998. The increase was attributable primarily to deposit
growth.
The average yield on earning assets for the year ended December 31, 1999,
was 8.03% compared to 8.31% in 1998. The average rate paid on interest bearing
liabilities in 1999 was 4.21% compared to 4.51% in 1998. The average interest
rate paid on other borrowed funds in 1999 was 5.90% compared to 6.29% in 1998.
Net interest margin is the ratio of net interest income to average earning
assets. For the year ended 1999, net interest margin was 4.44% compared to 4.45%
for the year ended December 31, 1998. The table at pages 18 - 19 illustrates the
analysis of Indian River's average balances, yields and changes in net interest
income for the fiscal years indicated.
Net interest income for the quarter ended March 31, 2000 totaled $2.8
million compared to $2.3 million for the quarter ended March 31, 1999,
reflecting an increase of $453 thousand or 19.41%. This increase was primarily
the result of a $510 thousand increase in interest and fees on loans, and a $753
thousand increase in interest on fed funds and other investments. The increase
in earnings on loans was due to an increase in average outstanding loan balances
from $146.6 million for the quarter ended March 31, 1999 to $170.5 million for
the quarter ended March 31, 2000. The average interest rate earned on
outstanding loans remained the same for both quarters at 8.61%. The increase in
interest on investments was due to an increase in average outstanding balances
of approximately $39.3 million. As a result of a
15
<PAGE>
32.86% increase in average interest bearing deposits and other borrowed funds,
interest expense increased by $789 thousand. The increase was attributable
primarily to deposit growth and increased Federal Home Loan Bank advances.
The average yield on earning assets for the quarter ended March 31, 2000
was 7.98% compared to 8.01% for quarter ended March 31, 1999. The average rate
paid on interest bearing liabilities was 4.51% for quarter ended March 31, 2000
as compared to 4.18% for quarter ended March 31, 1999. The average rate paid on
other borrowed funds was 6.17% for the quarter ended March 31, 2000, compared to
5.96% in the same period in 1999. Net interest margin for the quarter ended
March 31, 2000 was 4.11% compared to 4.44% quarter ended March 31, 1999. The
table at page 20 illustrates the analysis of Indian River's average balances,
yields and changes in net interest income for the periods indicated.
PROVISION FOR LOAN LOSSES. The provisions for loan losses added $590
thousand to the allowance for loan losses in 1999 compared to $400 thousand in
1998. This increase was primarily attributed to the increase in total loans.
Total charge-offs net of recoveries totaled approximately $200 thousand in both
1999 and 1998.
The provision for loan losses added $165 thousand to the allowance for loan
losses for the quarter ended March 31, 2000 as compared to $140 thousand for the
quarter ended March 31, 1999. The increase was primarily attributed to the
increase in total loans. Total charge-offs net of recoveries totaled $13
thousand for the quarter ended March 31, 2000, compared to $35 thousand in the
first quarter of 1999.
NON-INTEREST INCOME. Non-interest income for the year ended December 31,
1999 was $2.5 million compared to $2.2 million in 1998, an increase of $300
thousand or approximately 10.7%. The change was primarily due to increased
deposit fee income and gain on loan sales.
Non-interest income for the quarter ended March 31, 2000 was $575 thousand
as compared to $579 thousand for the quarter ended March 31, 1999, a decrease of
$4 thousand or 0.6%. A $59 thousand increase in service charges and fees on
deposit accounts related to the increased deposit base was offset by an $87
thousand decrease in income from the sale of loans. The decrease in income on
the sale of loans is attributable to reduced mortgage demand resulting from
increased mortgage interest rates.
NON-INTEREST EXPENSE. Total non-interest expense for the year ended
December 31, 1999 of $8.6 million reflected an increase of approximately $1.9
million or 28.2% primarily as a result of increases in personnel costs, and
other operating expenses, as described under "Net Income" above. The 1999
salaries and benefits expense increased by $900 thousand or 34.6% to $3.6
million compared to $2.7 million in 1998. Occupancy and equipment expense of
$1.3 million increased $200 thousand or 21.4% in 1999. Other operating expenses
of $3.1 million increased by $600 thousand or 19.7% in 1999.
Total non-interest expense for the quarter ended March 31, 2000 was $2.2
million, an increase of approximately $253 thousand or 13.1%, primarily as a
result of increases in personnel cost and occupancy and equipment expenses
relating to the continued growth of Indian River Bank. Salary and benefits
expenses for the first quarter of 2000 increased by $258 thousand or 27.3%, to
$1.2 million, compared to $900 thousand in the first quarter of 1999. Occupancy
and equipment expense of $388 thousand increased $90 thousand or 33.79% in first
quarter of 2000. The increases in both areas of expenditure relate primarily to
the Gateway branch opened in December 1999.
TAXES ON INCOME. Income tax expense totaled $1.1 million for 1999 compared
to income tax expense of $1.2 million in 1998. Income tax expense totaled $361
thousand for the quarter ended March 31, 2000 as compared to $305 thousand for
the quarter ended March 31, 1999, reflecting the higher level of earnings.
COMPARISON OF AVERAGE BALANCES, INTEREST AND YIELDS
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
16
<PAGE>
or liabilities for the periods presented. Yields on loans and securities have
not been calculated on a tax equivalent basis. Non-accrual loans have been
included in the average balances of loans receivable.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1999 1998
----------------------------------------- ----------------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
-------------- ------------- ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Investments (1) $ 67,588,351 $ 4,495,681 6.65% $ 55,390,843 $ 3,766,518 6.80%
Federal funds sold 2,549,521 129,487 5.08% 1,752,685 92,242 5.26%
Loans receivable (2) 153,267,176 13,321,103 8.69% 127,407,802 11,482,346 9.01%
-------------- ------------- ------------ --------------- -------------- ------------
Total interest
earning assets 223,405,048 17,946,271 8.03% 184,551,330 15,341,106 8.31%
------------- ------------ -------------- ------------
Noninterest-earning assets 14,325,769 14,411,112
-------------- ---------------
Total $ 237,730,817 $ 198,962,442
============== ===============
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
NOW and money market
accounts $ 26,199,766 350,773 1.34% $ 22,803,504 335,294 1.47%
Savings accounts 77,325,111 3,099,527 4.01% 54,945,860 2,347,241 4.27%
Certificates of deposit 75,647,738 3,901,802 5.16% 70,513,670 3,823,823 5.42%
Other 11,408,966 672,892 5.90% 9,984,968 628,329 6.29%
-------------- ------------- ------------ --------------- -------------- ------------
Total
interest-bearing
liabilities 190,581,581 8,024,994 4.21% 158,248,002 7,134,687 4.51%
------------- ------------ -------------- ------------
Noninterest-bearing
liabilities 33,145,360 28,532,992
Stockholders' equity 14,003,876 12,784,119
-------------- ---------------
Total $ 237,730,817 $ 199,565,113
============== ===============
Net interest income and net
yield on interest-earning assets $ 9,921,277 4.44% $ 8,206,419 4.45%
============= ============ ============== ============
</TABLE>
(1) Includes investment securities and Federal Reserve Bank, Federal Home Loan
Bank of Atlanta, and IBB Stock.
(2) Includes loans for which the accrual of interest has been suspended.
17
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997
----------------------------------------------
Average Average
Balance Interest Yield/Rate
--------------- -------------- -------------
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Investments (1) $ 48,679,770 $ 3,251,742 6.68%
Federal funds sold 4,624,589 256,125 5.54%
Loans receivable (2) 108,446,696 10,007,254 9.23%
--------------- -------------- -------------
Total interest 161,751,055 13,515,121 8.36%
earning assets -------------- -------------
11,213,419
Noninterest-earning assets
---------------
Total $ 172,964,474
===============
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
NOW and money market
accounts 20,494,288 313,327 1.53%
Savings accounts 44,258,960 1,782,026 4.03%
Certificates of deposit 71,875,056 3,966,955 5.52%
Other 3,405,463 244,528 7.18%
---------------
Total
interest-bearing
liabilities 140,033,767 6,306,836 4.50%
-------------- -------------
Noninterest-bearing 22,555,163
liabilities 10,375,544
Stockholders' equity ---------------
Total $ 172,964,474
===============
Net interest income and net
yield On interest-earning assets $ 7,208,285 4.46%
============== =============
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------------------------------------
2000 1999
----------------------------------------- ----------------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
-------------- ------------- ------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Investments (1) $ 101,083,518 $ 1,745,019 6.92% $ 60,020,935 $ 993,067 6.64%
Federal funds sold 165,802 2,375 5.74% 2,005,000 23,670 4.74%
Loans receivable (2) 170,450,618 3,659,933 8.61% 146,624,960 3,149,060 8.61%
-------------- ------------- ------------ --------------- --------------- ------------
Total interest
earning assets 271,699,938 5,407,327 7.98% 208,650,895 4,165,797 8.01%
------------- ------------ --------------- ------------
Noninterest-earning assets 12,313,696 14,575,723
-------------- ---------------
Total $ 284,013,634 $ 223,226,618
============== ===============
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
NOW and money market
accounts $ 29,954,833 97,086 1.30% $ 25,549,974 87,995 1.38%
Savings accounts 73,197,354 700,780 3.84% 74,450,567 758,852 4.09%
Certificates of deposit 109,761,612 1,508,870 5.51% 66,708,138 852,602 5.13%
Other 20,420,790 313,578 6.16% 8,888,440 132,072 5.96%
-------------- ------------- ------------ --------------- --------------- ------------
Total
interest-bearing
liabilities 233,334,589 2,620,314 4.50% 175,597,120 1,831,521 4.18%
------------- ------------ --------------- ------------
Noninterest-bearing
liabilities 36,971,909 33,573,903
Stockholders' equity 13,707,136 14,055,595
-------------- ---------------
Total $ 284,166,220 $ 223,226,618
============== ===============
Net interest income and net
yield
On interest-earning assets $ 2,787,013 4.11% $ 2,334,276 4.49%
============= ============ =============== ============
</TABLE>
(1) Includes investment securities and Federal Reserve Bank, Federal Home Loan
Bank of Atlanta, and IBB Stock.
(2) Includes loans for which the accrual of interest has been suspended.
19
<PAGE>
RATE/VOLUME ANALYSIS OF NET INCOME
The following tables set forth certain information regarding changes in
interest income and interest expense of Indian River for the periods indicated.
For each category of interest-earning assets and interest-bearing liability,
information is provided on changes attributable to: (a) changes in volume
(changes in volume multiplied by the prior period's rate); (b) changes in rates
(change in rate multiplied by the prior period's volume) and (c) changes in
rate-volume (change in rate multiplied by the changes in volume).
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
--------------------------------------------------- -------------------------------------------------
Volume Rate Rate/Volume Change Volume Rate Rate/Volume Change
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on:
Investments $ 829,417 $ (82,162) $ (18,092) $ 729,163 $ 448,290 $ 58,430 $ 8,056 $ 514,776
Federal funds sold 41,937 (3,225) (1,467) 37,245 (159,056) (12,738) 7,911 (163,883)
Loans receivable 2,330,519 (408,791) (82,971) 1,838,757 1,749,695 (233,736) (40,867) 1,475,092
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Total interest
income on
interest-earning
assets 3,201,873 (494,178) (102,530) 2,605,165 2,038,929 (188,044) (24,900) 1,825,985
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Interest expense on:
NOW and money market
accounts 49,937 (29,992) (4,466) 15,479 35,304 (11,987) (1,350) 21,967
Savings accounts 956,023 (144,772) (58,965) 752,286 430,293 108,680 26,242 565,215
Certificates of deposit 278,411 (186,829) (13,603) 77,979 (75,138) (69,307) 1,313 (143,132)
Other 89,609 (39,423) (5,623) 44,563 472,439 (30,231) (58,407) 383,801
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Total interest
expense on
interest-bearing
liabilities 1,373,980 (401,016) (82,657) 890,307 862,898 (2,845) (32,202) 827,851
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Increase (decrease) in net
interest income $ 1,827,893 $ (93,162) $ (19,873) $ 1,714,858 $ 1,176,031 $(185,199) $ 7,302 $ 998,134
============ =========== ============ ============ ============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------------------------------------
2000 v. 1999 1999 v. 1998
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
--------------------------------------------------- -------------------------------------------------
Volume Rate Rate/Volume Change Volume Rate Rate/Volume Change
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on:
Investments $ 679,394 43,083 $ 29,475 $ 751,952 $ 32,711 $ (27,155) $ (899) $ 4,657
Federal funds sold (21,713) 5,046 (4,628) (21,295) 20,182 (1,742) (3,864) 14,576
Loans receivable 511,703 (714) (116) 510,873 657,396 (158,976) (38,859) 459,561
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Total interest
income on
interest-earning
assets 1,169,384 47,415 24,731 1,241,530 710,289 (187,873) (43,622) 478,794
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Interest expense on:
NOW and money market
accounts 15,171 (5,186) (894) 9,091 13,303 (5,426) (891) 6,986
Savings accounts (12,774) (46,074) 776 (58,072) 290,342 11,559 7,465 309,366
Certificates of deposit 550,270 64,421 41,577 656,268 (76,307) (47,830) 3,751 (120,386)
Other 171,358 4,418 5,730 181,506 (27,721) (3,509) 598 (30,632)
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Total interest
expense on
interest-bearing
liabilities 724,025 17,579 47,189 788,793 199,617 (45,206) 10,923 165,334
------------ ----------- ------------ ------------ ------------ ---------- ----------- -----------
Increase (decrease) in net
interest income $ 445,359 $ 29,836 $ (22,458) $ 452,737 $ 510,672 $(142,667) $ (54,545) $ 313,460
============ =========== ============ ============ ============ ========== =========== ===========
</TABLE>
20
<PAGE>
FINANCIAL CONDITION
Total assets were $271.2 million at December 31, 1999 compared to $223.1
million as of December 31, 1998. This represented an increase of 21.6%. Average
earning assets for 1999 were $223.4 million, an increase of 21.0% from the 1998
average of $184.6 million. Total assets were $299.5 million at March 31, 2000,
an increase of $28.3 million or 10.4% from December 31, 1999.
Total net loans increased by $23.7 million to $166.6 million or 16.7% at
December 31, 1999 compared to $142.9 million at December 31, 1998. Total
deposits increased by 19.2% to $238.8 million. Investment securities and federal
funds sold increased to $89.3 million, a 35.3% increase from the $66.0 million
as of December 31, 1998. Total net loans increased by $5.8 million or 3.5% to
$172.4 million at March 31, 2000, compared to $166.6 million at December 31,
1999. Total deposits increased by 9.4% to $261.2 million at March 31, 2000 from
December 31, 1999. Investment securities and federal funds sold increased 22.4%
to $109.3 million, from $89.3 million at December 31, 1999.
INVESTMENT ACTIVITY. During 1999, Indian River's investment securities
portfolio increased by $32.6 million, or 57.5%. This increase in the securities
portfolio reflects management's commitment to increasing the level of earning
assets, enhances our liquidity level, and is a function of deposit growth
exceeding loan growth. The before tax unrealized loss on securities available
for sale was $2.5 million at December 31, 1999, as compared to an unrealized
gain of $900 thousand at December 31, 1998, a decline of $3.4 million. The
increase in unrealized losses is attributable to market increases in interest
rates since 1998, which have resulted in the deterioration in value of fixed
rate securities. The investment securities portfolio increased by $19.5 million,
or 21.8%, to $108.8 million at March 31, 2000, as compared to $89.3 million at
December 31, 1999. The before tax unrealized loss on securities available for
sale as of March 31, 2000 was $2.9 million, an increase of $400 thousand as
compared to December 31, 1999, reflecting the impact of continuing rate
increases on the value of fixed rate securities.
The following table provides information regarding the composition of
Indian River's investment portfolio at the dates indicated. See Note 3 to the
Consolidated Financial Statements for additional information regarding the
securities portfolio. Yields on tax exempt securities have not been computed on
a tax equivalent basis.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
March 31, 2000 1999 1998 1997
------------------- ------------------- -------------------- -------------------
Percent Percent Percent Percent
Balance of Total Balance of Total Balance of Total Balance of Total
------------------- --------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Available for Sale (at Estimated Market
Value):
U.S. Treasury $ 0 0.0% $ 0 0.0% $ 7,205 12.7% $ 15,201 25.7%
U.S. Government Agency obligations 79,082 72.7% 64,852 72.6% 43,050 75.8% 34,888 59.0%
Mortgage-backed securities 6,204 5.7% 6,471 7.3% 5,783 10.2% 8,472 14.3%
Corporate debt securities 10,044 9.2% 10,093 11.3% 0 0.0% 0 0.0%
---------- ------- --------- --------- --------- --------- --------- --------
$ 95,330 87.6% $ 81,416 91.2% $ 56,038 98.7% $ 58,561 99.0%
---------- ------- --------- --------- --------- --------- --------- --------
Held to Maturity (at Amortized Cost):
Securities issued by state/political
subdivisions $ 2,025 1.9% $ 2,025 2.3% $ 0 0.0% $ 0 0.0%
Mortgage-backed securities 10,075 9.3% 5,047 5.6% 0 0.0% 0 0.0%
---------- ------- --------- --------- --------- --------- --------- --------
$ 12,100 11.1% $ 7,072 7.9% $ 0 0.0% $ 0 0.0%
---------- ------- --------- --------- --------- --------- --------- --------
Other investments $ 1379 1.3% $ 798 0.9% $ 710 1.3% $ 603 1.0%
---------- ------- --------- --------- --------- --------- --------- --------
Total $ 108,809 100.0% $ 89,286 100.0% $ 56,748 100.0% $ 59,164 100.0%
========== ======= ========= ========= ========= ========= ========= ========
</TABLE>
21
<PAGE>
The following table provides information regarding the contractual maturity
and weighted average yield of Indian River's investment portfolio at March 31,
2000.
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years After Ten Years Total
------------------- ------------------- ------------------- ------------------ ------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- --------- -------- -------------------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Available for Sale:
U.S. Government Agency
obligations $ 0 0.0% $ 5,916 6.9% $ 55,882 7.0% $ 17,284 8.3% $ 79,082 7.3%
Mortgage-backed securities 2 8.6% 1,527 7.0% 2,172 7.1% 2,503 6.2% 6,204 6.7%
Corporate debt securities 1,983 6.3% 6,132 6.7% 0 0.0% 1,929 8.1% 10,044 6.9%
--------- --------- -------- ---------- -------- --------- -------- --------- --------- --------
Total $ 1,985 6.3% $ 13,575 6.8% $ 56,071 6.9% $ 23,699 8.1% $ 95,330 7.2%
========= ========= ======== ========== ======== ========= ======== ========= ========= ========
Held To Maturity
Securities issued by
state/political subdivisions $ 0 0.0% $ 100 4.2% $ 0 0.0% $ 1,925 5.3% $ 2,025 5.2%
Mortgage-backed securities 0 0.0% 0 0.0% 0 0.0% 10,075 7.6% 10,075 7.6%
--------- --------- -------- ---------- -------- --------- -------- --------- --------- --------
Total $ 0 0.0% $ 100 4.2% $ 0 0.0% $ 12,000 7.2% $ 12,100 7.2%
========= ========= ======== ========== ======== ========= ======== ========= ========= ========
</TABLE>
22
<PAGE>
LOAN PORTFOLIO. The following table shows the composition of Indian River's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
March 31, 2000 1999 1998 1997
------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent
of of of of
Total Total Total Total
Balance Loans Balance Loans Balance Loans Balance Loans
-------- --------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Real Estate:
Construction and land
development $ 7,222 4.1% $ 8,626 5.1% $ 2,382 1.7% $ 1,892 1.6%
Farmland 3,017 1.7% 3,146 1.9% 2,984 2.1% 1,916 1.6%
One to four family residential 74,328 42.6% 68,431 40.6% 60,956 42.2% 49,873 42.4%
Multifamily residential 1,736 1.0% 1,766 1.0% 1,762 1.2% 2,014 1.7%
Nonfamily, nonresidential 57,138 32.7% 55,104 32.7% 45,452 31.5% 32,080 27.3%
Agriculture 1,833 1.1% 1,707 1.0% 1,552 1.1% 1,752 1.5%
Commercial and industrial 11,984 6.9% 12,308 7.3% 11,038 7.6% 9,865 8.4%
Consumer 14,909 8.5% 15,092 9.0% 15,562 10.8% 15,868 13.5%
Other 2,311 1.3% 2,370 1.4% 2,676 1.8% 2,381 2.0%
-------- -------- -------- ---------
Total Loans $ 174,478 $ 168,550 $ 144,364 $ 117,641
Less: allowance for loan loss 2,056 1,904 1,510 1,322
Less: unearned discounts and
loan fees - 1 1 8
-------- -------- -------- ---------
Loans, net $ 172,422 $ 166,645 $ 142,853 $ 116,311
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1996 1995
------------------- ------------------
Percent Percent
of of
Total Total
Balance Loans Balance Loans
--------- -------- -------- --------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Real Estate:
Construction and land
development $ 588 0.6% $ 390 0.4%
Farmland 2,207 2.1% 2,045 2.1%
One to four family residential 41,193 39.8% 37,248 38.8%
Multifamily residential 2,327 2.2% 2,214 2.3%
Nonfamily, nonresidential 26,323 25.4% 20,923 21.8%
Agriculture 2,461 2.4% 2,668 2.8%
Commercial and industrial 8,338 8.1% 6,704 7.0%
Consumer 17,760 17.2% 21,681 22.6%
Other 2,242 2.2% 2,135 2.2%
--------- --------
Total Loans $ 103,439 $ 96,008
Less: allowance for loan loss 1,204 1,066
Less: unearned discounts and
loan fees 63 267
--------- --------
Loans, net $ 102,172 $ 94,675
========= ========
</TABLE>
23
<PAGE>
LOAN MATURITY. The following table sets forth the term to contractual
maturity of Indian River Bank loan portfolio at December 31, 1999. Loans which
have adjustable rates and fixed rates are all shown in the period of contractual
maturity. Demand loans, loans having no contractual maturity and overdrafts are
reported as due in one year or less.
<TABLE>
<CAPTION>
One to Five
Total One Year or Less Years Over Five Years
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Commercial, Agricultural $ 14,014,679 $ 4,077,107 $ 9,577,986 $ 359,586
Real estate construction 8,626,234 387,116 247,005 7,992,113
Real estate mortgage 128,447,394 4,801,237 23,766,054 99,880,103
Consumer, other 17,461,700 4,543,025 12,136,111 782,564
---------------- ----------------- ----------------- -----------------
Total loans $ 168,550,007 $ 13,808,485 $ 45,727,156 $ 109,014,366
================ ================= ================= =================
Loans with:
Predetermined fixed interest $ 77,369,004 $ 10,141,950 $ 38,084,042 $ 29,143,012
Floating interest rate 91,181,003 3,666,599 7,643,110 79,871,294
---------------- ----------------- ----------------- -----------------
Total loans $ 168,550,007 $ 13,808,549 $ 45,727,152 $ 109,014,306
================ ================= ================= =================
</TABLE>
Fixed rate loans due after one year total approximately $67 million and
adjustable rate loans due after one year total approximately $88 million.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a valuation
reserve established by management in an amount it deems adequate to provide for
losses in the loan portfolio. Management assesses the adequacy of the allowance
for loan losses based upon a number of factors including, among others:
analytical reviews of loan loss experience in relationship to outstanding loans
and commitments; unfunded loan commitments; problem and non-performing loans and
other loans presenting credit concerns; trends in loan growth, portfolio
composition and quality; appraisals of the value of collateral; and management's
judgment with respect to current and expected economic conditions and their
impact on the existing loan portfolio.
The allowance for loan losses is increased by provisions for loan losses
charged to expense. Charge-offs of loan amounts determined by management to be
uncollectible or impaired decrease the allowance, and recoveries of previous
charge-offs are added to the allowance.
Calculating the allowance for loan losses is divided into three primary
allocation groups: (1) specific allocation loans, (2) past due/problem loans and
(3) all other passing grade loans. For specific allocation loans, the bank has
determined a reserve amount to set aside which it believes is sufficient to
cover a collateral shortfall. As of March 31, 2000, Indian River had three loans
with specific allocations in the aggregate amount of $222 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 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, 2000, 29% 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 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 have been
adjusted to reflect peer group historical loss factors. The factors currently
are: 0.30 percent for 1 to 4 family real estate loans, 0.77 % for commercial
real estate loans, 1.00% for commercial, non-real estate loans, 1.00% for
farmland and farmer loans, 0.85% for consumer, non-revolving loans, and 2.50%
for other revolving loans.
As a result of Indian River Bank's low charge-offs and low change in
non-performing loans, these two elements have caused little change in the
allowance as a percentage of loans over recent years, which was 1.12% at
24
<PAGE>
December 31, 1997, 1.05% at December 31, 1998 and 1.13% at December 31, 1999.
The increase in the allowance for loan losses in dollar terms is attributable to
increases in the level of total loans, the level of the allowance increasing
78.6% during the period 1995 to 1999, while the level of total loans increased
75.5%.
At December 31, 1999, the allowance for losses was $1.9 million or 1.1% of
loans outstanding compared to $1.5 million or 1.0% of loans outstanding as of
December 31, 1998, an increase of $400 thousand. This increase is attributable
primarily to an increase in total loans outstanding. At December 31, 1999,
non-accrual loans decreased by $200 thousand or 78.7% to $54 thousand compared
to $254 thousand at December 31, 1998. The allowance for loan losses coverage of
non-accrual loans was 3,526% at December 31, 1999 compared to a coverage of 594%
at December 31, 1998.
At March 31, 2000, the allowance for loan losses was $2.1 million, or 1.18%
of total loans outstanding, as compared to $1.9 million, or 1.13% of total loans
outstanding as of December 31, 1999. At March 31, 2000, non-accrual loans
increased by $31 thousand, or 57.4% to $85 thousand. The coverage of the
allowance for loan losses to non-accrual loans was 2,419% at March 31, 2000
compared to 3,526% at December 31, 1999.
The following table sets forth activity in the allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended December 31,
-----------------------------------------------------------
March 31, 2000 1999 1998 1997 1996 1995
--------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Balance at beginning of year $ 1,904 $ 1,510 $ 1,322 $ 1,204 $ 1,066 $ 1,007
------------ ----------- ----------- ----------- ----------- -----------
Charge-offs:
Commercial, Agricultural 0 (17) (12) (18) (17) (23)
Real estate construction 0 0 0 0 0 0
Real estate mortgage 0 0 0 (6) (7) 0
Installment loans to individuals (31) (232) (233) (317) (307) (424)
------------ ----------- ----------- ----------- ----------- -----------
Total (31) (249) (245) (341) (331) (447)
------------ ----------- ----------- ----------- ----------- -----------
Recoveries
Commercial, Agricultural 1 10 6 6 6 5
Real estate construction 0 0 0 0 0 0
Real estate mortgage 0 0 0 7 0 0
Installment loans to individuals 17 43 52 61 48 56
------------ ----------- ----------- ----------- ----------- -----------
Total 18 53 58 74 54 61
------------ ----------- ----------- ----------- ----------- -----------
Net charge-offs (13) (196) (187) (267) (277) (386)
Additions charged to operations 165 590 375 385 415 445
------------ ----------- ----------- ----------- ----------- -----------
Balance at end of period $ 2,056 $ 1,904 $ 1,510 $ 1,322 $ 1,204 $ 1,066
============ =========== =========== =========== =========== ===========
Ratio of net charge-offs during the
period to average loans
outstanding during the period 0.01% 0.13% 0.15% 0.24% 0.28% 0.42%
</TABLE>
25
<PAGE>
The following table allocates the allowance for loan losses by loan
category. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
March 31, 2000 1999 1998 1997 1996 1995
-------------- --------------- --------------- -------------- -------------- --------------
(Dollars in Thousands)
Amount %(1) Amount %(1) Amount % (1) Amount %(1) Amount %(1) Amount % (1)
------- ----- ------------- -------- ------ ------- ------ -------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
Agricultural $ 308 7.9 % $ 66 8.3 % $ 41 8.7 % $ 47 9.9 % 42 10.4 % $ 35 7.0 %
Real estate
construction 52 4.1 % 39 5.2 % 15 1.7 % 10 1.6 % 36 0.6 % 2 0.4 %
Real estate mortgage 1,406 78 % 1,400 76.1 % 1,105 77.0 % 860 73.0 % 627 69.7 % 520 67.8 %
Consumer, other 290 9.9 % 399 10.4 % 349 12.6 % 405 15.5 % 499 19.3 % 509 24.8 %
------- ----- ------ ----- -------- ------ ------- ------ -------- ----- ------- ------
Total
allowance for
loan losses $ 2,056 100 % $ 1,904 100 % $ 1,510 100 % $ 1,322 100 % 1,204 100 % $ 1,066 100 %
======= ===== ====== ===== ======== ====== ======= ====== ======== ===== ======= ======
</TABLE>
(1) Represents percent of loans in category to gross loans.
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 $106 thousand at December 31, 1999 compared to
$397 thousand at December 31, 1998. The percentage of non-performing assets to
total assets decreased to 0.04% at December 31, 1999 from 0.18% at December 31,
1998.
Non-performing loans constituted all of the non-performing assets at
December 31, 1999 and December 31, 1998. Non-performing loans at December 31,
1999 consist of loans in non-accrual status in the amount of $54 thousand and
loans past due over 90 days of $52 thousand compared to non-accrual loans of
$254 thousand and loans past due over ninety days of $143 thousand at December
31, 1998. Non-performing loans at March 31, 2000 consist of loans in non-accrual
status of in the amount of $85,000 and loans past due over 90 days of $26
thousand. The decline in non-performing loans is primarily the result of our
credit policies, good economic conditions, and management's efforts to improve
the quality of the loan portfolio.
Indian River Bank owned no OREO at March 31, 2000, December 31, 1999 or
December 31, 1998. When Indian River Bank has OREO, it generally evaluates each
property annually. These evaluations may be appraisals or other market studies.
Credit card loans are placed on non accrual when they are 180 days delinquent.
All other consumer and commercial loans are placed on nonaccrual at 90 days or
when determined to be uncollectible by management.
26
<PAGE>
The following table shows the amounts of non-performing assets at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
March 31, ---------------------------------------------------------
2000 1999 1998 1997 1996 1995
----------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Nonaccrual loans
Real estate $ 77 $ 49 $ 254 $ 0 $ 186 $ 0
Installment 8 5 0 30 6 19
Accrual loans - Past due 90 days or
more
Real estate 19 20 132 30 311 228
Installment 7 32 11 40 96 177
Restructured loans 0 0 0 0 0 0
Real estate owned 0 0 0 33 96 104
----------- --------- ---------- --------- ---------- ----------
Total nonperforming assets $ 111 $ 106 $ 397 $ 133 $ 695 $ 528
=========== ========= ========== ========= ========== ==========
</TABLE>
For the year ended December 31, 1999, $3,400 in gross interest income would
have been recorded if the $54,000 of nonaccrual loans had been current
throughout the period. No interest income was actually recorded in respect of
the nonaccrual loans during the period. For the three months ended March 31,
2000, $315 in gross interest income would have been recorded if the $85,000 of
nonaccrual loans had been current throughout the period. No interest income was
actually recorded in respect of the nonaccrual loans during the period.
At March 31, 2000, December 31, 1999 and 1998, there were no performing
loans considered potential non-performing 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 be
uncertain as to the ability of the borrowers to comply with the present loan
repayment terms.
DEPOSITS AND OTHER BORROWINGS. The principal sources of funds for Indian
River Bank are core deposits, consisting of demand deposits, NOW accounts, money
market accounts, savings accounts and certificates of deposit less than
$100,000, from the local market areas surrounding the bank's offices. The bank's
deposit base includes transaction accounts, time and savings accounts and
accounts which customers use for cash management and which provide the bank with
a source of fee income and cross-marketing opportunities as well as a low-cost
source of funds. Time and savings accounts, including money market deposit
accounts, also provide a relatively stable and low-cost source of funding.
The following table reflects Indian River Bank's deposits by category for
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
---------------------------------------------------------
March 31, 2000 1999 1998 1997
--------------------- ------------------ ------------------ -----------------
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
--------------------- ------------------ -------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
DEPOSIT CATEGORY
Noninterest-bearing demand $ 36,234 0.0% $ 32,497 0.0% $ 27,125 0.0% $ 21,836 0.0%
Interest-bearing demand 25,654 1.2% 22,797 1.2% 19,412 1.4% 16,727 1.4%
Money market 4,301 2.0% 3,403 2.0% 3,392 2.2% 3,768 2.2%
Savings 73,197 3.8% 77,325 4.0% 54,946 4.3% 44,259 4.0%
Certificates of deposit of $100,000
or more 23,534 5.6% 14,148 5.2% 13,256 5.5% 12,888 5.6%
Other time 86,228 5.5% 61,500 5.1% 57,257 5.4% 58,987 5.5%
----------- --------- -------- --------
Total $ 249,148 $ 211,670 $175,388 $158,465
=========== ========= ======== ========
</TABLE>
27
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of March 31,
2000.
<TABLE>
<CAPTION>
March 31, 2000
-------------------
(Dollars in
Thousands)
<S> <C>
Due In
3 months or less $6,818
Over 3 through 6 months 6,864
Over 6 through 12 months 6,397
Over 12 months 9,934
-------------------
Total $30,013
===================
</TABLE>
The following table provides information regarding Indian River Bank's
short term borrowings for the periods indicated. See Note 9 to the Consolidated
Financial Statements for additional information regarding Indian River Bank's
borrowings.
<TABLE>
<CAPTION>
Maximum Amount
Outstanding At Average Average Ending Average Rate
Any Month End Balance Rate Balance at Period End
---------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31,
2000 $ 16,850,000 $ 14,524,843 6.13% $ 16,850,000 6.26%
Year Ended December 31,
1999 13,075,000 3,841,589 5.50% 12,800,000 5.49%
1998 7,425,000 1,713,283 6.28% 0 0.00%
1997 3,000,000 277,466 5.75% 0 0.00%
</TABLE>
ASSET/LIABILITY MANAGEMENT. Indian River's profitability, like that of most
financial institutions, is dependent to a large extent upon its net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans and investments, and its interest expense on
interest-bearing liabilities, such as deposits. Interest rate risk arises due to
fluctuations in the general level of interest rates and such fluctuations can
significantly impact our level of profitability. Managing interest rate risk is
fundamental to banking. The inherent maturing and re-pricing characteristics of
our day-to-day lending and deposit activities create a naturally
asset-sensitivity structure. Indian River seeks to manage its interest rate risk
through its Asset/Liability Management Committee established by the Board of
Directors and consisting of the Chief Executive Officer, Chief Financial
Officer, Chief Lending Officer, Chief Credit Officer, Lending Officers, and Loan
Operations Officer.
The Chief Financial Officer monitors the day-to-day exposure to changes in
interest rates in response to loan and deposit flows. The methodology we use for
measuring exposure to interest rate risk is intended to ensure that we include a
sufficiently broad range of rate scenarios and pattern of rate movements that we
believe to be reasonably possible. The methodology measures the impact that 100,
200, and 300 basis point rate changes would have on earnings over the subsequent
twelve months. Our earnings simulation model reflects a number of variables that
we identify as being affected by interest rates. The Asset/Liability Management
Committee also establishes and monitors the volume and mix of assets and funding
sources to produce results that are consistent with liquidity, capital adequacy,
growth, risk, and profitability goals.
Liquidity management enables us to maintain sufficient cash flow to fund
operations and to meet financial obligations to depositors and borrowers. Indian
River Bank's liquidity is enhanced by its ability to attract and retain deposits
and by principal and interest payments on loans and maturing securities in the
investment portfolio. Indian River Bank's core deposit base, consisting of
demand deposits, money market, and savings accounts supplemented by other
deposits of varying maturities and rates, contributes to liquidity. Our
liquidity position, those assets invested in federal funds, and obligations of
the U.S. Government, its agencies and sponsored entities available for sale, of
$73.7 million at December 31, 1999, reflected an increase of $9.4 million from
December 31, 1998, or 14.6%. Funds available through short-term borrowings and
asset maturities are considered adequate to meet all
28
<PAGE>
current needs. At December 31, 1999, Indian River had a $4.0 million line of
credit at a correspondent bank. Subsequent to December 31, 1999, the outstanding
balance on the line of credit increased to $2,945,381 at March 31, 2000.
Although management believes that the liquidity position is adequate, increased
loan demand could have an adverse impact on liquidity. Indian River Bank also
has a $35.0 million borrowing line with the Federal Home Loan Bank of Atlanta.
This line may be utilized as a supplementary source of funding growth for the
Bank. In addition, the Asset/Liability Management Committee has established
minimum standards and key ratios of asset quality and performance. These
standards and ratios provide the framework for guidance and measurement.
Management evaluates these standards and ratios on an ongoing basis.
The loan to deposit ratio at December 31, 1999 was 69.8% down from 71.3% at
December 31, 1998. The loan to total assets ratio at December 31, 1999 was 61.4%
compared to 64.0% at December 31, 1998. The loan to deposit ratio at March 31,
2000 was 66.0%, down from 69.8% at December 31, 1999. The loan to total asset
ratio at March 31, 2000 was 57.6% compared to 61.4% at December 31, 1999.
The amounts of interest-earning assets and interest-bearing liabilities
outstanding at March 31, 2000 which are anticipated, based on certain
assumptions, to re-price or mature in future time periods, are set forth in the
sensitivity analysis below. The table reflects the shorter of the maturity or
repricing date as of March 31, 2000.
<TABLE>
<CAPTION>
Due In
-----------------------------------------------------------------------------------
More than 3
Months but 1 Year 3 Years
3 Months Less than 1 through 3 through 5 More than
or Less Year Years Years 5 Years Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
ASSETS
Securities available-for-sale $900 $3,985 $4,924 $9,820 $78,581 $98,210
Securities held to maturity 10,075 -- 100 -- 1,925 12,100
Other investments 95 -- -- -- 1,379 1,474
Federal funds sold 517 -- -- -- -- 517
Loans 37,891 58,419 42,117 24,595 11,504 174,526
-----------------------------------------------------------------------------------
Total earning assets $49,478 $62,404 $47,141 $34,415 $93,389 $286,827
-----------------------------------------------------------------------------------
LIABILITIES
Certificates of deposit $19,739 $54,606 $39,242 $980 $3 $114,570
Money market accounts -- 2,255 2,254 -- -- 4,509
Transactions accounts -- -- 15,419 5,139 5,139 25,697
Savings accounts -- -- 45,413 15,138 15,138 75,689
Fed funds purchased 6,850 -- -- -- -- 6,850
FHLB advances -- 10,286 571 429 2,000 13,286
-----------------------------------------------------------------------------------
Total interest-bearing $26,589 $67,147 $102,899 $21,686 $22,280 $240,601
-----------------------------------------------------------------------------------
Interest sensitivity gap:
Amount $22,889 ($4,743) ($55,758) $12,729 $71,109 $46,226
-----------------------------------------------------------------------------------
Cumulative gap $22,889 $18,146 ($37,612) ($24,883) $46,226 $46,226
-----------------------------------------------------------------------------------
Gap as % of Total Assets 7.64% (1.58)% (18.62)% 4.25% 23.74% 15.43%
Cumulative gap as % of Total Assets 7.64% 6.06% (12.56)% (8.31)% 15.43% 15.43%
Ratio of rate sensitive assets
to rate sensitive liabilities 1.86 0.93 0.46 1.59 4.19 1.19
Cumulative ratio of rate
sensitive assets to rate
sensitive liabilities 1.86 1.19 0.81 0.89 1.19 1.19
</TABLE>
The amount of assets and liabilities shown which re-price or mature during
a particular period were determined in accordance with the earlier of term to
re-pricing or the contractual terms of the asset or liability. Indian River Bank
has assumed that its savings, interest checking, and money market accounts
re-price daily. At March 31, 2000, the bank's one-year interest sensitivity gap,
defined as the difference between the amount of interest-earning assets and
interest bearing liabilities, anticipated by the bank, based on certain
assumptions, to mature or re-price within one year, as a percentage to total
assets was 6.0%. This positive gap position means the
29
<PAGE>
bank had $18.1 million more assets than liabilities re-pricing within one year.
This generally indicates that in a period of declining interest rates, the
bank's net interest income maybe adversely affected. Conversely, in a rising
interest rate environment, the bank's net interest income may improve. However,
this approach assumes that all re-pricing assets and liabilities will re-price
the same way. Historical data indicates that certain deposit liabilities such as
interest checking, savings, and money market deposits do not re-price the same
way as other products and interest gap analysis tend to be more accurate when
adjusted to reflect such behavior. No adjustments are included in the table
presented. Indian River also monitors its exposure to changes in interest rates
using models which measure the impact of assumed changes.
CAPITAL ADEQUACY. Total stockholders' equity was $13.6 million at December
31, 1999 compared to $13.8 million at December 31, 1998. The change represents a
decrease of $200 thousand or 1.4%. This change is a result of retained net
earnings of $2.0 million more than offset by net unrealized holding losses on
investment securities of $2.2 million in 1999.
At December 31, 1999, Indian River Bank's ratio of Tier 1 capital to total
average assets equaled 6.5%, which exceeded the minimum leverage capital ratio
of 4.0% by 2.5% and the minimum leverage ratio for "well capitalized" banks of
5.0% by 1.5%. At December 31, 1999, Indian River Bank's Tier 1 capital to
risk-weighted assets ratio was 9.4%, which exceeded the minimum required ratio
of 4.0% by 5.4% and the "well capitalized" ratio of 6.0% by 3.4%. Indian River
Bank's total capital to risk weighted assets ratio at December 31, 1999 was
10.4%, which exceeded the minimum required ratio of 8.0% by 2.4% and the "well
capitalized" ratio of 10.0% by 0.4%.
At December 31, 1999, Indian River's ratio of Tier 1 capital to total
average assets equaled 5.9%, which exceeded the leverage capital ratio guideline
of 4.0% by 1.9%. At December 31, 1999, Indian River's Tier 1 capital to
risk-weighted assets ratio was 8.4%, which exceeded the minimum ratio of 4.0% by
4.4%. Indian River's total capital to risk weighted assets ratio at December 31,
1999 was 9.5%, which exceeded the minimum required ratio of 8.0% by 1.5%.
Total stockholders' equity was $14.0 million at March 31, 2000 compared to
$13.6 million at December 31, 1999. The change represents an increase of $400
thousand or 2.9%. This change is a result of retained net earnings of $652
thousand offset by an increase in net unrealized holding losses on investment
securities in excess of $200 thousand in the first quarter of 2000.
At March 31, 2000, Indian River Bank's ratio of Tier 1 capital to total
average assets equaled 6.5%, which exceeded the minimum leverage capital ratio
of 4.0% by 2.5% and the minimum leverage ratio for "well capitalized" banks of
5.0% by 1.5%. At March 31, 1999, Indian River Bank's Tier 1 capital to
risk-weighted assets ratio was 9.8%, which exceeded the minimum required ratio
of 4.0% by 5.8% and the "well capitalized" ratio of 6.0% by 3.8%. Indian River
Bank's total capital to risk weighted assets ratio at December 31, 1999 was
10.8%, which exceeded the minimum required ratio of 8.0% by 2.8% and the "well
capitalized" ratio of 10.0% by 0.8%.
At March 31, 2000, Indian River's ratio of Tier 1 capital to total average
assets equaled 5.6%, which exceeded the leverage capital ratio guideline of 4.0%
by 1.6%. At December 31, 1999, Indian River's Tier 1 capital to risk-weighted
assets ratio was 8.3%, which exceeded the minimum ratio of 4.0% by 4.3%. Indian
River's total capital to risk weighted assets ratio at December 31, 1999 was
9.4%, which exceeded the minimum required ratio of 8.0% by 1.4%.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto have been prepared
in accordance with Generally Accepted Accounting Principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of operations. Unlike most industrial companies, nearly all of
our assets and liabilities are monetary in nature. As a result, interest rates
have a greater impact on our performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods or services.
30
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
The FASB has issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which we had not been required to adopt as of December 31,
1999. This Statement, which is effective for fiscal years beginning after June
15, 2000, establishes accounting and reporting standards for derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. This statement is not expected to have a significant impact on
Indian River.
BUSINESS OF INDIAN RIVER AND INDIAN RIVER BANK
GENERAL
Indian River was incorporated under the laws of the State of Florida in
January 1989 to be the holding company for Indian River Bank, and acquired all
of the shares of Indian River Bank in April 1989. Indian River Bank, a national
banking association, is Indian River's sole subsidiary. Indian River Bank
commenced operations in March 1985, and currently operates out of its main
office and five branch offices. Indian River Bank seeks to provide a high level
of personal service and a sophisticated menu of products to individuals and to
small and medium sized businesses. While Indian River Bank offers a full range
of services to a wide array of depositors and borrowers, it has chosen the small
and medium sized businesses, professionals and individual retail customers as
its primary target market. Indian River Bank believes that as financial
institutions grow and are merged with or acquired by larger institutions with
headquarters that are far away from the local customer base, the local business
and individual is further removed from the point of decision making. Indian
River Bank attempts to place the customer contact and the ultimate decision on
products and credits as close together as possible.
LENDING ACTIVITIES
Indian River Bank offers a full spectrum of lending services to its
customers, including commercial loans, lines of credit, residential mortgages,
home equity loans, personal loans, auto loans and financing arrangements for
personal equipment and business equipment. Loan terms, including interest rates,
loan to value ratios, and maturities, are tailored as much as possible to meet
the needs of the borrower. A special effort is made to keep loan products as
flexible as possible within the guidelines of prudent banking practices in terms
of interest rate risk and credit risk.
The primary factors taken into consideration by Indian River Bank when
considering loan requests are the cash flow and financial condition of the
borrower, the value of the underlying collateral, if any, and the character and
integrity of the borrower. These factors are evaluated in a number of ways
including an analysis of financial statements, credit reviews, trade reviews,
and visits to the borrower's place of business. The bank has implemented a
comprehensive loan policy and procedures manual to provide its loan officers
with term, collateral, loan-to-value and pricing guidelines. The policy manual
and sound credit analysis, together with thorough review by the Asset-Liability
Committee, have resulted in a profitable loan portfolio, with minimal
non-performing assets.
Loan business is generated primarily through referrals and direct-calling
efforts. Referrals of loan business come from directors, shareholders, current
customers and professionals such as lawyers, accountants and financial
intermediaries.
At March 31, 2000, Indian River Bank's statutory lending limit to any
single borrower was $3,096,000 subject to certain exceptions provided under
applicable law. As of March 31, 2000, Indian River Bank's credit exposure to its
largest borrower was $2,591,775.
31
<PAGE>
Commercial Loans. Commercial loans are written for any business purpose,
including the financing of plant and equipment, the carrying of accounts
receivable, contract administration, and the acquisition and construction of
real estate projects. Special attention is paid to the commercial real estate
market which is particularly stable and active in the Indian River and Brevard
County area. Indian River Bank's commercial loan portfolio reflects a diverse
group of borrowers with no concentration in any borrower, or group of borrowers.
As part of its internal loan review process, Indian River Bank's
Asset-Liability Committee, comprised of loan officers and staff, reviews all
loans 30-day delinquent, loans on the Watch List, loans rated special mention,
substandard, or doubtful, and other loans of concern at least quarterly. Loan
reviews are reported to the Audit and Examining Committee with any adversely
rated changes specifically mentioned. All other loans with their respective risk
ratings are reported monthly to Indian River Bank's Board of Directors. The
Audit and Examining Committee coordinates periodic documentation and internal
control reviews by outside vendors to complement loan reviews.
Residential Mortgage and Home Equity Loans. The strong local economy
provides for a large and active real estate market for the construction and sale
of new residential property and sale of existing housing. Indian River Bank
provides financing for the construction and acquisition of residential property
throughout its market area. Indian River Bank has availed itself of the services
of mortgage brokers and programs offered by the Federal Home Loan Bank of
Atlanta in an effort to offer as many long-term and low interest rate mortgage
products as possible. In addition, Indian River Bank has developed a competitive
home equity line of credit product for the use of its customers. This product
offers the customer the ability to use the line of credit flexibility features
to manage their own credit needs on an on-going basis. Indian River Bank sells
loans which it originates for the secondary market to private investors and
government sponsored associations.
Other Loans. Loans are considered for any worthwhile personal or business
purpose on a case-by-case basis, such as the financing of equipment,
receivables, contract administration expenses, land acquisition and development,
and automobile financing.
INVESTMENT ACTIVITIES
The investment policy of Indian River Bank is an integral part of its
overall asset/liability management program. The purpose of the investment policy
is to establish a portfolio which will provide liquidity necessary to facilitate
funding of loans and to cover deposit fluctuations while at the same time
achieving a satisfactory return on the funds invested. Indian River Bank seeks
to maximize earnings from its investment portfolio consistent with the safety
and liquidity of those investment assets.
The securities in which Indian River Bank may invest are subject to
regulation and, for the most part, are limited to securities which are
considered investment grade securities. In addition, Indian River Bank's
internal investment policy restricts investments to the following categories:
U.S. Treasury securities; obligations of U.S. government agencies, investment
grade obligations of U.S. private corporations, mortgage-backed securities,
including securities issued by Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation; and securities of states and political
subdivisions, all of which must be considered investment grade by a recognized
rating service. See Note 3 to the Consolidated Financial Statements for further
information about the investment portfolio.
BROKERAGE ACTIVITIES
Indian River Bank offers brokerage services through FiServe, a third party
vendor. Services provided by FiServe include a full line of investment products,
including the purchase and sale of mutual funds, annuities, stocks, options, and
corporate and government bonds.
The manager of brokerage services for Indian River Bank is a licensed
securities representative and is a dual employee of both FiServe and Indian
River Bank. In such capacity, he must comply with all applicable rules and
regulations of the FDIC, the SEC and the National Association of Securities
Dealers. Fees and commissions earned by the brokerage services department are
paid monthly by FiServe directly to Indian River Bank.
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The customer base of the brokerage department is made up of approximately
99% percent individuals, with the remainder consisting of investment clubs and
other accounts. As of March 31, 2000, there were approximately 530 open
brokerage accounts.
FINANCIAL HOLDING COMPANY ELECTION
Indian River anticipates that it will make an election to become a
"financial holding company" under the Gramm Leach Bliley Act and the regulations
promulgated under that act. As a Financial Holding Company, Indian River would
be able to engage in activities which law, regulation or order determines are
financial in nature, or which are incidental or complementary to those
activities. Indian River expects that it will explore engaging in insurance
agency and title insurance agency activities. As of the date of this prospectus
there are no definitive plans or agreements regarding Indian River's plans in
these activities or other activities which are financial in nature. We cannot be
sure that we will engage in these insurance activities or other financial
activities, or that we will be successful or profitable in these activities. See
"Supervision and Regulation" at page 35.
SOURCES OF FUNDS
Deposits. Deposits obtained through bank offices have traditionally been
the principal source of Indian River Bank's funds for use in lending and for
other general business purposes. At March 31, 2000 total deposits in the bank
amounted to $261.2 million. Certificates of deposit and savings deposits,
representing over 75% of the deposit base, are Indian River Bank's primary
source of deposit funds.
In order to better serve the needs of its customers, Indian River Bank
offers several types of deposit accounts in addition to standard savings,
checking, and NOW accounts. Special deposit accounts include low cost Personal
Checking and Small Business Checking. Personal checking requires no minimum
balance and may have no monthly fee, per check charge, or activity limit. Small
Business Checking allows a small business to pay a flat monthly service charge
of $15.00, and a $0.15 per check charge, offset by an earnings credit of $0.25
per $100.00 collected balance in the account during the period.
Borrowing. While Indian River has not traditionally placed significant
reliance on borrowings as a source of liquidity, it has established various
borrowing arrangements in order to provide management with additional sources of
liquidity and funding, thereby increasing flexibility. Management believes that
Indian River currently has adequate liquidity available to respond to current
liquidity demands. See "Management's Discussion and Analysis" at page 15 and
Note 9 to the Consolidated Financial Statements.
COMMUNITY REINVESTMENT ACT
Indian River Bank is committed to serving the banking needs of the entire
community, including low and moderate income areas, and is a supporter of the
Community Reinvestment Act. There are several ways in which Indian River Bank
attempts to fulfill this commitment, including working with economic development
agencies, undertaking special projects, and becoming involved with neighborhood
outreach programs.
Indian River Bank has contacts with state and city agencies that assist in
the financing of affordable housing developments as well as with groups which
promote the economic development of low and moderate income individuals. Indian
River Bank has computer software to geographically code all types of accounts to
track business development and performance by census tract and to assess market
penetration in low and moderate income neighborhoods within the primary service
area. Indian River Bank is a registered Small Business Administration lender.
Indian River encourages its directors and officers to participate in
community, civic and charitable organizations. Management and members of the
Board of Directors periodically review the various Community Reinvestment Act
activities of Indian River Bank, including the advertising program and geocoding
of real estate loans by census tract data which specifically focuses on low
income neighborhoods, its credit granting process with respect to business
prospects generated in these areas, and its involvement with community leaders
on a personal level.
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OFFICE PROPERTIES
The executive offices of Indian River and Indian River Bank, and the main
office of Indian River Bank are located at 958 20th Place, Vero Beach, Florida,
in a 12,000 square foot, two-story masonry building. Indian River owns the
building. Indian River owns the buildings which house Indian River Bank's Loan
Center and the South Sebastian Branch. The Loan Center is located at 929 21st
Street, Vero Beach in a 10,000 square foot masonry building. The Loan Center
site also houses a six lane drive through banking facility. The South Sebastian
branch is located at 816 US 1, Sebastian, Florida, in a 4,000 square foot brick
building, and has one drive through lane.
Indian River leases the properties housing its remaining branches and the
Operations Center. The Roseland Branch, located at 13600 US 1, Unit 14,
Sebastian, Florida, in a 2,600 square foot masonry building is leased under a
two year lease which terminates in February 2001, and has a current annual rent
of $35,387, subject to annual increase based on the consumer price index (the
"CPI"). The Plantation branch, located at 6600 20th Street, Vero Beach, Florida,
consists of 2,875 square feet in a masonry building and three drive through
lanes. The property is occupied under a ten year lease, terminating in 2002, at
a current annual rent of $36,078, subject to annual increase based on the CPI,
with a maximum increase of 5% annually. Indian River has four three year renewal
options. The Palm Bay branch, located at 5240 Babcock Street, NE, Palm Bay,
Florida, consists of 5,000 square feet in a masonry building and three drive
through lanes. The property is occupied under a three year lease, terminating in
October 2000, at a current annual rent of $68,237, subject to annual increase
based on the CPI, with a 5% maximum annual increase. Indian River has three
three year renewal options. The Gateway Office, located at 1421 Gateway Drive,
Melbourne, Florida, is a 2,500 square foot stand alone masonry building with
three drive through lanes. The property is occupied under a ten year lease,
terminating in 2009, at a current annual rent of $69,626, subject to annual
increase based on the CPI with an 8% maximum annual increase. Indian River has
two five year renewal options. The Operations Center, located at 3895 39th
Square, is occupied under two leases. The Operations Center consists of
approximately 10,300 square feet in a frame building. The aggregate current
annual rental is $82,862, subject to annual increase based on the CPI, with a 2%
minimum annual increase and a 5% maximum annual increase. The first lease,
covering approximately 8,300 square feet, expires in 2002 and is subject to two
five year renewal options. The second lease, covering 2,000 square feet is
leased under a one year lease, with a one year renewal option.
Management believes the existing facilities are for Indian River's business
as presently conducted.
LEGAL PROCEEDINGS
Indian River and Indian River Bank are involved from time to time in
routine legal proceedings occurring in the ordinary course of business. In the
opinion of management, the final disposition of these matters will not have a
material adverse effect on Indian River's financial condition or results of
operations.
COMPETITION
In attracting deposits and making loans, Indian River Bank encounters
competition from other institutions, including larger commercial banking
organizations, savings banks, credit unions, other financial institutions and
non-bank financial service companies serving Indian River and Brevard counties
and adjoining areas. Financial and non-financial institutions not located in the
market are also able to reach persons and entities based in the market through
mass marketing, the internet, telemarketing, and other means. The principal
methods of competition include the level of loan interest rates, interest rates
paid on deposits, efforts to obtain deposits, range of services provided and the
quality of these services. Our competitors include several major financial
companies whose substantially greater resources may afford them a marketplace
advantage by enabling them to maintain numerous banking locations and mount
extensive promotional and advertising campaigns. In light of the deregulation of
the financial service industry and the absence of interest rate controls on
deposits, we anticipate continuing competition from all of these institutions in
the future. Additionally, as a result of legislation which reduced restrictions
on interstate banking and widened the array of companies that may own banks,
Indian River Bank may face additional competition from institutions outside the
Florida market and outside the traditional range of bank holding companies which
may take advantage of such legislation to acquire or establish banks or branches
in Indian River Bank's market. There can be no assurance that we will be able to
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successfully meet these competitive challenges. See "Risk Factors" at page 3 and
"Supervision and Regulation" at page 35.
In addition to offering competitive rates for its banking products and
services, our strategy for meeting competition has been to concentrate on
specific segments of the market for financial services, particularly small
business and individuals, by offering such customers customized and personalized
banking services. Although there are other small banks offering personalized
banking services in Indian River Bank's primary service area, we believe that
Indian River Bank is one of few such banks offering flexible credit
accommodations to small businesses.
We believe that active participation in civic and community affairs is an
important factor in building our reputation and, thereby, attracting customers.
EMPLOYEES
As of March 31, 2000, Indian River Bank had 110 full-time and 3 part-time
employees. Indian River has no employees who are not also employees of Indian
River Bank. Such employees are not represented by any collective bargaining
unit, and we believe our employee relations are good. Indian River Bank
maintains a benefit program which includes health and dental insurance, life and
long-term disability insurance, and a 401(k) plan for substantially all
full-time employees.
SUPERVISION AND REGULATION
INDIAN RIVER
Indian River is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended, (the "Act") and is subject to supervision by
the Federal Reserve Board. As a bank holding company, Indian River is required
to file with the Federal Reserve Board an annual report and such other
additional information as the Federal Reserve Board may require pursuant to the
Act. The Federal Reserve Board may also make examinations of Indian River and
each of its subsidiaries.
The Act requires approval of the Federal Reserve Board for, among other
things, the acquisition by a bank holding company of control of more than five
percent (5%) of the voting shares, or substantially all the assets, of any bank
or the merger or consolidation by a bank holding company with another bank
holding company. The Act also generally permits the acquisition by a bank
holding company of control, or substantially all the assets, of any bank located
in a state other than the home state of the bank holding company, except where
the bank has not been in existence for the minimum period of time required by
state law, but if the bank is at least 5 years old, the Federal Reserve Board
may approve the acquisition.
Under current law, with certain limited exceptions, a bank holding company
is prohibited from acquiring control of any voting shares of any company which
is not a bank or bank holding company and from engaging directly or indirectly
in any activity other than banking or managing or controlling banks or
furnishing services to or performing service for its authorized subsidiaries. A
bank holding company may, however, engage in or acquire an interest in a company
that engages in activities which the Federal Reserve Board has determined by
order or regulation to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such a
determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the activities
that the Federal Reserve Board has determined by regulation to be closely
related to banking include making or servicing loans, performing certain data
processing services, acting as a fiduciary or investment or financial advisor,
and making investments in corporations or projects designed primarily to promote
community welfare.
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Effective on March 11, 2000, the Gramm Leach Bliley Act allows a bank
holding company or other company to certify status as a financial holding
company, which will allow a company to engage in activities that are financial
in nature, that are incidental to such activities, or are complementary to such
activities. The Gramm Leach Bliley Act enumerates certain activities that are
deemed financial in nature, such as underwriting insurance or acting as an
insurance principal, agent or broker, underwriting, dealing in or making markets
in securities, and engaging in merchant banking under certain restrictions. It
also authorizes the Federal Reserve Board to determine by regulation what other
activities are financial in nature or incidental or complementary thereto.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or investments in their
stock or other securities, and on the taking of their stock or securities as
collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit. A subsidiary bank may not extend
credit, lease or sell property, or furnish any services, or fix or vary the
consideration for any of the foregoing, on the condition that: (a) the customer
obtain or provide some additional credit, property or services from or to such
bank other than a loan, discount, deposit or trust service; (b) the customer
obtain or provide some additional credit, property or service from or to the
company or any other subsidiary of the company; or (c) the customer not obtain
some other credit, property or service from competitors, except for reasonable
requirements to assure the soundness of credit extended.
The Federal Reserve has also adopted capital guidelines for bank holding
companies that are substantially the same as the requirements applying to
national banks. See "Regulatory Capital Requirements" at page 13.
INDIAN RIVER BANK
Indian River Bank is a national banking association. Its deposit accounts
are insured by the Bank Insurance Fund of the FDIC up to the maximum legal
limits of the FDIC and it is subject to regulation, supervision and regular
examination by the Office of the Comptroller of the Currency and the FDIC. The
regulations of these various agencies govern most aspects of Indian River Bank's
business, including required reserves against deposits, loans, investments,
mergers and acquisitions, borrowings, dividends and location and number of
branch offices. The laws and regulations governing Indian River Bank generally
have been promulgated to protect depositors and the deposit insurance funds, and
not for the purpose of protecting stockholders.
Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in interstate
banking or acquisition activities. The Gramm Leach Bliley Act will allow a wider
array of companies to own banks, which could result in companies with resources
substantially in excess of Indian River's entering into competition with Indian
River and Indian River Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of Indian River Bank's earnings. Thus, the earnings and growth of
Indian River Bank will be subject to the influence of economic conditions in
general, both domestic and foreign, and also to the monetary and fiscal policies
of the United States and its agencies, particularly the Federal Reserve Board
which regulates the supply of money through various means including open market
dealings in United States government securities. The nature and timing of
changes in such policies and their impact on Indian River Bank cannot be
predicted.
Branching and Interstate Banking. The federal banking agencies are
authorized to approve interstate bank merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks has opted out of the interstate bank merger provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 by
adopting a law after the date of enactment of the Riegle-Neal Act and prior to
June 1, 1997 which applies equally to all out-of-state banks and expressly
prohibits merger transactions involving out-of-state banks. Interstate
acquisitions of branches are permitted only if the law of the state in which the
branch is located permits
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such acquisitions. Such interstate bank mergers and branch acquisitions are also
subject to the nationwide and statewide insured deposit concentration
limitations described in the Riegle-Neal Act.
The Riegle-Neal Act authorizes the federal banking agencies to approve
interstate branching de novo by national and state banks in states which
specifically allow for such branching. Florida has enacted laws which permit
interstate acquisitions of banks and bank branches and permit out-of-state banks
to establish de novo branches.
Capital Adequacy Guidelines. The Federal Reserve Board and the OCC have
adopted risk-based capital adequacy guidelines pursuant to which they assess the
adequacy of capital in examining and supervising banks and bank holding
companies and in analyzing bank regulatory applications. Risk-based capital
requirements determine the adequacy of capital based on the risk inherent in
various classes of assets and off-balance sheet items.
National banks are expected to meet a minimum ratio of total qualifying
capital, defined as the sum of core capital (Tier 1) and supplementary capital
(Tier 2), to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital.
Tier 1 Capital generally consists of the sum of common stockholders' equity
and perpetual preferred stock (subject in the case of the latter to limitations
on the kind and amount of such stock which may be included as Tier 1 Capital),
less goodwill, without adjustment for changes in the market value of securities
classified as "available for sale" in accordance with FAS 115. Tier 2 Capital
consists of the following: hybrid capital instruments; perpetual preferred stock
which is not otherwise eligible to be included as Tier 1 Capital; term
subordinated debt, intermediate-term preferred stock; and, subject to
limitations, general allowances for loan losses. Assets are adjusted under the
risk-based guidelines to take into account different risk characteristics, with
the categories ranging from 0%, requiring no risk-based capital, for assets such
as cash, to 100% for the bulk of assets which are typically held by a bank
holding company, including certain multi-family residential and commercial real
estate loans, commercial business loans and consumer loans. Residential first
mortgage loans on one to four family residential real estate and certain
seasoned multi-family residential real estate loans, which are not 90 days or
more past-due or non-performing and which have been made in accordance with
prudent underwriting standards are assigned a 50% level in the risk-weighing
system, as are certain privately-issued mortgage-backed securities representing
indirect ownership of such loans. Off-balance sheet items also are adjusted to
take into account certain risk characteristics.
In addition to the risk-based capital requirements, the OCC has established
a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets)
requirement for the most highly-rated banks, with an additional cushion of at
least 100 to 200 basis points for all other banks, which effectively increases
the minimum Leverage Capital Ratio for such other banks to 4.0% - 5.0% or more.
The highest-rated banks are those that are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and,
in general, those which are considered a strong banking organization. A bank
having less than the minimum Leverage Capital Ratio requirement shall, within 60
days of the date as of which it fails to comply with such requirement, submit a
reasonable plan describing the means and timing by which a bank shall achieve
its minimum Leverage Capital Ratio requirement. A bank which fails to file such
plan is deemed to be operating in an unsafe and unsound manner, and could
subject that bank to a cease-and-desist order. Any insured depository
institution with a Leverage Capital Ratio that is less than 2.0% is deemed to be
operating in an unsafe or unsound condition pursuant to Section 8(a) of the
Federal Deposit Insurance Act (the "FDIA") and is subject to potential
termination of deposit insurance. However, such an institution will not be
subject to an enforcement proceeding solely on account of its capital ratios, if
it has entered into and is in compliance with a written agreement to increase
its Leverage Capital Ratio and to take such other action as may be necessary for
the institution to be operated in a safe and sound manner. The capital
regulations also provide, among other things, for the issuance of a capital
directive, which is a final order issued to a bank that fails to maintain
minimum capital or to restore its capital to the minimum capital requirement
within a specified time period. A capital directive is enforceable in the same
manner as a final cease-and-desist order.
Prompt Corrective Action. Under Section 38 of the FDIA, each federal
banking agency is required to implement a system of prompt corrective action for
institutions which it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement the system of prompt corrective
action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) "well capitalized" if it has a Total Risk Based
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Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or
more, a Leverage Capital Ratio of 5.0% or more and is not subject to any written
capital order or directive; (ii) "adequately capitalized" if it has a Total Risk
Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based Capital Ratio of 4.0%
or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8.0%, a Tier 1 Risk based Capital Ratio that is less than 4.0% or a Leverage
Capital Ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio that
is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency within
45 days of the date the institution receives notice or is deemed to have notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.
An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. A guaranty is limited to the lesser of (i) an amount equal to 5.0%
of the institution's total assets at the time the institution was notified or
deemed to have notice that it was undercapitalized or (ii) the amount necessary
at such time to restore the relevant capital measures of the institution to the
levels required for the institution to be classified as adequately capitalized.
A guaranty expires after the federal banking agency notifies the institution
that it has remained adequately capitalized for each of four consecutive
calendar quarters. An institution which fails to submit a written capital
restoration plan within the requisite period, including any required performance
guaranty, or fails in any material respect to implement a capital restoration
plan, shall be subject to the restrictions in Section 38 of the FDIA which are
applicable to significantly undercapitalized institutions.
A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date it
becomes critically undercapitalized must be placed in receivership. The general
rule is that the FDIC will be appointed as receiver within 90 days after a bank
becomes critically undercapitalized unless extremely good cause is shown and an
extension is agreed to by the federal regulators. In general, good cause is
defined as capital which has been raised and is imminently available for
infusion into a bank except for certain technical requirements which may delay
the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA, which (i) restrict payment
of capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring
the institution to raise additional capital; restricting transactions with
affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver
may be appointed for an institution where: (i) an institution's obligations
exceed its assets; (ii) there is substantial dissipation of the institution's
assets or earnings as a result of any violation of law or any unsafe or unsound
practice; (iii) the institution is in an unsafe or unsound condition; (iv) there
is a willful violation of a cease-and-desist order; (v) the institution is
unable to pay its
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obligations in the ordinary course of business; (vi) losses or threatened losses
deplete all or substantially all of an institution's capital, and there is no
reasonable prospect of becoming "adequately capitalized" without assistance;
(vii) there is any violation of law or unsafe or unsound practice or condition
that is likely to cause insolvency or substantial dissipation of assets or
earnings, weaken the institution's condition, or otherwise seriously prejudice
the interests of depositors or the insurance fund; (viii) an institution ceases
to be insured; (ix) the institution is undercapitalized and has no reasonable
prospect that it will become adequately capitalized, fails to become adequately
capitalized when required to do so, or fails to submit or materially implement a
capital restoration plan; or (x) the institution is critically undercapitalized
or otherwise has substantially insufficient capital.
Regulatory Enforcement Authority. Federal banking law grants substantial
enforcement powers to federal banking regulators. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease-and-desist or removal orders and to initiate injunctive actions
against banking organizations and institution-affiliated parties. In general,
these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with regulatory authorities.
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SHARE OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of June 1, 2000
concerning the number and percentage of shares of the common stock beneficially
owned by the directors and executive officers of Indian River, and by Indian
River's directors and all executive officers as a group, as well as information
regarding each other person known by the Company to own in excess of 5% of the
outstanding common stock. Also shown are the number and percentage of shares
that will be owned by such persons after the offering, based upon their current
intentions to purchase shares in the offering, and assuming the sale of 300,000
shares in the offering. The purchase intentions of these people may change.
Except as otherwise indicated, all shares are owned directly, and the named
person possesses sole voting and sole investment power with respect to all such
shares. Except as set forth below, we are not aware of any other person or
persons who beneficially own in excess of five percent of the common stock.
Further, we are not aware of any arrangement which at a subsequent date may
result in a change of control of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OWNED BEFORE PERCENT OF OWNED AFTER PERCENT OF
NAME OFFERING(1) CLASS(1) OFFERING(1) CLASS(1)
--------------------------- ----------------------- ----------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Directors
Paul A. Beindorf 26,512(2) 1.90% 27,012 1.59%
William C. Graves, IV 30,698(3) 2.20% 34,698 2.05%
Robert A. Grice 78,000(4) 5.59% 80,000 4.72%
2601 20th Street, Suite B
Vero Beach, Florida 32960
Griffin A. Greene 16,006(5) 1.15% 18,006 1.06%
William A. High 24,408(6) 1.72% 26,408 1.54%
William B. Marine 12,496(7) 0.90% 14,496 0.86%
John L. Minton 39,630(8) 2.84% 46,630 2.75%
Keith H. Morgan, Jr. 22,700(9) 1.63% 24,700 1.46%
Daniel R. Richey 9,598(10) 0.69% 11,598 0.68%
Mary M. Rogers 76,406(11) 5.48% 78,406 4.63%
200 Coconut Palm Road
Vero Beach, Florida 32963
John David Smith 23,682(12) 1.70% 24,682 1.46%
Executive Officers
Charles A. Bradley 5,610(13) 0.40% 6,110 0.36%
Kevin D. Evans 5,150(14) 0.37% 5,350 0.32%
Daniel C. Fourmont 16,394(15) 1.17% 16,494 0.97%
Jeffrey R. Morton 5,188(16) 0.37% 5,288 0.31%
Kitty L. Ruehman 13,278(17) 0.95% 13,378 0.79%
Diana L. Walker 4,152(18) 0.30% 4,652 0.27%
All directors and
executive officers as a
group (17 persons) 409,908(19) 28.27% 437,908 25.03%
Other 5% Shareholders
Barnette E. Greene, Jr. 128,106(20) 9.19% 140,106 8.27%
2075 38th Avenue
Vero Beach, Florida 32960
</TABLE>
(1) For purposes hereof, a person is deemed to be the beneficial owner of
securities with respect to which he has or shares voting or investment power.
Except as otherwise indicated, the named beneficial owner has sole voting and
investment power with respect to all shares beneficially
(Footnotes continued on following page)
40
<PAGE>
(Footnotes continued from prior page )
owned by such person. The percentage of shares owned before the offering is
based on 1,393,730 shares outstanding as of June 1, 2000, except with respect to
individuals holding options to acquire common stock exercisable within sixty
days of June 1, 2000, in which event represents percentage of shares issued and
outstanding as of June 1, 2000 plus the number of such options or warrants held
by such person, and all directors and officers as a group, which represents
percentage of shares outstanding as of June 1, 2000 plus the number of such
options or warrants held by all such persons as a group. The percentage of
shares owned after the offering is based upon the sale of 300,000 shares in the
offering.
(2) Includes 2,928 shares held jointly with Mr. Beindorf's wife, 7,540 shares
held by Mr. Beindorf's wife and presently exercisable options to purchase 3,332
shares of common stock.
(3) Includes 19,386 shares held jointly with Mr. Graves' wife, 5,182 shares of
common stock owned by Mr. Graves' wife individually, as to which he disclaims
beneficial ownership and presently exercisable options to purchase 660 shares of
common stock.
(4) Includes presently exercisable options to purchase 660 shares of common
stock and 76,098 owned jointly with Mr. Grice's wife.
(5) Includes 10,650 shares held jointly with Mr. Greene's wife and presently
exercisable options to purchase 660 shares of common stock. Does not include
21,380 shares of common stock owned by a corporation of which Mr. Greene is Vice
President and a minority shareholder, and of which Mr. Greene's father is
President and principal shareholder. Mr. Greene is the son of Barnette E.
Greene, Jr., a director emeritus. Mr. Green was appointed to the Board to
replace his father upon his retirement from active service on the Board.
(6) Includes presently exercisable options to purchase 24,044 shares of common
stock.
(7) Includes 420 shares held jointly with Mr. Marine's wife, 1,092 shares held
by Mr. Marine's wife individually and presently exercisable options to purchase
660 shares of common stock.
(8) Includes 11,670 shares held jointly with Mr. Minton's wife and an aggregate
of 12,954 shares held by Mr. Minton's wife and children individually, and
presently exercisable options to purchase 1,540 shares of common stock.
(9) Includes presently exercisable options to purchase 660 shares of common
stock.
(10) Includes 6,208 shares held jointly with Mr. Richey's wife, 2,730 shares
held by a corporation of which Mr. Richey is president and presently exercisable
options to purchase 660 shares of common stock.
(11) Includes 46,404 shares held jointly with Mrs. Rogers' husband, 3,354 shares
held by Mrs. Rogers' husband individually, 7,684 shares held by Mrs. Rogers'
husband as trustee for third parties, presently exercisable options to purchase
660 shares of common stock and 8,694 shares held by Mrs. Rogers as trustee for a
third party.
(12) Includes 1,132 shares held jointly with Mr. Smith's sister, 704 shares held
as trustee for his children and presently exercisable options to purchase 660
shares of common stock.
(13) Represents presently exercisable options to purchase common stock.
(14) Includes 1,066 shares held by Mr. Evan's wife, and presently exercisable
options to purchase 4,084 shares of common stock.
(15) Includes 7,012 shares held jointly with Mr. Fourmont's wife and 3,752
shares owned by Mrs. Fourmont and presently exercisable options to purchase
2,050 shares of common stock.
(16) Includes 484 shares owned jointly with Mr. Morton's wife and presently
exercisable options to purchase 4,704 shares of common stock.
(17) Includes 11,334 shares held jointly with Mrs. Ruehman's husband and
daughter and presently exercisable options to purchase 1,944 shares of common
stock.
(18) Includes 68 shares owned jointly with Mrs. Walker's husband, and presently
exercisable options to purchase 4,084 shares of common stock
(19) Includes presently exercisable options to purchase an aggregate of 56,042
shares of common stock.
(20) Includes 52,676 shares held by Mr. Greene's wife and 21,380 shares of
common stock held by a corporation of which Mr. Greene is the principal
shareholder. Mr. Greene is a director emeritus, and is the father of Griffin A.
Greene, a director of Indian River. As a director emeritus, Mr. Green is
entitled to attend Board meetings.
41
<PAGE>
MANAGEMENT
The following table sets forth the name, age at March 31, 2000, and
principal position with Indian River and Indian River Bank of each person who is
currently a director or executive officer of Indian River. Indian River's Board
of Directors currently consists of eleven (11) members, divided into three
classes. Members of one class are elected at each annual meeting for a three
year term. The year in which each director will stand for reelection is also
provided below. Each director of Indian River is also a director of Indian River
Bank.
<TABLE>
<CAPTION>
Name Age Position Term Ends
----------------------- ----------- ---------------------------------------- ------------------
<S> <C> <C> <C>
DIRECTORS
2002
Paul A. Beindorf 43 Vice President Indian River, Executive
Vice President Indian River Bank,
Director
William C. Graves, IV 44 Director 2003
Griffin A. Greene 41 Director 2001
Robert A. Grice 58 Director 2002
William A. High 51 President and Chief Executive Officer 2003
Indian River and Indian River Bank,
Director
William B. Marine 43 Director 2001
Chairman of the Board of Directors 2002
John L. Minton 48 Indian River and Indian River Bank
Keith H. Morgan, Jr. 60 Director 2001
Daniel R. Richey 41 Director 2003
Mary M. Rogers 58 Vice Chairman of the Board of Directors 2001
John David Smith 51 Director 2002
EXECUTIVE OFFICERS
Charles A. Bradley 38 Senior Vice President, Chief Financial
Officer Indian River Bank; Treasurer
- Indian River
Vice President - Marketing, Indian
Kevin D. Evans 34 River Bank
Daniel C. Fourmont 48 Senior Vice President, - Consumer
Lending, Indian River Bank
Diana L. Walker 47 Vice President - Compliance, Indian
River Bank
</TABLE>
Set forth below is certain additional information regarding each director
and executive officer of Indian River and Indian River Bank. Except as otherwise
stated, the principal occupation indicated has been the person's principal
occupation for at least the last five years.
Paul A. Beindorf. Mr. Beindorf has been Executive Vice President-Lending,
of Indian River Bank since 1996. Prior to that time Mr. Beindorf served in
various positions at Indian River Bank since joining Indian River Bank in 1985.
Mr. Beindorf has been a member of the Board of Directors since 1996, and a Vice
President of Indian River since 1996.
William C. Graves, IV. Mr. Graves, a director since 1990, has been involved
in all aspects of the citrus industry since 1977. Mr. Graves is a grower,
individually and as President and co-owner of Tetley Groves, Inc. and
42
<PAGE>
Graves and Son, Inc. He is involved in the real estate industry as President and
co-owner of Citrus Investment Realty, Inc. and in the fruit marketing and farm
equipment businesses.
Griffin A. Greene. Mr. Greene, a director since 1999, has been involved in
the citrus industry since 1982, as President and co-owner of Greene Citrus
Management, Inc. and as officer of its affiliated growing, marketing and
distribution companies. Mr. Greene is a member of the Board of Directors of the
Indian River Citrus League, and from 1997 to 1999 served on the St. John Water
Management Board. Mr. Greene is the son of Barnette E. Greene, Jr., director
emeritus.
Robert A. Grice. Mr. Grice, a director of Indian River Bank since 1985 and
Indian River since its organization, is president of Bob Grice Insurance Agency,
Inc., a general lines insurance agency in Vero Beach, Florida. Mr. Grice is also
a citrus grower.
William A. High. Mr. High has been President and Chief Executive Officer of
Indian River and Indian River Bank since June 1999. Prior to joining Indian
River, Mr. High was Regional President of Bank One, N.A., a $6.2 billion
subsidiary of Bank One Corporation, from 1989 to 1999. Mr. High has over 25
years of experience in the banking industry. Mr. High served as a director of
the Kent State University Foundation from 1995 to 1999, and as an adjunct
faculty member at Kent State University from 1989 to 1999. He is a director of
Lauren International, Inc.
William B. Marine. Mr. Marine, a director since 1990, has been co-owner of
Citrus Source, Inc., a licensed citrus fruit dealer, since 1992. Mr. Marine also
owned The Davis House Inn from 1992 to 1998, and Island Hopper Boats, a charter
and pleasure boat manufacturer from 1996 to 1999. Mr. Marine is also active in
real estate development in the Indian River County area.
John L. Minton. Mr. Minton, Chairman of the Board of Directors since 1996,
has been a director of Indian River Bank since 1985 and of Indian River since
its organization. Mr. Minton has been President and Chief Executive Officer of
Triple M Investment Company since 1996, and has been employed by that company
since 1979. Triple M is a family investment company that controls and operates a
number of companies involved in the citrus growing, marketing, packing and real
estate businesses.
Keith H. Morgan, Jr. Mr. Morgan has been a director of Indian River since
1997, and previously served as a director of Indian River Bank from 1985 to
1987. Mr. Morgan has been a partner of Morgan, Jacoby, Thurn & Associates, P.A.,
a certified public accounting firm in Vero Beach, Florida, since July 1997. From
1984 to July 1997, Mr. Morgan was a partner of KPMG Peat Marwick, a national
certified public accounting firm.
Daniel L. Richey. Mr. Richey, a director of Indian River since 1996, has
been involved in the citrus industry since 1981. He currently serves as
President of Riverfront Groves, Riverfront Gift Fruit Shippers and Gulfstream
Harvesting, Inc. Mr. Richey has served as an officer and director of the Florida
Citrus Packers Association at various times since 1985, and of the Indian River
Citrus League since 1992. He has served as a member of the advisory board of the
citrus division of Ocean Spray since 1989.
Mary M. Rogers. Mrs. Rogers, Vice Chairman of the Board of Directors since
1996, has been a director of Indian River Bank and Indian River since their
organization. Mrs. Rogers has been involved in the citrus industry, and has
served as Vice Chairman and Secretary of The Packers of Indian River, Inc.,
since 1989.
John David Smith. Mr. Smith, a director of Indian River since 1996, has
been a partner of Smith, Todd, McEntee & Company, LLP, a certified public
accounting firm in Vero Beach, Florida, since 1988.
Charles A. Bradley. Mr. Bradley has been Senior Vice President - Chief
Financial Officer of Indian River National Bank since June 1999. Prior to
joining Indian River Bank, Mr. Bradley served as Chief Financial Officer of
First Federal Savings Bank of Dover, a $110 million federal savings bank in
Dover, Ohio, from 1997, as Chief Financial Officer of Bank One Dover, N.A., from
1995 to 1997, and as Vice President - Finance of Bank One Dover from 1991 to
1995. Prior to that time he served in various capacities with Bank One Akron,
N.A. from 1984.
43
<PAGE>
Kevin D. Evans. Mr. Evans has been Vice President - Marketing of Indian
River Bank since 1996, and has been with Indian River Bank in various capacities
since 1992.
Daniel C. Fourmont. Mr. Fourmont, Senior Vice President - Consumer Lending
of Indian River Bank since 1995 and Retail Branch Coordinator since 1997, has
been a loan officer with Indian River Bank since 1985. Prior to joining Indian
River Bank, Mr. Fourmont served in various capacities at Florida National Bank,
Vero Beach, Florida from 1979 to 1985.
Jeffrey R. Morton. Mr. Morton became Senior Vice President - Residential
Lending in October 1999, having served as Vice President - Residential Lending
since May 1997. Prior to joining Indian River Bank, Mr. Morton was Vice
President - Residential Lending at Port St. Lucie National Bank from 1995 to
1997, and at various times from 1990 to 1994 served as Vice President -
Residential Lending at various financial institutions, including SunTrust Bank.
Kitty L. Ruehman. Mrs. Ruehman, Senior Vice President - Human Resources of
Indian River Bank, has been with Indian River since 1986. Prior to joining
Indian River Bank, Ms. Ruehman served in various capacities at First Florida
Bank from 1984 to 1986, Flagship Bank of Indian River County from 1981 to 1983
and Flagship Bank of Brevard County from 1976 to 1981.
Diana L. Walker. Mrs. Walker has been Vice President - Compliance, Audit
and Security of Indian River Bank since 1994. Prior to joining Indian River
Bank, Ms. Walker served as Senior Vice President - Internal Control, Security
and Compliance with Sun Bank of the Treasure Coast from 1984 to 1994, and from
1974 to 1984 was a Compliance Specialist Bank Examiner for the FDIC.
DIRECTOR COMPENSATION
During the fiscal year ended December 31, 1999, the directors received an
aggregate of $265,556 for attendance at Board and committee meetings. All
directors other than the Chairman were entitled to receive $1,000 for attendance
at each Board meeting and $200 for each committee meeting. The Chairman was
entitled to receive $1,500 for attendance at each Board meeting and $200 for
each committee meeting.
In December 1999, the Board of Directors adopted the Director Fee Stock
Option Plan, pursuant to which each director who is not an employee of Indian
River or Indian River Bank is entitled to elect to receive options to purchase
660 shares of common stock for 2000, as adjusted to reflect the 10% stock
dividend paid in January 2000 and the two for one stock split paid in March
2000, in lieu of cash compensation for attendance at committee meetings. This is
subject to further adjustment for subsequent stock dividends, splits and similar
events. Each of the nonemployee directors has elected to receive options in lieu
of committee fees. The options have an exercise price equal to the fair market
value of the common stock at the time of grant, are immediately exercisable and
are of limited transferability. The payment of cash compensation for attendance
at Board meetings was terminated in 2000.
44
<PAGE>
EXECUTIVE OFFICER COMPENSATION AND CERTAIN TRANSACTIONS
COMPENSATION - OVERVIEW
The following table sets forth a comprehensive overview of the compensation
for Mr. High, Indian River's and Indian River Bank's Chief Executive Officer,
and Mr. Beindorf, Indian River's Vice President and Indian River Bank's
Executive Vice President, during the 1999, 1998 and 1997 fiscal years. No other
executive officer of Indian River received total salary and bonus of $100,000 or
more during the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Options Compensation($)
--------------------------- ----------- ------------ ------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
William A. High,
Director, President 1999(1) $87,500 $6,750 51,856(2) $14,400(3)
and Chief Executive
Officer Indian River
and Indian River Bank
Paul A. Beindorf, Vice 1999 $97,500 $9,506 15,400(2) $17,733(4)
President Indian
River and Executive 1998 $86,100 $14,902 0 $22,279(5)
Vice President
Indian River Bank 1997 $82,000 $23,563 1331(6) $16,359(7)
Charles A. Lavin, 1999 $67,500 $3,375 0 $248,790(9)
Director, President
and Chief Executive 1998 $130,000 $21,950 0 $18,381(10)
Officer, Indian River
and Indian River 1997 $120,000 $27,186 0 $20,677(11)
Bank(8)
</TABLE>
(1) Mr. High joined Indian River in June 1999.
(2) As adjusted to reflect the 10% stock dividend paid in January 2000 and the
two for one stock split paid in March 2000. Mr. High's options vest over a
period of seven years with approximately 40% vesting in year one and 10% vesting
in each subsequent year. Mr. Beindorf's options vest in equal installments over
a seven year period.
(3) Represents directors fees of $7,000 and club membership fees. Does not
include $43,343 of relocation expense reimbursement.
(4) Represents directors fees of $12,350 and club membership fees.
(5) Represents directors fees of $18,900 and club membership fees.
(6) As adjusted to reflect the 10% stock dividends paid in January 2000, 1999
and 1998 and the two for one stock split paid in March 2000.
(7) Represents directors fees of $14,200 and club membership fees.
(8) Mr. Lavin was an officer and director of Indian River through May 1999.
(9) Includes $225,000 payable to Mr. Lavin in respect of his noncompetition
agreement. Mr. Lavin is entitled to receive additional payments of $75,000 in
2000, $75,000 in 2001 and $31,250 in 2002 in respect of his noncompetition
agreement.
(10) Represents directors fees of $16,200 and automobile allowance.
(11) Represents directors fees of $14,200 and automobile allowance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options Granted to Exercise
Underlying Options Employees in Fiscal Price Per Expiration
Name Granted Year Share Date
--------------------- ------------------------ ---------------------- -------------- ---------------
<S> <C> <C> <C> <C>
William A. High 51,856(1)(2) 48.63% $19.09(1) October 2009
Paul A. Beindorf 15,400(1)(3) 14.44% $19.09(1) October 2009
Charles A. Lavin 0 0 N/A N/A
---------------------
</TABLE>
(1) Adjusted to reflect 10% stock dividend paid in January 2000 and two for one
stock split paid in March 2000.
(2) 18,858 of such options are currently vested. The remainder of the grant
vests in equal installments over a period of six years.
(3) 2,200 of such options are currently vested. The remainder of the grant vests
in equal installments over a period of six years.
45
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at December 31, In-The-Money Options
Acquired on Value 1999 at December 31, 1999
Name Exercise Realized Exercisable/Unexercisable(1) Exercisable/Unexercisable(2)
--------------------- ---------------- -------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C>
William A. High 0 $0 18,858/32,998 $111,450/$195,018
Paul A. Beindorf 0 $0 2,200/13,200 $13,002/$78,012
Charles A. Lavin 0 0 N/A N/A
---------------------
</TABLE>
(1) Adjusted to reflect 10% stock dividend paid in January 2000 and two for one
stock dividend paid in March 2000.
(2) Based on the offering price of $25 per share.
EMPLOYEE BENEFIT PLANS
Indian River Bank provides all officers and full-time employees with group
life and medical and dental insurance coverage.
401(k) Plan. Indian River Bank has a defined contribution 401(k) retirement
plan which covers employees that meet certain age and length of service
requirements. Under this plan, the Bank will annually contribute a discretionary
amount as approved by the Board of Directors. For the years ended December 31,
1999 and 1998, Indian River Bank's contribution amounted to $59,814 and $62,851,
respectively.
Stock Option Plans. Under Indian River's 1995 Incentive Stock Option Plan
approved by stockholders in 1995 ("1995 Option Plan"), 112,735 shares of common
stock (as adjusted) were available for issuance under options granted between
1995 and 1998. The 1995 Option Plan was designed to enable the Bank to attract
and retain qualified personnel and to reward outstanding performance. Eligible
employees ("Participants") are those employees, including officers, who at the
time options are granted, serve in managerial positions or are deemed to be "key
employees" by the Board of Directors. The Board of Directors administered the
1995 Option Plan. No further grants may be made under the 1995 Option Plan. As
of December 31, 1999, there were an aggregate of 41,157 options to purchase
shares of common stock outstanding under the 1995 Option Plan, at exercise
prices ranging from $15.91 to $19.09 per share (as adjusted). Options
outstanding under the 1995 Option Plan will expire no later than 2003.
At the 2000 Annual Meeting, the shareholders approved a new option plan
(the "1999 Option Plan") pursuant to which 275,000 shares of common stock are
available for issuance under options granted between October 1999 and October
2009. Options under the 1999 Option Plan may be either incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or options that are not ISOs ("Non-ISOs"). The purpose of
the 1999 Option Plan is to advance the interests of the Bank through providing
selected key employees of the Bank with the opportunity to acquire shares of
common stock. By encouraging such stock ownership, the Bank seeks to attract,
retain and motivate the best available personnel for positions of substantial
responsibility and to provide additional incentive to key employees and
directors of the Bank to promote the success of the business, as measured by the
value of its shares, and to increase the commonality of interests among key
employees and other stockholders. The 1999 Option Plan is administered by the
Board of Directors.
A participant may, under the 1999 Option Plan, receive additional options
notwithstanding the earlier grant of options and regardless of their having been
exercised, expired, or surrendered. Participants owning more than 10% of the
voting power of all classes of the Bank's voting securities, and of its parent
or subsidiary companies, if any, may not receive additional options unless the
option exercise price is at least 110% of the fair market value of the common
stock and unless the option expires on the fifth anniversary of the date of its
grant. All other options granted under the 1999 Option Plan must have an
exercise price at least equal to the fair market value of the common stock as of
the time of grant, and may expire no later than the tenth anniversary of the
date of their grant.
46
<PAGE>
Option exercise prices are determined by the Board on the date the subject
options are granted. In the event of any merger, consolidation,
recapitalization, reorganization, reclassification, stock dividend, stock split,
combination or subdivision of shares, or similar event in which the number or
kind of shares is changed without receipt or payment of consideration by the
Bank, the Board will adjust both the number and kind of shares of stock as to
which Options may be awarded under the 1999 Option Plan, the affected terms,
including exercise price of all outstanding Options and the aggregate number of
shares of Common Stock remaining available for grant under the 1999 Option Plan.
Options may be exercised in whole or in part and are not transferable except
upon the death of the participant. Any unexercised options then existing may be
exercised by the transferee under the terms of such options.
In the absence of Board action to the contrary: (A) an otherwise unexpired
ISO, or a Non-ISO granted to an employee, shall cease to be exercisable upon (1)
an employee's termination of employment for "just cause", as defined in the 1999
Option Plan, (2) the date three months after an employee terminates service for
a reason other than just cause, death, or disability, or (3) the date one year
after an employee terminates service due to disability, or two years after
termination of such service due to his death; (B) an unexpired Non-ISO granted
to a non-employee director shall be exercisable at any time, but not later than
the date on which the Non-ISO would otherwise expire. Notwithstanding the
provisions of any Option which provides for its exercise in installments as
designated by the Board, such Option shall become immediately exercisable upon
the optionee's death or permanent and total disability. Notwithstanding the
provisions of any award which provide for its exercise or vesting in
installments, on the date of such change in control, all Options issued under
the 1999 Option Plan shall be immediately exercisable and fully vested.
For purposes of the 1999 Option Plan, "change in control" means any one of
the following events: (1) the acquisition of ownership of, holding or power to
vote more than 51% of Indian River's voting stock; (2) the acquisition of the
power to control the election of a majority of Indian River's directors; (3) the
exercise of a controlling influence over the management or policies of Indian
River by any person or by persons acting as a group within the meaning of
Section 13(d) of the Exchange Act; or (4) the failure during any period of two
consecutive years, of individuals who at the beginning of such period constitute
the Board of Directors of Indian River (the "Continuing Directors") for any
reason to constitute at least two-thirds thereof, provided that any individual
whose election or nomination for election as a member of the Board was approved
by a vote of at least two-thirds of the Continuing Directors then in office
shall be considered a Continuing Director. For purposes of defining "change in
control," the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed. The decision of the Board as to whether a change in control
has occurred shall be conclusive and binding.
As of March 31, 2000, Indian River had options for the purchase of 149,973
shares of common stock issued and outstanding under the 1995 and 1999 Option
Plans. As of the date hereof, 162,204 options to acquire shares of common stock
remain available for issuance under the 1999 Option Plan.
Employment Agreements. In October 1999, Indian River and Indian River Bank
entered into an employment agreement with Mr. High pursuant to which Mr. High
serves as President of each institution. Mr. High's agreement has an initial
term of three years, and is subject to automatic one-year extensions of such
term on each January 30, provided that neither Indian River nor Mr. High has
given written notice of intention not to renew at least 60 days prior to the
renewal date. The agreement provides for the payment of cash and other benefits
to Mr. High, including a fixed salary, reviewed annually and subject to increase
or decrease at the Board of Directors' discretion, provided that the salary may
not be less than $150,000, and further provided that in the absence of any
action with respect to his salary rate, Mr. High is entitled to receive an
automatic annual salary increase based upon the consumer price index, up to a
maximum of 5% per year. Mr. High is entitled to participate in bonus and fringe
benefit, incentive compensation, life insurance, medical, profit sharing and
retirement plans, and is entitled to reimbursement of reasonable business
expenses. With minor exceptions, the agreement terminates, and there are no
additional payments due under it, upon termination based upon death, retirement,
or just cause (as defined) by Indian River, or upon voluntary termination by Mr.
High without good reason (as defined). If Indian River terminates Mr. High
without just cause, or if Mr. High terminates the agreement with good reason,
Mr. High is entitled to salary and bonuses for the remaining term of the
agreement, payable in a lump sum based upon prior year compensation levels. The
agreement prohibits conflicts of interest, and requires that Mr. High maintain
the confidentiality of nonpublic information regarding Indian River and its
customers. Mr. High is bound by a
47
<PAGE>
covenant not to compete and not to interfere with other employees of Indian
River following a termination for just cause, disability, or retirement or if he
resigns without good reason.
In the event of a change-in-control of Indian River, Mr. High would be
entitled to payment of certain benefits. If within six months prior to, or two
years after, a change-in-control, Indian River terminates Mr. High's employment
without good cause, or Mr. High voluntarily terminates employment for good
reason, then Indian River, or its successor, is required to make a lump-sum cash
payment to the Executive equal to two times the sum of his annual salary at the
highest rate in effect during the preceding twelve months and bonuses for the
preceding calendar year. Mr. High would also be entitled to continued
participation in certain Indian River health and welfare plans for two years.
These payments and benefits, are limited, however, so as not to exceed the
amount allowable as a deduction under Section 280G of the Internal Revenue Code.
If the lump-sum payment were required to be made to Mr. High as of June 15,
2000, he would be entitled to receive $337,000.
In December 1999, Indian River and Indian River Bank entered into a
substantially identical employment agreement with Mr. Bradley, pursuant to which
Mr. Bradley serves as Chief Financial Officer of each institution. Under his
agreement, Mr. Bradley is entitled to a fixed salary of $82,000, subject to
annual review and increase but not decrease, provided that in the absence of any
action with respect to his salary rate, Mr. Bradley is entitled to receive an
automatic annual salary increase based upon the consumer price index, up to a
maximum of 5% per year. If the lump-sum payment were required to be made to Mr.
Bradley as of June 15, 2000, he would be entitled to receive $170,600.
Transactions with Management and Others. Some of the directors of Indian
River and its subsidiary, or companies with which they are associated, and some
of the executive officers of Indian River and Indian River Bank, were customers
of, and had banking transactions with, Indian River Bank during the fiscal year
ended December 31, 1999. All loans and commitments to make loans to such persons
by Indian River Bank were made in the normal course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated persons; and in the opinion
of management, did not and do not involve more than a normal risk of
collectibility or present other unfavorable features. The aggregate amount
outstanding on such loans at December 31, 1999 was $5,358,249. None of these
loans has ever been adversely classified, and all of such loans are current as
to the payment of interest and principal.
SHARES ELIGIBLE FOR FUTURE SALE
All shares sold in this offering will be freely tradable without
restriction or registration under the Securities Act of 1933, except for any
shares purchased by an "affiliate" of Indian River, which will be subject to the
resale limitations set forth in Securities and Exchange Commission Rule 144.
All of Indian River's directors are considered "affiliates" within the
meaning of Rule 144 and will, therefore, be subject to the applicable resale
limitations with respect to the shares purchased in this offering. In general,
the number of shares that can be sold by each director in brokers' transactions,
(as that term is used in Rule 144) within any three month period may not exceed
the greater of (i) one percent (1%) of the outstanding shares as shown by the
most recent report or statement published by the Company, or (ii) the average
weekly reported volume of trading in the shares on all national securities
exchanges and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the sale.
Shares purchased by an affiliate may also be sold in a registered offering.
Indian River has no agreements or understandings obligating it to prepare a
registration statement for the sale of shares owned by any affiliate.
DESCRIPTION OF CAPITAL STOCK
Indian River's authorized capital consists of 10,000,000 shares of common
stock, $1.00 par value, and 500,000 shares of undesignated preferred stock. As
of March 31, 2000, there were 1,393,730 shares of common stock outstanding and
no shares of preferred stock outstanding.
48
<PAGE>
Common Stock. Holders of common stock are entitled to cast one vote for
each share held of record, to receive such dividends as may be declared by the
Board of Directors out of legally available funds, and, subject to the rights of
any class of stock having preference to the common stock, to share ratably in
any distribution of Indian River's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Shareholders do not
have cumulative voting rights or preemptive rights or other rights to subscribe
for additional shares, and the common stock is not subject to conversion or
redemption. The shares of common stock to be issued in this offering will be,
when issued, fully paid and non-assessable.
Preferred Stock. The Indian River Board may, from time to time, by action
of a majority of the Board of Directors, issue shares of the authorized,
undesignated preferred stock, in one or more classes or series. In connection
with any such issuance, the Board may by resolution determine the designation,
voting rights, preferences as to dividends, in liquidation or otherwise,
participation, redemption, sinking fund, conversion, dividend or other special
rights or powers, and the limitations, qualifications and restrictions of such
shares of preferred stock. As of the date hereof, no shares of preferred stock
are outstanding.
The existence of shares of authorized undesignated preferred stock will
enable Indian River to meet possible contingencies or opportunities in which the
issuance of shares of preferred stock may be advisable, such as in the case of
acquisition or financing transactions. Having shares of preferred stock
available for issuance would give Indian River flexibility in that it would be
able to avoid the expense and delay of calling a meeting of shareholders at the
time the contingency or opportunity arises. Any issuance of preferred stock with
voting rights or which is convertible into voting shares could adversely affect
the voting power of the holders of common stock.
The existence of authorized shares of preferred stock could have the effect
of rendering more difficult or discouraging hostile takeover attempts or of
facilitating a negotiated acquisition of Indian River. Such shares, which may be
convertible into shares of common stock, could be issued to shareholders or to a
third party in an attempt to frustrate or render more expensive a hostile
acquisition of Indian River.
Limitations on Payment of Dividends. The payment of dividends by Indian
River will depend largely upon the ability of Indian River Bank to declare and
pay dividends to Indian River, as the principal source of Indian River's revenue
will be from dividends paid by Indian River Bank. Dividends will depend
primarily upon the Bank's earnings, financial condition, and need for funds, as
well as governmental policies and regulations applicable to Indian River and
Indian River Bank. Even if Indian River Bank and Indian River have earnings in
an amount sufficient to pay dividends, the Board of Directors may determine to
retain earnings for the purpose of funding the growth of Indian River Bank and
Indian River.
Regulations of the Office of the Comptroller of the Currency place limits
on the amount of dividends Indian River Bank may pay to Indian River without
prior approval. Prior regulatory approval is required to pay dividends which
exceed Indian River Bank's net profits for the current year plus its retained
net profits for the preceding two calendar years, less required transfers to
surplus. Federal bank regulatory agencies also have authority to prohibit a bank
from paying dividends if such payment is deemed to be an unsafe or unsound
practice, and the Federal Reserve Board has the same authority over bank holding
companies.
The Federal Reserve Board has established guidelines with respect to the
maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that Indian River may pay in the future. In 1985, the Federal Reserve Board
issued a policy statement on the payment of cash dividends by bank holding
companies. In the statement, the Federal Reserve Board expressed its view that a
holding company experiencing earnings weaknesses should not pay cash dividends
exceeding its net income, or which could only be funded in ways that weaken the
holding company's financial health, such as by borrowing. As a depository
institution, the deposits of which are insured by the FDIC, the Bank may not pay
dividends or distribute any of its capital assets while it remains in default on
any assessment due the FDIC. See "Market for Common Stock and Dividends" at page
13.
49
<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND FLORIDA LAW
Set forth below are descriptions of certain other provisions of Indian
River's Articles of Incorporation and of the Florida Business Corporation Act
(the "FBCA") which affect Indian River and the holders of common stock. The
discussion of the following provisions is not exhaustive, and is not intended to
imply that all material provisions of either the Articles of Incorporation or
the FBCA are enumerated herein.
Removal of Directors. Indian River's Articles of Incorporation provide that
directors may be removed at any time, but only for cause and upon the vote of
the holders of 75% or more of the total number of votes entitled to be cast by
holders of all outstanding shares of capital stock entitled to vote generally in
the election of directors, voting as a single class, except that where the
holders of any class or series of stock entitled to elect one or more directors
voting separately as a class, such director or directors may be removed for
cause or upon the vote of the holders of 75% of the total number of votes
authorized to be cast by holders of that class or series. The provision
regarding the removal of directors may be amended only upon the vote of holders
of 75% of all votes entitled to be cast in the election of directors, voting as
a single class.
Special Meetings. Special meetings of the shareholders of Indian River may
be called by the Chairman of the Board, the President, or upon the request of
two or more directors. Upon receipt of the written request of the holders of 25%
of the votes entitled to be cast at such a meeting, the Board of Directors shall
call a meeting of shareholders. The Bylaws do not provide when a meeting
requested by shareholders must be held. Florida law provides, however, that a
shareholder may petition a court to order such a meeting to be held if a notice
for the meeting is not issued within 60 days of the request.
Written Action of Shareholders. Under the FBCA, shareholders having the
power to cast the number of votes required to effect any action required to be
approved by the shareholders, including the election of directors, the amendment
of the Articles of Incorporation or the merger or consolidation of Indian River,
may consent to such action in writing without notice or holding of a formal
meeting of shareholders.
Applicability of Certain Provisions of Law. Section 607.0901 of the FBCA
requires that, unless a corporation "opts out" from effectiveness of that
provision, certain transactions between a public corporation and certain
interested shareholders and their affiliates (including, but not limited to,
certain mergers or consolidations, sales, leases, pledges or other dispositions
of five percent or more of the corporation's assets, share issuances, and
reclassification, reorganization or liquidation transactions) be approved by the
holders of two-thirds of the total number of outstanding voting shares other
than shares beneficially owned by the interested shareholders. The Articles of
Incorporation provide that Section 607.0901 will not be applicable to Indian
River.
Section 607.0902 of the FBCA generally provides that, unless a corporation
opts out from its provisions, shares of a public corporation acquired in excess
of certain threshold amounts will not have any voting rights unless such voting
rights are approved by a majority vote of disinterested shareholders. The
Articles of Incorporation provide that Section 607.0902 will not be applicable
to Indian River.
Business Combinations with Interested Stockholders. The Articles of
Incorporation provide that certain proposed business combinations with an
"interested stockholder" (generally a beneficial owner of 10% or more of the
outstanding common stock or an affiliate thereof), including mergers,
consolidations, the sale, lease, exchange, mortgage or pledge of assets having a
value in excess of $1.5 million, issuances or transfers of securities of Indian
River having a value in excess of $1.5 million, the adoption of a plan of
liquidation or dissolution, and any reclassification, recapitalization or
similar transaction which has the effect of increasing the proportionate share
of Indian River owned by the interested stockholder, must be approved by the
holders of 80% of the votes entitled to be cast in the election of directors,
voting as a single class, in addition to any other vote required by law, except
where such business combination has been approved by two thirds of the full
Board of Directors.
Amendment of Articles. Except where applicable law or the Articles of
Incorporation provide otherwise, the Articles of Incorporation may be amended by
the vote of the holders of a majority of the votes entitled to be cast thereon.
The provision of the Articles of Incorporation relating to removal of directors
may be amended only upon the
50
<PAGE>
vote of the holders of 75% of the votes entitled to be cast in the election of
directors, voting as a single class. The provisions of the Articles of
Incorporation relating to business combinations with interested stockholders and
the applicability of certain provisions of the FCBA may be amended only upon the
vote of the holders of 80% of the votes entitled to be cast in the election of
directors, voting as a single class, except where such amendment has been
approved by two thirds of the full Board of Directors.
Consideration of Business Combinations. The Articles of Incorporation
provide that where the Board of Directors evaluates a business combination, the
directors shall consider, among other things, the following factors: the effect
of the business combination on the corporation and its subsidiaries, and their
respective stockholders, employees, customers and the communities which they
serve; the timing of the proposed business combination; the risk that the
proposed business combination will not be consummated; the reputation,
management capability and performance history of the person proposing the
business combination; the current market price of the corporation in a freely
negotiated transaction and in relation to the directors' estimate of the future
value of the corporation and its subsidiaries as an independent entity or
entities; tax consequences of the business combination to the corporation and
its stockholders; and such other factors deemed by the directors to be relevant.
In such considerations, the Board of Directors may consider all or certain of
such factors as a whole and may or may not assign relative weights to any of
them. The enumeration of factors to be considered by the Board of Directors in
the discharge of its fiduciary responsibility to the corporation and its
stockholders, is not a definitive list of factors, but is intended to guide such
consideration and to provide specific authority for the consideration by the
Board of Directors of factors which are not purely economic in nature in light
of the circumstances of the corporation and its subsidiaries at the time of such
proposed business combination.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
Indian River by Kennedy, Baris & Lundy, L.L.P., Bethesda, Maryland. Members of
such firm may subscribe to purchase shares of common stock offered hereby.
EXPERTS
The audited financial statements of Indian River Banking Company for years
ended December 31, 1999 and 1998 included in this prospectus have been included
herein in reliance upon the report of McGladrey & Pullen, LLP independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
On July 6, 1998, BDO Seidman, LLP, the independent certified public
accountants which audited Indian River's financial statements for the years
ended December 31, 1997 and 1996, was dismissed by the Board of Directors of
Indian River upon the recommendation of Indian River's Audit and Examining
Committee. BDO Seidman's report on Indian River's financial statements for the
years ended December 31, 1997 and 1996 did not contain an adverse opinion or
disclaimer of opinion, and were not modified as to uncertainty, audit scope or
accounting principles.
During the two years ended December 31, 1997 and through July 6, 1998, the
date of BDO Seidman's dismissal, there were no disagreements with BDO Seidman on
any matter of accounting principles or practices, financial statement
disclosure, audit scope or procedure which, if not resolved to their
satisfaction, would have caused them to make reference to such disagreement in
connection with their report.
McGladrey & Pullen, LLP was retained by Indian River on May 28, 1998 to
audit Indian River's financial statements for fiscal year 1998 as its certifying
accountant. The appointment of McGladrey & Pullen, LLP was recommended by the
Audit and Examining Committee of the Board of Directors and approved by the
Board of Directors. There were no consultations between Indian River and
McGladrey & Pullen, LLP regarding the application of accounting principles to
any matter, or as to any type of opinion that might be issued on Indian River's
financial statements.
51
<PAGE>
ADDITIONAL INFORMATION ABOUT INDIAN RIVER
This prospectus is part of a registration statement on Form SB-2 filed by
Indian River with the Securities and Exchange Commission. This prospectus does
not contain all of the information contained in the registration statement,
certain parts of which have been omitted in accordance with rules of the SEC.
The registration statement may be read and copied at the SEC's public reference
room located at 450 Fifth Street, NW, Room 1024, Washington, DC 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. The SEC maintains an Internet web site that contains information of
issuers, including Indian River, who file electronically with the SEC. The
address of that web-site is http://www.sec.gov.
Indian River distributes annual reports containing audited financial
statements to its shareholders. As a result of the effectiveness of the
registration statement of which this prospectus is a part, commencing in 2000,
Indian River files annual and quarterly reports under the Securities Exchange
Act of 1934, and will continue to file such reports until such time as it has
fewer than 300 shareholders of record.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C>
Independent Auditor's Report.........................................................................F-2
Consolidated Balance Sheets..........................................................................F-3
Consolidated Statements of Income....................................................................F-5
Consolidated Statements of Changes in Stockholders' Equity...........................................F-6
Consolidated Statements of Cash Flows................................................................F-8
Notes to Consolidated Financial Statements...........................................................F-9
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Unaudited Consolidated Balance Sheets...............................................................F-30
Unaudited Consolidated Statements of Income.........................................................F-31
Unaudited Consolidated Statements of Changes in Stockholders' Equity................................F-32
Unaudited Consolidated Statements of Cash Flows.....................................................F-33
Notes to Unaudited Consolidated Financial Statements................................................F-34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Indian River Banking Company
Vero Beach, Florida
We have audited the accompanying consolidated balance sheets of Indian River
Banking Company and subsidiary (the "Bank") as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Indian
River Banking Company and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Fort Lauderdale, Florida
February 4, 2000, except for Note 22 as
to which the date is March 31, 2000
F-2
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Cash and Cash Equivalents
Cash and due from banks (Notes 2 and 17) $ 6,714,850 $ 7,903,994
Federal funds sold (Note 17) -- 9,225,000
---------- ----------
TOTAL CASH AND CASH EQUIVALENTS 6,714,850 17,128,994
---------- ----------
Investment Securities
Securities available-for-sale (Note 3) 81,416,332 56,036,863
Securities held to maturity (Note 3) 7,071,969
Other securities (Note 3) 798,350 710,450
---------- ----------
TOTAL INVESTMENT SECURITIES 89,286,651 56,747,313
Loans, net (Notes 4, 5, 9, 12, 15 and 17) 166,644,658 142,853,090
Bank Premises and Equipment, net (Note 6) 4,315,942 4,279,736
Accrued Interest Receivable 2,260,455 1,676,277
Deferred Tax Asset (Note 8) 1,533,364 173,764
Other Assets 479,692 257,083
---------- ----------
TOTAL ASSETS $ 271,235,612 $ 223,116,257
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------------------------ ---- ----
<S> <C> <C>
Liabilities
Noninterest-bearing demand deposits $ 32,142,461 $ 31,121,138
Interest-bearing deposits:
NOW 24,320,260 25,101,073
Money market 4,316,022 3,496,479
Savings 73,065,351 70,461,316
Time deposits, $100,000 and over (Note 7) 21,841,680 13,570,598
Other time deposits (Note 7) 83,160,177 56,646,161
---------- ----------
TOTAL DEPOSITS 238,845,951 200,396,765
Other Liabilities 724,533 457,173
Other Borrowings (Note 9) 18,073,953 8,478,606
---------- ---------
TOTAL LIABILITIES 257,644,437 209,332,544
----------- -----------
Commitments and Contingencies (Notes 9, 13, and 15)
Stockholders' Equity (Notes 10, 11, 15 and 21)
Preferred stock, $1 par value, nondesignated; 500,000
shares authorized; none issued or outstanding -- --
Common stock, $1 par value; 10,000,000 shares
authorized; issued and outstanding 1999 1,393,730
shares, 1998 576,124 shares 1,393,730 576,124
Capital surplus 9,292,285 7,365,731
Retained earnings 4,509,364 5,251,216
Accumulated other comprehensive income (loss) (1,604,204) 590,642
---------- -------
TOTAL STOCKHOLDERS' EQUITY 13,591,175 13,783,713
-------------------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 271,235,612 $ 223,116,257
============= =============
</TABLE>
F-4
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income:
Loans and fees on loans $ 13,321,103 $ 11,482,346
Investment securities and due from banks 4,495,681 3,766,518
Federal funds sold 129,487 92,242
---------- ----------
17,946,271 15,341,106
---------- ----------
Interest expense:
Deposits 7,352,102 6,506,357
Other 672,892 628,330
---------- ----------
8,024,994 7,134,687
---------- ----------
NET INTEREST INCOME 9,921,277 8,206,419
Provision for loan losses (Note 5) 590,000 375,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,331,277 7,831,419
---------- ----------
Other income:
Service charges and fees 1,097,848 969,402
Gain on sales of securities (Note 3) 76,340 143,006
Gain on sale of loans 816,986 816,280
Other 464,164 287,967
---------- ----------
2,455,338 2,216,655
---------- ----------
Other expense:
Salaries 3,613,205 2,684,405
Employee benefits 622,500 487,141
Occupancy 563,344 460,109
Furniture and equipment 726,584 602,616
Other operating expenses (Note 14) 3,115,615 2,505,712
---------- ----------
8,641,248 6,739,983
---------- ----------
INCOME BEFORE INCOME TAXES 3,145,367 3,308,091
Provision for income taxes (Note 8) 1,142,767 1,208,869
---------- ----------
NET INCOME $ 2,002,600 $ 2,099,222
============== ===============
Basic earnings per share (Note 11) $ 1.44 $ 1.51
============== ===============
Diluted earnings per share (Note 11) $ 1.43 $ 1.50
============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
-------------------------------------------------------------------------------
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Capital
Shares Amount Surplus
<S> <C> <C> <C>
Balance, December 31, 1997 523,619 $ 523,619 $ 6,203,158
10% stock dividend (Note 18) 52,180 52,180 1,153,178
Fractional shares -- -- --
Stock options exercised 325 325 9,395
Comprehensive income:
Net income -- -- --
Other comprehensive income, unrealized
gain on securities, net of tax (Note 3) -- -- --
COMPREHENSIVE INCOME
------- ---------------- -----------------
Balance, December 31, 1998 576,124 576,124 7,365,731
10% stock dividend (Note 18) 57,428 57,428 1,316,250
Fractional shares -- -- --
Stock options exercised 114 114 4,005
Comprehensive income (loss):
Net income -- -- --
Other comprehensive loss, unrealized
loss on securities, net of tax (Note 3) -- -- --
COMPREHENSIVE INCOME (LOSS)
------- ---------------- -----------------
Balance, December 31, 1999 633,666 $ 633,666 $ 8,685,986
======= ================ =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Retained Comprehensive Stockholders' Comprehensive
Earnings Income (Loss) Equity Income
-------- ------------- ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 4,361,722 $ 508,731 $ 11,597,230
10% stock dividend (Note 18) (1,205,358) -- --
Fractional shares (4,370) -- (4,370)
Stock options exercised -- -- 9,720
Comprehensive income:
Net income 2,099,222 -- 2,099,222 $ 2,099,222
Other comprehensive income, unrealized
gain on securities, net of tax (Note 3) -- 81,911 81,911 81,911
- ------
COMPREHENSIVE INCOME $ 2,181,133
---------- ----------- ------------ ============
Balance, December 31, 1998 5,251,216 590,642 13,783,713
10% stock dividend (Note 18) (1,373,678) -- --
Fractional shares (4,411) -- (4,411)
Stock options exercised -- -- (4,119)
Comprehensive income (loss):
Net income 2,002,600 -- 2,002,600 $ 2,002,600
Other comprehensive loss, unrealized
loss on securities, net of tax (Note 3) -- (2,194,846) (2,194,846) (2,194,846)
------------
COMPREHENSIVE INCOME (LOSS) $ (192,246)
-------------- ----------- ------------ ============
Balance, December 31, 1999 $ 5,875,727 $(1,604,204) $ 13,591,175
============== =========== ============
</TABLE>
F-7
<PAGE>
-------------------------------------------------------------------------------
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------- ----------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 2,002,600 $ 2,099,222
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 562,825 467,111
Provision for loan losses 590,000 375,000
Other real estate owned losses 108,369 3,617
Deferred income taxes (125,000) (85,374)
Proceeds from loans originated for resale 32,476,233 32,986,605
Origination of loans for resale (29,958,997) (30,835,105)
Gain on sale of loans (816,986) (816,280)
Amortization of premiums and discounts, net 185,775 130,027
Gain on sale of securities (76,340) (143,006)
Increase in accrued interest receivable (584,178) (179,096)
Increase in other assets (222,609) (10,704)
Decrease in other liabilities 267,360 (51,399)
------------------ ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,409,052 3,940,618
------------------ ---------------
Cash Flows From Investing Activities
Cash flows from securities (Note 18) (36,078,219) 2,557,359
Loan originations and principal collections on loans (29,559,639) (32,314,514)
Proceeds from sale of loans 3,436,079 4,020,131
Proceeds from the sale of other real estate owned 36,417 37,962
Purchases of premises and equipment (702,075) (1,815,809)
------------------ ---------------
NET CASH USED IN INVESTING ACTIVITIES (62,867,437) (27,514,871)
------------------ ---------------
Cash Flows From Financing Activities
Net increase in deposits 38,449,186 27,584,590
Proceeds from other borrowings 12,881,062 2,214,320
Principal payments on borrowings (3,285,715) (285,714)
Proceeds from exercise of stock options 4,119 9,720
Cash paid for fractional shares (4,411) (4,370)
------------------ ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIEs 48,044,241 29,518,546
------------------ ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,414,144) 5,944,293
Cash and cash equivalents:
Beginning 17,128,994 11,184,701
------------------ ---------------
Ending $ 6,714,850 $ 17,128,994
================== ===============
</TABLE>
See Notes to Consolidated Financial Statements (Additional cash flow information
- Note 18).
F-8
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business: Indian River Banking Company is a bank holding company
incorporated in the State of Florida. Its wholly-owned subsidiary, Indian River
National Bank, provides a full range of banking services to individual and
corporate customers through its various locations in Indian River and Brevard
Counties in Florida. Segment information is not presented since all of the
Company's revenue is attributed to a single reportable segment. The Bank is
subject to competition from other financial institutions and nonfinancial
institutions providing financial products.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of Indian River Banking Company and its wholly-owned
subsidiary, Indian River National Bank, a federally-chartered independent
community bank, collectively referred to as the "Bank". All significant
intercompany accounts and transactions have been eliminated in consolidation.
Basis of accounting: The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and general practice
within the banking industry. In preparing the consolidated financial statements,
the Bank's management is required to make estimates and assumptions which
significantly affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates which are particularly susceptible to
change in a short period of time include the determination of the allowance for
loan losses and the fair value of securities. Actual results could differ from
those estimates.
Cash and cash flows: Cash and cash equivalents includes cash on hand, amounts
due from banks (including cash items in process of clearing), and federal funds
sold. For purposes of reporting cash flows, loans and deposits are reported net.
The Bank maintains amounts due from banks which, at times, may exceed
federally-insured limits. The Bank has not experienced any losses in such
accounts.
Investment in debt and marketable equity securities: Management determines the
appropriate classification of securities as each individual security is
acquired. In addition, the appropriateness of such classification is reassessed
at each balance sheet date. The Bank's classifications of debt and marketable
equity securities and related accounting policies are as follows:
Securities held to maturity: Held to maturity securities are those securities
which the Bank has the ability and intent to hold until maturity. All other
securities not included in held to maturity are classified as
available-for-sale. Held to maturity securities are reported at amortized
cost. Realized gains and losses from the sale of securities are included in
earnings and are computed using the specific-identification method.
Available-for-sale securities: Securities classified as available-for-sale
are those debt securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity
mix of the Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.
F-9
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities available-for-sale are carried at fair value. Unrealized gains or
losses, net of the related deferred tax effect, are reported as a separate
component of other comprehensive income. Realized gains or losses, determined
on the basis of the cost of specific securities sold, are included in
earnings. The amortization of premiums and accretion of discounts, computed
by the interest method over their contractual lives, are recognized in
interest income.
Loans and allowance for loan losses: Loans are stated at the amount of unpaid
principal, reduced by unearned discounts and fees and an allowance for loan
losses.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and amortized, using the interest method, as an adjustment of
the related loan's yield. The Bank is amortizing these amounts over the
contractual lives of the loans, adjusted for prepayments. Commitment fees which
are based upon a percentage of a customer's unused line of credit and fees
related to standby letters of credit are recognized over the commitment period.
Interest on loans is recognized over the terms of the loans and is calculated
using the simple-interest method on principal amounts outstanding. For impaired
loans, accrual of interest is generally discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to make
payments as they become due. Interest on these loans is recognized only when
actually paid by the borrower if collection of the principal is likely to occur.
Accrual of interest is generally resumed when the customer is current on all
principal and interest payments.
Loans held for sale are carried at the lower of cost or market value.
The allowance for loan losses is maintained to provide for estimated losses in
the loan portfolio that have been incurred as of the date of the balance sheet.
The allowance is determined based on management's estimate of probable credit
losses related to specifically identified loans and for losses inherent in the
loan portfolio, taking into consideration the risk characteristics of the loan
portfolio, past charge-off experience, general economic conditions and other
factors that warrant current recognition. While management uses the best
information available to make its evaluation, the allowance could change
materially within the next year if there are significant changes in economic
conditions.
As adjustments to the allowance for loan losses become necessary, they are
reflected as a provision for loan losses in current period earnings. Actual loan
charge-offs are deducted from and subsequent recoveries are added to the
allowance.
A loan is considered to be impaired when it is probable that the Bank will be
unable to collect all principal and interest amounts according to the
contractual terms of the loan agreement. Under this definition, management
considers loans that have been placed on nonaccrual status or which have been
renegotiated in a troubled debt restructuring to be impaired.
The allowance for loan losses related to loans identified as impaired is based
on discounted expected future cash flows (using the loan's initial effective
interest rate), the observable market value of the loan, or the estimated fair
value of the collateral for certain collateral dependent loans.
F-10
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Transfers of financial assets: Transfers of financial assets are accounted for
as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Corporation, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Corporation does not maintain
effective control over the transferred assets through an agreement to repurchase
them before their maturity.
Bank premises and equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using accelerated and
straight-line methods over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
<S> <C>
Land improvements 3 - 20
Buildings and improvements 5 - 39
Leasehold improvements 5 - 15
Furniture, fixtures and equipment 3 - 10
</TABLE>
Income taxes: The holding company and the Bank file consolidated federal income
tax returns. Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences,
and operating loss or tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the amounts of assets and liabilities recorded for income
tax and financial reporting purposes. Deferred tax assets are reduced by a
valuation allowance when management determines that it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Stock-based compensation: SFAS 123, Accounting for Stock-Based Compensation,
allows a company to either adopt the fair value method of valuation or continue
using the intrinsic valuation method presented under Accounting Principles Board
("APB") Opinion 25 to account for stock based compensation. Accordingly, the
Bank has elected to continue using the intrinsic valuation method and has
disclosed in the footnotes pro forma net income and earnings per share
information as if the fair value method had been applied.
Earnings per share: Basic earnings per-share amounts are computed by dividing
net income (the numerator) by the weighted-average number of common shares
outstanding, adjusted for stock dividends and splits occurring subsequent to
year end (the denominator). Diluted earnings per-share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce the loss or increase the income per common share
from continuing operations.
F-11
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments: SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of financial
condition, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. SFAS No. 107 excludes
certain financial instruments and all nonfinancial assets and liabilities from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
The fair value estimates presented are based on pertinent information available
to management as of December 31, 1999 and 1998. Although management is not aware
of any factors that would significantly affect the estimated fair value amount,
such amounts have not been comprehensively revalued for purposes of these
financial statements since these dates and therefore, current estimates of fair
value may differ significantly from the amounts presented in these financial
statements.
Emerging accounting standards: In June 1998, the Financial Accounting Standards
Board issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is required to be adopted in years beginning after
June 15, 2000. The Statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Bank expects to adopt the new Statement
effective January 1, 2001. The Statement will require the Bank to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.
Because the Bank has not used derivatives in the past, management does not
anticipate that the adoption of the new Statement will have a significant effect
on the Bank's earnings or financial position.
NOTE 2. CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances in cash or with the Federal
Reserve Bank, based on a percentage of certain deposits. The total required
reserve balances as of December 31, 1999 and 1998 were approximately $1,997,000
and $1,589,000, respectively.
F-12
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES
Securities held to maturity: The amortized cost and fair values of securities
held to maturity as of December 31, 1999 are summarized as follows.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
State, county and municipal securities $ 2,025,343 $ 7,074 $ (14,385) $ 2,018,032
Mortgage-backed securities 5,046,626 174,338 -- 5,220,964
--------------- ----------- -------------- ------------
$ 7,071,969 $ 181,412 $ (14,385) $ 7,238,996
=============== =========== ============== ============
</TABLE>
There were no securities held to maturity at December 31, 1998.
The amortized cost and fair values of securities held to maturity at December
31, 1999, by contractual maturity, are shown below. Mortgage-backed securities
are excluded from the maturity categories because they are not due at a single
due date. In addition, mortgage-backed securities may mature earlier than their
contractual maturities because of prepayments.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
---- -----
<S> <C> <C>
Due after one through five years $ 100,576 $ 100,595
Due after ten years 1,924,767 1,917,437
Mortgage-backed securities 5,046,626 5,220,964
----------------- ----------------
$ 7,071,969 $ 7,238,996
================= ================
</TABLE>
F-13
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
Securities available-for-sale: The amortized cost and fair values of securities
available-for-sale as of December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Government corporations
and agencies $ 67,210,032 $ -- $ (2,357,623) $ 64,852,409
Corporate securities 10,221,581 -- (128,534) 10,093,047
Mortgage-backed securities 6,491,287 11,975 (32,386) 6,470,876
--------------- -------------- ---------------- ---------------
$ 83,922,900 $ 11,975 $ (2,518,543) $ 81,416,332
=============== ============== ================ ===============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Government corporations
and agencies $ 42,412,286 $ 647,530 $ (10,245) $ 43,049,571
U. S. Treasury securities 6,979,319 225,371 -- 7,204,690
Mortgage-backed securities 5,722,381 76,849 (16,628) 5,782,602
--------------- -------------- ---------------- ---------------
$ 55,113,986 $ 949,750 $ (26,873) $ 56,036,863
=============== ============== ============= ===============
</TABLE>
The amortized cost and fair values of securities available for sale at December
31, 1999, by contractual maturity, are shown below. Mortgage-backed securities
are excluded from the maturity categories because they are not due at a single
due date. In addition, mortgage-backed securities may mature earlier than their
contractual maturities because of prepayments.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
<S> <C> <C>
Due after one through five years $ 14,246,689 $ 14,092,411
Due after five years through ten years 56,186,613 53,975,191
Due after ten years 6,998,311 6,877,854
Mortgage-backed securities 6,491,287 6,470,876
----------------- -----------------
$ 83,922,900 $ 81,416,332
================= =================
</TABLE>
F-14
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
Securities available for sale with a carrying amount of $16,415,731 and
$4,578,000 at December 31, 1999 and 1998, respectively, were pledged as
collateral on public deposits, various lines of credit (see Note 9), repurchase
agreements, and for other purposes as required or permitted by law.
Gross gains of $76,340 and $143,006 were realized from the sale of securities
available for sale in the years ended December 31, 1999 and 1998, respectively.
Unrealized gains (losses) on securities available for sale for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Unrealized holding gains (losses) arising during the period $ (3,353,106) $ 270,989
Less reclassification adjustment for gains realized
in net income 76,340 143,006
--------------- -------------
Net unrealized gains (losses), before tax (expense) benefit (3,429,446) 127,983
Tax (expense) benefit 1,234,600 (46,072)
--------------- -------------
Other comprehensive income (loss) $ (2,194,846) $ 81,911
=============== =============
</TABLE>
Other securities consist primarily of nonmarketable equity securities as follows
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal Reserve Bank stock $ 97,750 $ 97,750
Federal Home Loan Bank stock 690,600 602,700
Other securities 10,000 10,000
------------- --------------
$ 798,350 $ 710,450
============= ==============
</TABLE>
The Bank, as a member of the Federal Home Loan Bank ("FHLB") system, is required
to maintain an investment in capital stock of the FHLB in an amount equal to the
greater of 1% of its outstanding home loans or 5% of advances from the FHLB. No
ready market exists for the FHLB stock, and it has no quoted market value.
F-15
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4. LOANS
The composition of net loans is as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
Real estate:
<S> <C> <C>
Construction and land development $ 8,626,234 $ 2,382,245
Farmland 3,145,918 2,983,787
One to four family residential 68,430,840 60,955,927
Multifamily residential 1,766,216 1,762,422
Nonfamily, nonresidential 55,104,420 45,452,183
Agriculture 1,706,865 1,551,797
Commercial and industrial 12,307,814 11,037,858
Consumer 15,091,479 15,562,091
Other 2,370,221 2,676,107
-------------- ------------
168,550,007 144,364,417
Deduct:
Allowance for loan losses 1,904,417 1,510,272
Unearned discounts and loan fees 932 1,055
-------------- ------------
Loans, net $ 166,644,658 $142,853,090
============== ============
</TABLE>
The Bank's recorded investment in impaired loans for which a specific allowance
was recognized was $54,238 and $278,795 at December 31, 1999 and 1998,
respectively. The specific SFAS No. 114 allowance associated with these loans
was $5,077 and $17,600 at December 31, 1999 and 1998, respectively. The average
recorded investment in impaired loans during 1999 and 1998 was $250,000 and
$350,000, respectively. Interest income recognized on impaired loans, recognized
for cash payments received in 1999 and 1998, was not significant.
Included in net loans at December 31, 1999 and 1998 are loans held for sale of
approximately $546,600 and $2,247,000, respectively.
F-16
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning $ 1,510,272 $ 1,322,442
Provision for loan losses 590,000 375,000
Loans charged off (249,068) (245,013)
Recoveries of amounts charged off 53,213 57,843
-------------- ------------
Balance, ending $ 1,904,417 $ 1,510,272
============== ============
</TABLE>
NOTE 6. BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
<TABLE>
<CAPTION>
- December 31,
- 1999 1998
- ---- ----
<S> <C> <C>
Land and improvements $ 1,561,900 $ 1,670,984
Buildings and improvements 1,343,817 1,298,323
Leasehold improvements 550,113 470,959
Furniture, fixtures and equipment 3,624,653 3,111,325
--------------- ---------------
7,080,483 6,551,591
Less accumulated depreciation and amortization 2,764,541 2,271,855
--------------- ---------------
$ 4,315,942 $ 4,279,736
=============== ===============
</TABLE>
NOTE 7. TIME DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
2000 $ 77,776,889
2001 23,398,477
2002 1,271,879
2003 2,125,259
2004 427,457
Thereafter 1,896
-------
$ 105,001,857
==============
</TABLE>
F-17
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
The net deferred tax effects of the primary temporary differences are as shown
in the following table:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
Deferred tax assets:
<S> <C> <C>
Loan loss allowances $ 593,000 $ 456,000
Unrealized loss on available-for-sale securities 902,364 --
Premises and equipment 48,000 50,000
--------------- --------------
Total deferred tax assets 1,543,364 506,000
--------------- --------------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities -- (332,236)
- Other (10,000) --
--------------- --------------
Total deferred tax assets (10,000) (332,236)
--------------- --------------
Net deferred tax assets $ 1,533,364 $ 173,764
=============== ==============
</TABLE>
The provision for income taxes charged to operations for the years ended
December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current tax expense $ 1,267,767 $ 1,294,243
Deferred tax expense (125,000) (85,374)
--------------- --------------
$ 1,142,767 $ 1,208,869
=============== ==============
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the U. S. federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Computed "expected" federal tax expense $ 1,069,425 34.0% $ 1,124,774 34.0%
Increase in income taxes resulting from:
State income taxes, net of federal tax
benefit 45,168 1.4 31,393 0.9
Other 28,174 0.9 52,702 1.6
------------- ---- -------------- ----
Provision for income taxes $ 1,142,767 36.3% $ 1,208,869 36.5%
============= ==== ============== ====
-</TABLE>
F-18
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9. OTHER BORROWINGS
The Company has a $4,000,000 revolving line-of-credit with a correspondent bank
of which $1,845,381 was outstanding at December 31, 1999. The line is due in
quarterly installments of interest only at 30-day LIBOR plus 135 basis points
(7.47% at December 31, 1999) through September 29, 2001, at which time the
outstanding principal balance will be converted to a term loan. The term loan
will be due in equal quarterly installments of principal plus interest, based
upon a five-year amortization through September 29, 2006, at which time the
remaining balance plus accrued interest will become due and payable. The line is
collateralized by the common stock of the Bank. The Company has agreed to
various conditions which provide, among other things, compliance with specified
financial covenants. The Company is in compliance with such covenants at
December 31, 1999.
The Bank has a secured line of credit with the Federal Home Loan Bank under
which the Bank can borrow up to thirteen percent (13%) of total assets or
approximately $35,235,000 at December 31, 1999. The Bank has executed a blanket
floating lien under which it has pledged residential first mortgage loans with a
balance of approximately $47,898,000 at December 31, 1999 as security for these
advances. In addition, Federal Home Loan Bank stock in the amount of $690,600 at
December 31, 1999 is also pledged as security for the above advances. Advances
payable under this agreement as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C>
Overnight advance, interest payable monthly at a rate that adjusts
daily, average rate of 5.60% for December 1999 $ 4,500,000 $ --
Convertible advance option due September 2002, interest payable
quarterly at a fixed rate of 5.66%. In September 1999, the
advance was called by the lender -- 3,000,000
Advance, interest payable monthly at a fixed rate of 6.44%,
with equal semiannual principal payments of $142,857 through
September 2004 1,428,572 1,714,286
Convertible advance due March 2008, interest payable quarterly
at a fixed rate of 5.51%. In March 2003, the advance can be
called at the option of the lender, at which time it can be
converted into various other advance terms by the Bank 2,000,000 2,000,000
Advance due August 2000, interest payable monthly at an
adjustable rate, 6.50% at December 31, 1999 5,000,000 --
-------------- --------------
$ 12,928,572 $ 6,714,286
============== ==============
</TABLE>
The Bank also has lines of credit of $6,000,000 available for federal funds
purchases with correspondent banks. There was $3,300,000 outstanding under these
lines at December 31, 1999 and no amounts outstanding under such lines as of
December 31, 1998.
F-19
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9. OTHER BORROWINGS (CONTINUED)
The aggregate amounts of borrowings maturing in future years (based on the
outstanding balance and interest rates as of December 31, 1999) are as follows:
2000 $13,085,714; 2001 $362,307; 2002 $608,243; 2003 $633,024; 2004 $659,708;
thereafter $2,724,956.
The Bank has a repurchase agreement with a correspondent bank, for which
securities with a carrying amount of $4,161,289 were pledged as collateral at
December 31, 1999. No balances were outstanding as of December 31, 1999 and
1998.
NOTE 10. STOCK OPTIONS
The Board of Directors adopted a new stock option plan in 1999, subject to the
approval of the shareholders. Under the terms of its stock option plan, options
to purchase up to 275,000 shares of the Company's common stock may be granted to
directors and key officers/employees at a price which is not less than the fair
market value of such stock at the date of the grant. The grants are exercisable
in varying amounts over five to ten years from the date of the grant. 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 the
Company.
A summary of the options outstanding as of December 31, 1999 and 1998, and
changes during the years then ended is presented below (after adjusting for 10%
stock dividends in 1999 and 1998, a 10% stock dividend declared in January 2000
and a 2 for 1 stock split effective March 31, 2000). The fair value of each
option grant is estimated on the date of grant with the following
weighted-average assumptions used for grants in 1999 and 1998: risk-free
interest rates of 6.5 percent and 5.5 percent, respectively and expected lives
of 4 years and 8 years, respectively.
<TABLE>
<CAPTION>
1999 1998
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 29,736 $ 13.84 13,470 $ 11.96
Granted 77,254 18.77 20,762 15.03
Exercised (250) 15.03 (786) 12.38
Forfeited (6,472) 14.81 (3,710) 13.96
------- ------
Outstanding at end of year 100,268 17.57 29,736 13.84
======= ======
Options exercisable at year=end 39,350 17.31 7,264 13.28
======= ======
Weighted-average fair value of
options granted during the year $ 7.61 $ 3.26
============= ===========
</TABLE>
Options granted in 1999 include nonqualified options for the purchase of 62,856
shares which will be converted to qualified options upon approval of the 1999
stock option plan as discussed above.
F-20
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS (CONTINUED)
The weighted average remaining contractual life of the stock options outstanding
is 7.1 years and 3.7 years as of December 31, 1999 and 1998, respectively.
The Bank applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for the stock
options discussed above. Had compensation cost for the Bank's stock options been
determined based on the fair value at the grant dates for awards under those
plans, the Bank's net income and earnings per share and common equivalent share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income As reported $ 2,002,600 $ 2,099,222
Pro forma 1,837,600 2,089,000
Basic earnings per share As reported 1.44 1.51
Pro forma 1.32 1.50
Diluted earnings per share As reported 1.43 1.50
Pro forma 1.31 1.49
</TABLE>
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 (660 shares for 2000) in lieu of cash compensation for
attendance at committee meetings. Options granted will have an exercise price
equal to the fair value of the common stock at the date of grant, will be
immediately exercisable and of limited execisability.
NOTE 11. EARNINGS PER SHARE
Following is information about the computation of the earnings per share data
for the years ended December 31, 1999 and 1998 (after adjusting for 10% stock
dividends in 1999 and 1998, a 10% stock dividend declared in January 2000 and a
2 for 1 stock split effective March 31, 2000):
<TABLE>
<CAPTION>
Per-Share
Numerator Denominator Amounts
--------- ----------- -------
Year Ended December 31, 1999
<S> <C> <C> <C>
Basic earnings per share, income available to
common stockholders $ 2,002,600 1,393,902 $ 1.44
=========
Effect of dilutive securities, options -- 7,878
------------ ---------
Diluted earnings per share, income available
to common stockholders plus assumed
exercise of options $ 2,002,600 1,401,780 $ 1.43
============ ========= =========
</TABLE>
F-21
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Per-Share
Numerator Denominator Amounts
--------- ----------- -------
Year Ended December 31, 1998
<S> <C> <C> <C>
Basic earnings per share, income available to
common stockholders $ 2,099,222 1,393,612 $ 1.51
======
Effect of dilutive securities, options -- 3,910
------------- ---------
Diluted earnings per share, income available
to common stockholders plus assumed
exercise of options $ 2,099,222 1,397,522 $ 1.50
============= ========= ======
</TABLE>
NOTE 12. RELATED PARTY TRANSACTIONS
Some of the directors of the Bank are also owners or executive officers in other
business organizations. The Bank has made loans to these individuals and related
companies, as well as to officers of the Bank which, in the opinion of
management, are on the same terms as comparable transactions with others.
Aggregate loans to these related parties totaled approximately $3,567,000 and
$3,726,000 at December 31, 1999 and 1998, respectively. Commitments to extend
additional credit to these related parties totaled approximately $2,400,000 at
December 31, 1999.
NOTE 13. LEASES
The Bank utilizes certain office spaces under operating leases expiring through
2009. Several of these leases have one or more options to renew for periods of
three to five years each. The leases provide for increases in rent in accordance
with changes in the Consumer Price Index.
Future minimum rental payments required under the operating leases at December
31, 1999 were as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $ 287,601
2001 193,455
2002 160,142
2003 69,627
2004 69,627
Thereafter 342,333
------------
$ 1,122,785
============
</TABLE>
Total rent expense (including basic operating expenses) recorded by the Bank for
the years ended December 31, 1999 and 1998, was $238,172 and $202,174,
respectively.
F-22
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 14. OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Data processing $ 331,636 $ 333,139
Advertising and business development 427,930 306,389
Professional fees 250,123 123,595
Supplies and postage 368,120 312,590
Directors' fees 265,556 284,900
Miscellaneous 1,472,250 1,145,099
--------- ---------
$3,115,615 $2,505,712
========== ==========
</TABLE>
NOTE 15. SALARY SAVINGS 401(K) PLAN
The Bank sponsors a Salary Savings 401(k) Plan which requires the Bank to make
contributions pursuant to applicable salary savings elections and additional
discretionary contributions as may be determined by the Board of Directors. The
Bank contributed $59,814 and $62,851 for the years ended December 31, 1999 and
1998, respectively.
NOTE 16. RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS
The Bank is subject to the dividend restrictions set forth by the Office of the
Comptroller of the Currency ("OCC"). Under such restrictions, the Bank may not,
without the prior approval of the OCC, declare dividends in excess of the sum of
the current year's earnings (as defined) plus the retained earnings (as defined)
from the prior two years. The dividends, as of December 31, 1999, that the Bank
could declare, without the approval of the OCC, amounted to approximately
$2,600,000.
Banks and bank holding companies are subject to various regulatory capital
requirements administered by the federal banking agencies. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
banks and bank holding companies must meet specific capital guidelines that
involve quantitative measures of each entity's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Quantitative measures established by regulation to ensure capital adequacy
require banks and bank holding companies to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital to risk-weighted
assets, and of Tier I capital to average assets (all as defined in the
regulations).
Banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors. Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on a company's financial
statements. The Company and the Bank meet all capital adequacy requirements to
which they are subject as of December 31, 1999.
F-23
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 16. RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS (CONTINUED)
As of December 31, 1999, the most recent notification from the OCC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table below. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
As of December 31, 1999:
Total Capital (to Risk-Weighted
<S> <C> <C> <C> <C> <C> <C>
Consolidated $ 17,099,796 9.5% $ 14,397,680 8.0% $ 17,997,100 10.0%
Indian River National Bank 18,799,574 10.4 14,396,880 8.0 17,996,100 10.0
Tier I Capital (to Risk-Weighted
Consolidated 15,195,379 8.4 7,198,840 4.0 10,798,260 6.0
Indian River National Bank 16,895,157 9.4 7,198,440 4.0 10,797,660 6.0
Tier I Capital (to Average Assets):
Consolidated 15,195,379 5.9 10,395,520 4.0 12,994,400 5.0
Indian River National Bank 16,895,157 6.5 10,395,120 4.0 12,993,900 5.0
As of December 31, 1998:
Total Capital (to Risk-Weighted
Consolidated 14,703,343 10.5 11,164,160 8.0 13,955,200 10.0
Indian River National Bank 16,301,553 11.7 11,164,160 8.0 13,955,200 10.0
Tier I Capital (to Risk-Weighted
Consolidated 13,193,071 9.4 5,582,080 4.0 8,373,120 6.0
Indian River National Bank 14,791,281 10.6 5,582,080 4.0 8,373,120 6.0
Tier I Capital (to Average Assets):
Consolidated 13,193,071 6.2 8,464,920 4.0 10,581,150 5.0
Indian River National Bank 14,791,281 7.0 8,464,920 4.0 10,581,150 5.0
</TABLE>
NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank, in the normal course of business, is a party to financial instruments
with off-balance-sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized on the balance sheet. The
contractual amounts of these instruments reflect the Bank's involvement in
particular classes of financial instruments.
F-24
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
These commitments were as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commitments to extend credit $ 21,914,000 $ 17,610,000
Credit card arrangements 4,534,000 3,908,000
Standby letters of credit 1,102,000 688,000
-------------- -------------
$ 27,550,000 $ 22,206,000
============== =============
</TABLE>
Commitments to extend credit: Commitments to extend credit are commitments to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if any, is based on management's credit
evaluation of the counterparty. Collateral held varies, but may include cash,
accounts receivable, inventory, property, plant and equipment, and residential
and commercial real estate.
Standby letters of credit: Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
NOTE 18. CONCENTRATIONS OF RISK
Most of the Bank's business activity is with customers located within its
primary market area, which generally includes Central Florida. Included in the
Bank's loan portfolio (see Note 4) is a concentration of loans related to real
estate, a significant portion of which relates to commercial real estate. A
substantial portion of its debtors' abilities to honor their contracts is
dependent upon the local economy. The economy of the Bank's primary market area
is not heavily dependent on any individual economic sector.
Concentration by institution: The Bank also has a substantial concentration of
funds with two banks at December 31, 1999. Such concentration consisted of
federal funds sold and a deposit account balance and totaled $3,212,018 and
$14,773,000, at December 31, 1999 and 1998, respectively. The Bank has not
experienced any losses on such accounts.
F-25
<PAGE>
Indian River Banking Company and subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 19. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---- ----
Cash flows from securities:
Securities available-for-sale:
<S> <C> <C>
Proceeds from sales $ 8,074,063 $ 4,144,609
Maturities, calls and paydowns 10,969,617 13,629,706
Purchases (47,961,799) (15,109,756)
Securities held to maturity:
Purchases (7,072,200) --
Purchase of Federal Home Loan Bank stock (87,900) (107,200)
---------------- --------------
$ (36,078,219) $ 2,557,359
================ ==============
Supplemental disclosures of cash flow information
Cash payments for interest $ 7,322,830 $ 7,127,109
================ ==============
Cash payments for income taxes $ 1,382,000 $ 1,290,000
================ ==============
Supplemental schedule of noncash investing and
financing activities
10% stock dividend $ 1,373,678 $ 1,205,358
================ ==============
</TABLE>
NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating the
fair value of its financial instruments:
Cash and cash equivalents: The carrying amounts reported in the consolidated
balance sheets for cash and short-term instruments approximated their fair
values.
Investment securities (including mortgage-backed securities): Fair values for
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, values are based on carrying values. Fair
values for other loans are estimated based on discounted cash flows, using
interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. Management believes that the allowance
for loan losses is an appropriate indication of the applicable credit risk
associated with determining the fair value of its loan portfolio and the
allowance has been deducted from the estimate fair value of loans.
Accrued interest receivable: The carrying amount of accrued interest
receivable approximates its fair value.
F-26
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
instruments, primarily lending commitments, are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements. The fair value for such commitments are nominal.
Deposit liabilities: The fair values of demand deposits and passbook savings
equal their carrying amounts which represents the amount payable on demand.
The carrying amounts for variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair value at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Other borrowings: The fair value of other borrowings with variable interest
rates approximate their recorded book value due to interest rates that are
near market rates. Fair values for fixed-rate borrowings are estimated using
a discounted cash flow calculation that applies interest rates currently
available on similar borrowings to a schedule of aggregated expected monthly
payments due on those borrowings.
Other liabilities: The carrying amount of other liabilities approximates
their fair value.
Commitments to extend credit and other off-balance-sheet financial
instruments - Consideration of the fair value of commitments to extend credit
and letters of credit is based on fees charged to enter into similar
agreements. Since the fees charged by the Bank are nominal, the estimate of
fair value is negligible.
Following is a summary of the carrying amounts and approximate fair values of
the Bank's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 6,714,850 $ 6,714,850 $ 17,128,994 $ 17,128,994
Investment securities (including
Federal Reserve Bank and
Federal Home Loan Bank stock) 89,286,651 89,453,678 56,747,313 56,747,313
Loans receivable 166,644,658 166,851,393 142,853,090 145,549,391
Accrued interest receivable 2,260,455 2,260,455 1,676,277 1,676,277
Deposits 238,845,951 239,428,367 200,396,765 201,065,597
Other borrowings 18,073,953 17,826,345 8,478,606 8,478,606
Other liabilities 724,533 724,533 457,173 457,173
Commitments to extend credit -- -- -- --
</TABLE>
F-27
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 21. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements for Indian River Banking Company only are
presented below:
-------------------------------------------------------------------------------
INDIAN RIVER BANKING COMPANY
PARENT COMPANY ONLY BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Cash $ 9,056 $ 94,377
Investment in Indian River National Bank 15,290,950 15,381,923
Other assets 137,664 72,709
-------------- --------------
$ 15,437,670 $ 15,549,009
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes payable $ 1,845,381 $ 1,764,320
Other liabilities 1,114 976
-------------- --------------
Total liabilities 1,846,495 1,765,296
Stockholders' equity 13,591,175 13,783,713
-------------- --------------
$ 15,437,670 $ 15,549,009
============== ==============
</TABLE>
INDIAN RIVER BANKING COMPANY
PARENT COMPANY ONLY STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Equity in net income of Indian River National Bank $ 2,103,876 $ 2,219,715
-------------- --------------
Expenses:
Interest expense 123,742 136,654
Other expenses 32,486 56,548
-------------- --------------
156,228 193,202
-------------- --------------
INCOME BEFORE INCOME TAXES 1,947,648 2,026,513
Provision for income taxes (benefit) (54,952) (72,709)
-------------- --------------
NET INCOME $ 2,002,600 $ 2,099,222
============== ==============
</TABLE>
F-28
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 21. PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
INDIAN RIVER BANKING COMPANY
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flow from operating activities:
<S> <C> <C>
Net loss $ 2,002,600 $ 2,099,222
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in net income of Indian River National Bank (2,103,876) (2,219,715)
Other (54,814) (27,713)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (156,090) (148,206)
-------------- --------------
Net cash used in investing activities, investment in other
assets (10,000) --
-------------- --------------
Cash flow from financing activities:
Increase in notes payable, net 81,061 214,320
Net cash flow from capital stock transactions (292) 5,350
-------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 80,769 219,670
-------------- --------------
Increase (decrease) in cash and cash equivalents (85,321) 71,464
Cash and cash equivalents:
Beginning 94,377 22,913
-------------- --------------
Ending $ 9,056 $ 94,377
============= =============
</TABLE>
NOTE 22. SUBSEQUENT STOCK SPLIT AND DIVIDEND
The number of shares outstanding and the related stockholders' equity accounts
have been retroactively adjusted in the accompanying balance sheet as of
December 31, 1999 to reflect a 10% stock dividend effective January, 2000 and a
2 for 1 stock split effected in the form of a stock dividend on March 31, 2000.
F-29
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
F-30
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 8,883,505 $ 6,714,850
Federal funds sold 517,000 --
Securities available for sale 95,330,036 81,416,332
Securities held to maturity 12,100,405 7,071,969
Other securities 1,379,250 798,350
Loans, net 172,422,291 166,644,658
Bank premises and equipment, net 4,414,315 4,315,942
Accrued interest receivable 2,326,863 2,260,455
Other assets 2,124,801 2,013,056
------------ ------------
TOTAL ASSETS $299,498,466 $271,235,612
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing demand deposits $ 40,729,602 $ 32,142,461
Interest-bearing deposits:
NOW and money market 30,212,696 28,636,282
Savings 75,688,889 73,065,351
Time deposits 114,569,828 105,001,857
------------ ------------
TOTAL DEPOSITS 261,201,015 238,845,951
------------ ------------
Other liabilities 1,215,682 724,533
Other borrowings 23,081,095 18,073,953
------------ ------------
TOTAL LIABILITIES 285,497,792 257,644,437
------------ ------------
Stockholders' Equity
Preferred stock -- --
Common stock 1,393,730 633,666
Capital surplus 9,292,285 8,685,986
Retained earnings 5,158,176 5,875,727
Accumulated other comprehensive loss (1,843,517) (1,604,204)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,000,674 13,591,175
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $299,498,466 $271,235,612
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-31
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans and fees on loans $ 3,659,933 $ 3,149,060
Investment securities and due from banks 1,745,019 992,630
Federal funds sold 2,375 24,107
------------ -------------
5,407,327 4,165,797
------------ -------------
Interest expense:
Deposits 2,306,736 1,699,449
Other 313,578 132,072
------------ -------------
2,620,314 1,831,521
------------ -------------
NET INTEREST INCOME 2,787,013 2,334,276
Provision for loan losses 165,000 140,000
------------ -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,622,013 2,194,276
------------ -------------
Other income:
Service charges and fees 299,476 240,135
Gain on sale of loans 119,473 207,970
Other 156,249 130,963
------------ -------------
575,198 579,068
------------ -------------
Other expense:
Salaries and benefits 1,201,780 943,893
Occupancy and equipment 388,101 289,624
Office expenses and insurance 593,772 697,471
------------ -------------
2,183,653 1,930,988
------------ -------------
INCOME BEFORE INCOME TAXES 1,013,558 842,356
Provision for income taxes 361,124 305,391
------------ -------------
NET INCOME $ 652,434 $ 536,965
============ =============
Basic earnings per share $ 0.47 $ 0.39
============ =============
Diluted earnings per share $ 0.46 $ 0.38
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
F-32
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
-------------------- Capital Retained Comprehensive Stockholders' Comprehensive
Shares Amount Surplus Earnings Income (Loss) Equity Income
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 576,124 $ 576,124 $7,365,731 $ 5,251,216 $ 590,642 $13,783,713
Comprehensive income:
Net income -- -- -- 536,965 -- 536,965 $ 536,965
Other comprehensive income,
unrealized loss on
securities, net of tax -- -- -- -- (233,575) (233,575) (233,575)
-----------
COMPREHENSIVE INCOME $ 303,390
----------------------------------------------------------------------------------===========
Balance, March 31, 1999 576,124 $ 576,124 $7,365,731 $ 5,788,181 $ 357,067 $14,087,103
==================================================================================
Balance, December 31, 1999 633,666 $ 633,666 $8,685,986 $ 5,875,727 $(1,604,204) $13,591,175
10% stock dividend 63,199 63,199 1,303,164 (1,366,363) -- --
Fractional shares -- -- -- (3,622) -- (3,622)
2 for 1 stock split 696,865 696,865 (696,865) -- -- --
Comprehensive income (loss):
Net income -- -- -- 652,434 -- 652,434 $ 652,434
Other comprehensive income,
unrealized loss on
securities, net of tax -- -- -- -- (239,313) (239,313) (239,313)
----------
COMPREHENSIVE INCOME (LOSS) $ 413,121
-----------------------------------------------------------------------------------==========
Balance, December 31, 1999 1,393,730 $1,393,730 $9,292,285 $5,158,176 $(1,843,517) $14,000,674
===================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-33
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 652,434 $ 536,965
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 209,737 173,446
Provision for loan losses 165,000 140,000
(Increase) decrease in loans held for sale (241,000) 1,132,000
Decrease (increase) in other assets (43,539) (280,872)
Decrease in other liabilities 491,149 348,495
-------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,233,781 2,050,034
-------------------------------
Cash Flows From Investing Activities
Cash flows from securities, net (19,935,155) (7,531,043)
Loan originations and principal collections on loans, net (5,802,789) (8,279,643)
Purchases of premises and equipment (269,923) (111,141)
-------------------------------
NET CASH USED IN INVESTING ACTIVITIES (26,007,867) (15,921,827)
-------------------------------
Cash Flows From Financing Activities
Net increase in deposits 22,456,220 2,871,745
Increase in other borrowings, net 5,007,143 971,996
Cash paid for fractional shares (3,622) --
-------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,459,741 3,843,741
-------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,685,655 (10,028,052)
Cash and cash equivalents:
Beginning 6,714,850 17,128,994
-------------------------------
Ending $ 9,400,505 $ 7,100,942
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
F-34
<PAGE>
INDIAN RIVER BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Indian River
Banking Company (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statement presentation. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary a fair
presentation have been included. Operating results for the three month period
ended March 31, 2000, are not necessarily indicative of the results that may be
expected for the full year. For further information, refer to the Company's
consolidated financial statements and the notes thereto for the year ended
December 31, 1999 included herein.
The accompanying consolidated financial statements include the accounts of
Indian River Banking Company and its wholly-owned subsidiary, Indian River
National Bank, a federally-chartered independent community bank, collectively
referred to as the "Bank". All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents includes cash on hand, amounts due from banks
(including cash items in process of clearing), and federal funds sold.
NOTE 2. INVESTMENT SECURITIES
The amortized cost and fair values of securities held to maturity are summarized
as follows.
<TABLE>
<CAPTION>
March 31, 2000
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
State, county and municipal securities $ 2,025,311 $ 13,382 $ (6,119) $ 2,032,574
Mortgage-backed securities 10,075,094 171,963 (88,235) 10,158,822
-------------------------------------------------------------------
$ 12,100,405 $ 185,345 $ (94,354) $ 12,191,396
===================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
State, county and municipal securities $ 2,025,343 $ 7,074 $ (14,385) $ 2,018,032
Mortgage-backed securities 5,046,626 174,338 -- 5,220,964
-------------------------------------------------------------------
$ 7,071,969 $ 181,412 $ (14,385) $ 7,238,996
===================================================================
</TABLE>
F-35
<PAGE>
Securities available-for-sale: The amortized cost and fair values of securities
available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government corporations
and agencies $81,711,775 $ -- $(2,630,117) $79,081,658
Corporate securities 10,225,876 -- (182,026) 10,043,850
Mortgage-backed securities 6,272,879 8,396 (76,747) 6,204,528
-------------------------------------------------------------------
$98,210,530 $8,396 $(2,888,890) $95,330,036
===================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------
Estimated Estimated Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government corporations
and agencies $67,210,032 $ -- $(2,357,623) $64,852,409
Corporate securities 10,221,581 -- (128,534) 10,093,047
Mortgage-backed securities 6,491,287 11,975 (32,386) 6,470,876
-------------------------------------------------------------------
$83,922,900 $11,975 $(2,518,543) $81,416,332
===================================================================
</TABLE>
NOTE 3. LOANS
The composition of net loans is as follows at March 31, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
2000 1999
------------------------------
<S> <C> <C>
Real estate:
Construction and land development $ 7,221,470 $ 8,626,234
Farmland 3,016,670 3,145,918
One to four family residential 74,328,345 68,430,840
Multifamily residential 1,735,784 1,766,216
Nonfamily, nonresidential 57,138,488 55,104,420
Agriculture 1,833,441 1,706,865
Commercial and industrial 11,983,913 12,307,814
Consumer 14,909,103 15,091,479
Other 2,311,014 2,369,289
------------------------------
174,478,228 168,549,075
Less allowance for loan losses 2,055,937 1,904,417
------------------------------
Loans, net $172,422,291 $166,644,658
==============================
</TABLE>
F-36
<PAGE>
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained to provide for estimated losses in
the loan portfolio that have been incurred as of the balance sheet date. The
allowance is based on management's estimate of probable credit losses related to
specifically identified loans and for losses inherent in the loan portfolio,
taking into consideration the risk characteristics of the loan portfolio, past
charge-off experience, general economic conditions and other factors that
warrant current recognition. While management uses the best information
available to make its evaluation, the allowance could change materially within
the next year if there are significant changes in economic conditions.
Activity in the allowance for loan losses for the three months ended March 31,
2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------
<S> <C> <C>
Balance, beginning $1,904,417 $1,510,272
Provision for loan losses 165,000 140,000
Loans charged off (31,437) (48,037)
Recoveries of amounts charged off 17,957 13,525
-------------------------------------
Balance, ending $2,055,937 $1,615,760
=====================================
</TABLE>
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 year end (the
denominator). Diluted earnings per-share amounts assume the conversion, exercise
or issuance of all potential common stock instruments unless the effect is to
reduce the loss or increase the income per common share from continuing
operations.
Following is information about the computation of the earnings per share data
for the three months ended March 31, 2000 and 1999 (after adjusting for 10%
stock dividends in 2000 and 1999 and a 2 for 1 stock split effective March 31,
2000):
<TABLE>
<CAPTION>
Common Per-Share
Net Earnings Shares Amounts
---------------------------------------
<S> <C> <C> <C>
Three Months Ended March 31, 2000:
Basic earnings per share, income available to
common stockholders $652,434 1,393,730 $0.47
======
Effect of dilutive securities, options 35,443
------------------------
Diluted earnings per share $652,434 1,429,173 $0.46
=====================================
Three Months Ended March 31, 1999:
Basic earnings per share, income available to
common stockholders $536,965 1,393,616 $0.39
======
Effect of dilutive securities, options 6,022
------------------------
Diluted earnings per share $536,965 1,399,638 $0.38
=====================================
</TABLE>
F-37
<PAGE>
NOTE 6. OTHER BORROWINGS
Other borrowings consists of the following at March 31, 2000 and December 31,
1999.
<TABLE>
<CAPTION>
2000 1999
----------------------------------
<S> <C> <C>
Outstanding balance under $4,000,000 line of credit, interest at
30-day LIBOR plus 135 basis points (7.46% at March 31, 2000) $ 2,945,381 $ 1,845,381
Advances under line of credit with Federal Home Loan Bank:
Overnight advance, interest payable monthly at a rate that adjusts
daily -- 4,500,000
Advance, interest payable monthly at a fixed rate of 6.44%,
with equal semiannual principal payments of $142,857
through September 2004 1,285,714 1,428,572
Convertible advance due March 2008, interest payable quarterly
at a fixed rate of 5.51%. 2,000,000 2,000,000
Advance due August 2000, interest payable monthly at an
adjustable rate, 6.04% at March 31, 2000 5,000,000 5,000,000
Advance due December 2000, interest payable monthly at an
adjustable rate, 6.08% at March 31, 2000 5,000,000 --
Overnight federal funds and repurchase agreements payable 6,850,000 3,300,000
----------------------------------
$23,081,095 $18,073,953
==================================
</TABLE>
F-38
<PAGE>
INDIAN RIVER BANKING COMPANY
PARENT COMPANY OF
[Graphic]
300,000 SHARES
COMMON STOCK
PROSPECTUS
________, 2000
INDIAN RIVER HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATION ABOUT THE OFFERING THAT DIFFERS FROM, OR ADDS TO, THE
INFORMATION IN THIS PROSPECTUS OR IN ITS DOCUMENTS THAT ARE PUBLICLY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. THE DELIVERY OF
THIS PROSPECTUS AND/OR THE SALE OF SHARES OF COMMON STOCK DO NOT MEAN THAT THERE
HAVE NOT BEEN ANY CHANGES IN INDIAN RIVER'S CONDITION SINCE THE DATE OF THIS
PROSPECTUS. IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO SELL,
OR TO ASK FOR OFFERS TO BUY, THE SECURITIES OFFERED BY THIS PROSPECTUS, OR IF
YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE
OFFER PRESENTED BY THIS PROSPECTUS DOES NOT EXTEND TO YOU. THIS PROSPECTUS
SPEAKS ONLY AS OF ITS DATE EXCEPT WHERE IT INDICATES THAT ANOTHER DATE APPLIES.
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Articles of Incorporation of Indian River provide that Indian River
may indemnify officers, directors, employees and agents of Indian River to the
fullest extent permitted by Florida law (the "Florida law"). Pursuant to Florida
law, Indian River generally has the power to indemnify its present and former
directors, officers, agents and employees, or persons serving as such in another
entity at Indian River's request, against expenses (including attorneys' fees)
and liabilities incurred by them in any action, suit, or proceeding to which
they are, or are threatened to be made, a party by reason of their serving in
such positions, so long as they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of Indian
River, or in the case of a criminal proceeding, had no reasonable cause to
believe their conduct was unlawful. In respect of suits by or in the right of
Indian River, the indemnification is generally limited to expenses (including
attorneys' fees) and is not available in respect of any claim where such person
is adjudged liable to Indian River, unless the court determines that
indemnification is appropriate. To the extent such person is successful in the
defense of any suit, action or proceeding, indemnification against expenses
(including attorneys' fees) is mandatory. Indian River has the power to purchase
and maintain insurance for such persons and indemnification. The indemnification
provided by the Florida law is not exclusive of other rights to indemnification
which any person may otherwise be entitled under any bylaw, agreement,
shareholder or disinterested director vote, or otherwise.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses payable by Indian River in connection with the
offering described in this Registration Statement (other than underwriting
discounts and commissions) are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 1,980
Blue Sky qualification fees and expenses 5,000
Printing, engraving & Edgar expenses 15,000
Legal fees and expenses 50,000
Accounting fees and expenses 20,000
Other 18,020
------
Total $110,000
========
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
None.
Item 27. Exhibits.
Number Description
3(a) Articles of Incorporation of Indian River, as amended (1)
3(b) Bylaws of Indian River (1)
4 Refer to Articles V and VIII of the Articles of Incorporation
(included as Exhibit 3(a) and Article I of the Bylaws
(included as Exhibit 3(b))
5(a) Opinion of Kennedy, Baris & Lundy, L.L.P.
10(a) Employment contract between Indian River and William A. High
(1)
10(b) Employment contract between Indian River and Charles A.
Bradley (1)
II-1
<PAGE>
10(c) Indian River 1995 Stock Option Plan (1)
10(d) Indian River 1999 Stock Option Plan (1)
16 Letter of BDO Seidman on Change in Certifying Accountant
21 Subsidiaries of the Registrant
The sole subsidiary of Indian River is Indian River National Bank,
organized under the laws of the United States.
23(a) Consent of McGladrey & Pullen, LLP, Independent Auditors
23(b) Consent of Kennedy, Baris & Lundy, L.L.P., included in Exhibit
5
27 Financial Data Schedule
99(a) Form of Subscription Agreement (1)
99(b) Form of Escrow Agreement (1)
99(c) Form of Letter to Investors
--------------------------
(1) Previously filed with initial registration statement.
Item 28. Undertakings. The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together represent a
fundamental change in the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (ss. 230.424(b) of this
chapter) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) include any additional or changed material information on the plan of
distribution.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vero Beach, State of Florida, on, July 11, 2000.
INDIAN RIVER BANKING COMPANY
By: /s/ William A. High
------------------------------------
William A. High, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Paul A. Beindorf Vice President and Director July 11, 2000
---------------------------------------------
Paul A. Beindorf
/s/ William C. Graves, IV Director July 11, 2000
---------------------------------------------
William C. Graves, IV
/s/ Robert A. Grice Director July 11, 2000
---------------------------------------------
Robert A. Grice
/s/ Griffin A. Greene Director July 11, 2000
---------------------------------------------
Griffin A. Greene
/s/ William A. High President, Chief Executive Officer July 11, 2000
--------------------------------------------- and Director (Principal Executive Officer)
William A. High
/s/ William B. Marine Director July 11, 2000
---------------------------------------------
William B. Marine
/s/ John L. Minton Chairman of the Board July 11, 2000
---------------------------------------------
John L. Minton
/s/ Keith H. Morgan, Jr. Director July 11, 2000
---------------------------------------------
Keith H. Morgan, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Daniel R. Richey Director July 11, 2000
---------------------------------------------
Daniel R. Richey
/s/ Mary M. Rogers Director July 11, 2000
---------------------------------------------
Mary M. Rogers
/s/ John David Smith Director July 11_, 2000
---------------------------------------------
John David Smith
/s/ Charles A. Bradley Vice President, Treasurer and July 11, 2000
--------------------------------------------- Chief Financial Officer (Principal
Charles A. Bradley Accounting and Financial Officer)
</TABLE>
