SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-31013-A
ISLANDS BANCORP
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
SOUTH CAROLINA 57-1082388
- ------------------------ -------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
211 Charles St., Suite 100, Beaufort, SC 29902
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(Address of Principal Executive Offices)
(843) 470-9962
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practicable date.
Common stock, no par value per share, 550 shares outstanding as of
August 8, 2000.
(Page 1 of 15)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS June 30, December 31,
- ------ 2000 1999
---- ----
Cash $ 2,321 $ 24,061
Property and equipment, net 36,472 28,830
Deferred registration costs 187,536 45,890
Other assets 16,533 1,453
--------- ---------
Total Assets $ 242,862 $ 100,234
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Current liabilities
- -------------------
Accounts payable and accrued expenses $ 5,571 $ 21,607
Advances from organizers 100,000 100,000
Notes payable 435,572 130,524
--------- ---------
Total current liabilities $ 541,143 $ 252,131
--------- ---------
Long term liabilities
- ---------------------
Notes payable $ 11,560 $ 16,858
--------- ---------
Total long term liabilities $ 11,560 $ 16,858
--------- ---------
Commitments and contingencies (Note 3)
Stockholders' Equity (Note 1):
Common stock, zero par value,
10,000,000 shares authorized,
550 shares issued and outstanding $ 5,500 $ 5,500
(Deficit) accumulated during
the development stage (315,341) (174,255)
Total Stockholders' Equity $ (309,841) $ (168,755)
--------- ---------
Total Liabilities and
Stockholders' Equity $ 242,862 $ 100,234
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the three-month
period ended June 30,
---------------------
2000 1999
Revenues: ---- ----
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Organizational expenses $ 2,171 $ 12,284
Employee relocation 24,161 - -
Salaries and benefits 24,368 - -
Depreciation expense 2,645 - -
Interest expense 7,405 - -
Rent expense 3,750 - -
Utilities and telephone 1,543 - -
Legal & professional 2,827 - -
Other expenses 16,113 1,045
-------- --------
Total expenses $ 84,983 $ 13,329
-------- --------
Net (loss) $ (84,983) $ (13,329)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the six-month
period ended June 30,
---------------------
2000 1999
Revenues: ---- ----
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Organizational expenses $ 2,271 $ 29,902
Salaries and benefits 71,451 - -
Employee relocation 24,161 - -
Depreciation expense 5,290 - -
Interest expense 11,609 - -
Rent expense 7,298 - -
Utilities and telephone 2,839 - -
Legal & professional 3,437 - -
Other expenses 12,730 1,045
-------- --------
Total expenses $ 141,086 $ 30,947
-------- --------
Net (loss) $(141,086) $ (30,947)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
For the six-month
period ended June 30,
---------------------
2000 1999
Cash flows from pre-operating ---- ----
activities of the development stage:
Net (loss) $ (141,086) $ (30,947)
Adjustments to reconcile net
(loss) to net cash used by
pre-operating activities
of the development stage:
Increase in registration costs (141,646) - -
Decrease in payables and accruals (16,036) - -
(Increase) in other assets (15,080) - -
Depreciation expense 5,290 - -
--------- ---------
Net cash used by pre-operating
activities of the development stage $ (308,558) $ (30,947)
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets $ (12,932) $ - -
--------- ---------
Net cash used in investing activities (12,932) $ - -
--------- ---------
Cash flows from financing activities:
Issuance of common stock $ - - $ 5,500
Advances from organizers - - 64,500
Increase in notes payable 299,750 - -
--------- ---------
Net cash provided
from financing activities $ 299,750 $ 70,000
--------- ---------
Net increase (decrease) in cash $ (21,740) $ 39,053
Cash, beginning of period 24,061 4,750
--------- ---------
Cash, end of period $ 2,321 $ 43,803
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of those of a
normal recurring nature) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The adoption
of SOP 98-1 did not have a material impact on the accompanying financial
statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998 and is effective for all calendar-year
entities beginning in January, 2000. This Statement applies to all entities
and requires that all derivatives be recognized as assets or liabilities in
the balance sheet, at fair values. Gains and losses of derivative instruments
not designated as hedges will be recognized in the income statement. Since
the Company does not invest in derivative instruments, the adoption of SFAS
No. 133 does not have a material impact on the financial statements.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" amends prior accounting standards, primarily SFAS 65, with respect
to the classification of retained interests, such as mortgage-backed
securities, following a securitization of mortgage loans held for sale. This
statement became effective in the first quarter of 1999. Since the Company
does not securitize mortgage loans, no financial statement impact has resulted
from adopting this statement.
Item 2 - Management Discussion and Analysis of Financial Condition and Results
- ------------------------------------------------------------------------------
of Operation.
- ------------
The following discussion and analysis provides information which the
Company believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and accompanying
notes appearing in this report.
Overview
- --------
Islands Bancorp (the "Company") was incorporated on July 23, 1999 to
serve as a holding company for a proposed de novo bank, Islands Community
Bank, N.A. (in organization), Beaufort, South Carolina (the "Bank"). On
August 25, 1999, the Company succeeded to all the assets and liabilities of a
partnership that had been established by the organizers of the Bank in
December of 1998 and through which the organizers' activities had been
conducted. The Company is still in a development stage and will remain in
that stage until the Bank opens for business. Since its inception, the
Company's main focus has been centered on activities relating to the
organization of the Company and the Bank, conducting the Company's initial
public offering, applying to the Office of the Comptroller of the Currency
(the "OCC") for a national bank charter, applying to the Federal Deposit
Insurance Corporation (the "FDIC") for deposit insurance, applying to the
Federal Reserve Board (the "FRB") for the Company to become a bank holding
company with respect to the Bank, and identifying and acquiring the Company's
permanent principal office and banking site. On February 1, 2000, the Company
received preliminary approval from the OCC to charter the Bank. On March 10,
2000, the Company received preliminary approval from the FDIC for insurance of
the Bank's deposits and, on May 11, 2000, the FRB granted the Company prior
approval to become a bank holding company with respect to the Bank.
The Company has filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission (the "SEC") which Registration Statement
became effective March 13, 2000. Pursuant to the Registration Statement, a
minimum of 630,000 shares of the Company's common stock, no par value per
share (the "Common Stock"), and a maximum of 1,000,000 shares of Common Stock
were registered for sale at an offering price of $10.00 per share. As of the
date of this report, the Company had not yet received subscriptions for the
minimum number of shares of Common Stock being offered in the offering. The
Company continues to solicit subscriptions for shares of Common Stock in order
to complete the offering and commence banking operations by the end of the
fourth quarter of 2000. The Company anticipates the Bank to begin operations
out of a temporary facility to be located at 131 Sea Island Parkway (Federal
Highway 21) in Lady's Island, South Carolina. This site is currently under
contract for purchase by the Company. The Company expect construction of the
Bank's permanent facility at that site to be completed by the end of the
fourth quarter of 2001.
Financial Results
- -----------------
The Company had a net loss of $141,086 for the six-month period ended
June 30, 2000, and $315,341 in cumulative losses from inception through June
30, 2000. These losses resulted from expenses incurred in connection with
activities related to the organization of the Company and the Bank. These
activities included preparing and filing applications with the OCC and the
FDIC to charter the Bank and to obtain deposit insurance, preparing an
application with the FRB for approval of the Company to become a bank holding
company with respect to the Bank, responding to questions and providing
additional information to the OCC, FDIC, and the FRB in connection with the
application process, meetings and discussions among various organizers
regarding various pre-opening issues, hiring qualified personnel to work for
the Company and the Bank, conducting public relations activities on behalf of
the Bank, developing prospective business contacts for the Company and the
Bank, and taking other actions necessary for a successful Bank opening. In
addition to the above losses, the Company capitalized $187,536 in deferred
registration costs which include costs and expenses associated with preparing
a prospectus, filing a Registration Statement with the SEC, and selling the
Company's Common Stock. In a successful offering, deferred registration costs
are immediately deducted from the Company's equity accounts. Registration
costs associated with an unsuccessful offering are charged to operations in
the period during which the offering is deemed unsuccessful.
Because the Company is in the organizational stage, it has no operations
from which to generate revenues, with the exception of interest earned from
Common Stock subscribers' deposits. Initially, the Bank anticipates deriving
its revenues principally from interest charged on loans and, to a lesser
extent, from interest earned on investments, fees received in connection with
the origination of loans and miscellaneous fees and service charges. Its
principal expenses are anticipated to be interest expense on deposits and
operating expenses. The funds for these activities are anticipated to be
provided principally by operating revenues, deposit growth, purchases of
federal funds from other banks, repayment of outstanding loans and sale of
loans and investment securities.
The Bank's operations will depend substantially on its net interest
income, which is the difference between the interest income earned on its
loans and other asset and the interest expense paid on its deposits and other
borrowings. This difference is largely affected by changes in market interest
rates, credit policies of monetary authorities, and other local, national or
international economic factors which are beyond the Bank's ability to predict
or control. Large moves in interest rates may decrease or eliminate the
Bank's profitability.
Funding of Operations and Liquidity
- -----------------------------------
The Company's operations from inception through the closing of its
initial public offering have been funded through advances from and purchases
of Common Stock by the Company's organizers and the aggregate amount of lines
of credit from unrelated financial institutions. As of June 30, 2000, the
Company has a line of credit ("LOC") up to $500,000 with an unrelated
financial institution. The LOC is guaranteed by several of the Company's
organizers and carries an interest rate of prime less one-half percent. As of
June 30, 2000, approximately $425,000 had been drawn on the LOC. The Company
intends to use proceeds from its initial public offering to repay the advances
of its organizers and the balance owed on the LOC.
The Company believes the minimum net proceeds expected from the initial
public offering will provide sufficient capital to support the growth of both
the Company and the Bank for their initial years of operations. The Company
does not anticipate that it will need to raise additional funds to meet
expenditures required to operate its business or that of the Bank over the
next 12 months. All anticipated material expenditures during that period are
expected to be provided for out of the proceeds of the Company's initial
public offering.
Capital Expenditures
- --------------------
The Company has entered into an agreement for the purchase of
approximately 2.3 acres of land at 131 Sea Island Parkway (Federal Highway 21)
in Lady's Island, South Carolina, to be used as the site for the main office
of the Bank. The purchase price under the agreement is $520,000. The
purchase agreement is expected to be assigned at cost from the Company to the
Bank upon the commencement of Bank operations. Promptly following that
assignment, the Bank is expected to close the purchase. The Company is
entitled to extend the closing date of the land purchase up to six months
beyond the scheduled closing date of May 15, 2000 in return for the non-
refundable payment to the current landowner of $3,000 for each 30-day
extension.
Construction of the Bank's main office building at this site is expected
to commence shortly following the closing of the Bank's purchase of the real
estate. The estimated cost of the building is approximately $1,050,000. The
Bank will fund the purchase of the real estate acquisition and the
construction of its main building with a portion of the net proceeds received
from the issuance of its common stock to the Company. Construction of the
Bank's permanent facility at this site is expected to be completed by the end
of the fourth quarter of 2001. Pending the completion of the permanent
facility, the Company expects to commence the Bank's operations from temporary
modular facilities located at this site.
Advisory Note Regarding Forward-Looking Statements
- --------------------------------------------------
Certain of the statements contained in this report on Form 10-QSB that
are not historical facts are forward looking statements relating to, without
limitation, future economic performance, plans and objectives of management
for future operations, and projections of revenues and other financial items
that are based on the beliefs of the Company's management, as well as
assumptions made by and information currently available to the Company's
management.
The Company cautions readers of this report that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from those expressed or implied by such forward-
looking statements. Although the Company's management believes that their
expectations of future performance are based on reasonable assumptions within
the bounds of their knowledge of their business and operations, there can be
no assurance that actual results will not differ materially from their
expectations.
The Company's operating performance each quarter is subject to various
risks and uncertainties that are discussed in detail in the Company's filings
with the SEC, including the "Risk Factors" section of the Company's
Registration Statement (Registration No. 333-92653) as filed with the SEC and
declared effective on March 13, 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is not a party to any pending litigation.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
During the three-months ended June 30, 2000, the Company did not issue
any securities without registration under the Securities Act of
1933.
Item 3. Defaults Upon Senior Securities.
-------------------------------
This item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of the shareholders of the Company
during the three-months ended June 30, 2000.
Item 5. Other Information.
-----------------
This item is not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27.1 - Financial data schedule (for SEC use only).
(b) Reports on Form 8-K. Registrant filed no reports on Form 8-K
during the three-month period ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISLANDS BANCORP
----------------------------------------
(Registrant)
Date: August 8, 2000 BY: /s/ William B. Gossett
----------------- ---------------------------------------
William B. Gossett
President and Chief Executive Officer
(Principal Executive, Financial and Accounting
Officer)