SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 30, 2000.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 33-31013-A
ISLANDS BANCORP
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(Exact name of small business issuer as specified in its charter)
SOUTH CAROLINA 57-1082388
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(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
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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
November 8, 2000.
(Page 1 of 14)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS September 30, December 31,
2000 1999
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Cash $ 10,090 $ 24,061
Property and equipment, net 42,931 28,830
Deferred registration costs 257,990 45,890
Other assets 18,285 1,453
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Total Assets $ 329,296 $ 100,234
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities
Accounts payable and accrued expenses $ 19,901 $ 21,607
Advances from organizers 100,000 100,000
Notes payable 585,571 130,524
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Total current liabilities $ 705,472 $ 252,131
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Long term liabilities
Notes payable $ 8,926 $ 16,858
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Total long term liabilities $ 8,926 $ 16,858
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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 (390,602) (174,255)
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Total Stockholders' Equity $ (385,102) $ (168,755)
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Total Liabilities and
Stockholders' Equity $ 329,296 $ 100,234
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the three-month
period ended September 30,
--------------------------
2000 1999
---- ----
Revenues:
Interest income $ - - $ - -
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Total revenues - - - -
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Expenses:
Organizational expenses $ 2,171 $ 31,198
Employee relocation 24,161 - -
Salaries and benefits 24,368 22,924
Depreciation expense 2,645 1,764
Interest expense 7,405 61
Rent expense 3,750 - -
Utilities and telephone 1,543 503
Legal & professional 2,827 - -
Other expenses 16,113 4,184
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Total expenses $ 84,983 $ 60,634
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Net (loss) $ (84,983) $ (60,634)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the nine-month
period ended September 30,
--------------------------
2000 1999
---- ----
Revenues:
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Organizational expenses $ 2,371 $ 61,101
Salaries and benefits 121,154 22,924
Employee relocation 24,161 - -
Depreciation expense 7,935 1,764
Interest expense 23,184 61
Rent expense 11,048 - -
Utilities and telephone 4,448 503
Legal & professional 4,829 - -
Other expenses 17,217 5,229
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Total expenses $ 216,347 $ 91,582
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Net (loss) $(216,347) $ (91,582)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
For the nine-month
period ended September 30,
--------------------------
2000 1999
---- ----
Cash flows from pre-operating
activities of the development stage:
Net (loss) $ (216,347) $ (91,582)
Adjustments to reconcile net
(loss) to net cash used by
pre-operating activities
of the development stage:
Increase in registration costs (212,100) (20,900)
(Decrease) in payables and accruals (1,706) 12,363
(Increase) in other assets (16,832) (1,888)
Depreciation expense 7,935 1,764
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Net cash used by pre-operating
activities of the development stage $ (439,050) $ (100,243)
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Cash flows from investing activities:
Purchase of fixed assets $ (22,036) $ (31,739)
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Net cash used in investing activities (22,036) $ (31,739)
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Cash flows from financing activities:
Advances from organizers $ - - $ 95,500
Increase in notes payable 447,115 59,998
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Net cash provided
from financing activities $ 447,115 $ 155,498
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Net increase (decrease) in cash $ (13,971) $ 23,516
Cash, beginning of period 24,061 4,750
--------- ---------
Cash, end of period $ 10,090 $ 28,266
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 nine-month periods
ended September 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. These statements
should be read in conjunction with the financial statements and footnotes
thereto included in the annual report for the year ended December 31, 1999.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes new accounting and reporting activities for derivatives. The
Standard requires all derivatives to be (i) measured at fair market value and
(ii) recognized as either assets or liabilities in the balance sheet. Under
certain conditions, a derivative may be specifically designated as a hedge.
Accounting for the changes in fair value of a derivative depends on the
intended use of the derivative and the resulting designation. In July 1999,
the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 for
one year. In June 2000, the Financial Accounting Standards Board issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS No. 133." SFAS No. 138 amends certain
provisions of SFAS No. 133. Adoption of the Standard is required for the
Company's December 31, 2001, financial statements with early adoption allowed
as of the beginning of any quarter after June 30, 1998. Adoption is not
expected to result in a material financial impact based on the Company's
limited use of derivatives.
Item 2 - Management Discussion and Analysis of Financial Condition and Results
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of Operation.
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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
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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 both complete the offering and commence banking operations by the end of
the first calendar quarter of 2001. The Company has identified two separate
sites from which the Bank may commence operations. The Company already has a
binding contract to purchase one of the above sites and is currently
negotiating to purchase a second site.
Financial Results
- -----------------
For the three-month periods ended September 30, 2000 and 1999, net loss
amounted to $84,983 and $60,634, respectively. The losses were larger during
the three-month period ended September 30, 2000 as compared to the three-month
period ended September 30, 1999 because higher operational expenses, such as
salaries, benefits, interest, etc. For the nine-month periods ended September
30, 2000 and 1999, net loss amounted to $216,347 and $91,582, respectively.
As the Company's pre-operating activities increased during the nine-month
period ended September 30, 2000 when compared the nine-month period ended
September 30, 1999, expenses increased accordingly. For example, salaries and
benefits increased by $98,230, relocation expense increased by $24,161,
interest expense increased by $23,123 and rent expense increased by $11,048.
The losses for three-month and nine-month periods ended September 30,
2000 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 $257,990 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.
At the completion of 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 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 September 30, 2000, the Company had a line of credit ("LOC") with an
unrelated financial institution with borrowing capacity of up to $700,000.
The LOC, which matures on December 30, 2000, is guaranteed by several of the
Company's organizers and carries an interest rate of prime less one-half
percent. As of September 30, 2000, approximately $575,000 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. In
addition, the Company owes approximately $19,497 on a note secured by an
automobile.
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 either a main
office or a future branch 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.
Should the Bank utilize the above site to construct its main office,
construction would commence shortly after the commencement of banking
operations. 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
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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.
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The Company is not a party to any pending litigation.
Item 2. Changes in Securities and Use of Proceeds.
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During the three-months ended September 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 September 30, 2000.
Item 5. Other Information.
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This item is not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(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
September 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: November 10, 2000 BY: /s/ William B. Gossett
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William B. Gossett
President and Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)