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 March 31, 2001.
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.)
2348 Boundary Street, Beaufort, SC 29903-6240
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(Address of Principal Executive Offices)
(843) 470-9962
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(Issuer's Telephone Number, Including Area Code)
211 Charles St., Suite 100, Beaufort, SC 29902
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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 May
14, 2001.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: (Check one):
Yes No x
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(Page 1 of 13)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS March 31, December 31,
2001 2000
---- ----
Cash $ 7,311 $ 40,232
Property and equipment, net 1,218,443 568,113
Deferred registration costs 311,409 296,813
Other assets 2,292 1,562
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Total Assets $1,539,455 $ 906,720
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities
Accounts payable and accrued expenses $ 21,072 $ 16,484
Advances from organizers 100,000 100,000
Notes payable 1,996,294 1,261,295
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Total current liabilities $2,117,366 $1,377,779
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Long term liabilities
Notes payable $ 7,913 $ 10,561
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Total long term liabilities $ 7,913 $ 10,561
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Total liabilities $2,125,279 $1,388,340
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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 (591,324) (487,120)
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Total Stockholders' Equity $ (585,824) $ (481,620)
--------- ---------
Total Liabilities and
Stockholders' Equity $1,539,455 $ 906,720
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the three-month
period ended March 31,
------------------------
2001 2000
---- ----
Revenues:
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Salaries and benefits $ 61,593 $ 37,083
Interest expense 27,618 4,204
Organizational expenses 1,438 100
Depreciation expense 1,731 2,645
Rent expense 3,750 3,548
Utilities and telephone 1,450 1,296
Legal & professional 156 610
Other expenses 6,468 6,616
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Total expenses $ 104,204 $ 56,102
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Net (loss) $(104,204) $ (56,102)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
For the three-month
period ended March 31,
----------------------------
2001 2000
---- ----
Cash flows from pre-operating
activities of the development stage:
Net (loss) $ (104,204) $ (56,102)
Adjustments to reconcile net
(loss) to net cash used by
pre-operating activities
of the development stage:
Increase in registration costs (14,597) (26,713)
Increase in payables and accruals 4,588 (14,152)
(Increase) in other assets (730) (15,515)
Depreciation expense 1,731 2,645
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Net cash used by pre-operating
activities of the development stage $ (113,212) $ (109,837)
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Cash flows from investing activities:
Purchase of fixed assets $ (652,061) $ (6,932)
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Net cash used in investing activities (652,061) (6,932)
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Cash flows from financing activities:
Increase in notes payable $ 732,352 $ 99,802
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Net cash provided
from financing activities $ 732,352 $ 99,802
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Net (decrease) in cash $ (32,921) $ (16,967)
Cash, beginning of period 40,232 24,061
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Cash, end of period $ 7,311 $ 7,094
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
BEAUFORT, SOUTH CAROLINA
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
Accumulated
Common Stock Other
------------------ Paid in Retained Comprehensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
Dec 31,
1999 550 $ - - $ 5,500 $ (174,255)$ - - $ (168,755)
--------- --------- ---------- --------- -------- ----------
Comprehensive Income:
- --------------------
Net income,
three-month
period ended
Mar. 31, 2000 - - - - - - (56,102) - - (56,102)
--------- --------- ---------- --------- -------- ----------
Total comprehensive
income - - - - - - (56,102) - - (56,102)
--------- --------- ---------- --------- -------- ----------
Balance,
Mar. 31,
2000 550 $ - - $ 5,500 $ (230,357)$ - - $ (224,857)
========= ========= ========== ========= ======== ==========
Balance,
December 31,
2000 550 $ - - $ 5,500 $ (487,120)$ - - $ (481,620)
--------- --------- ---------- --------- -------- ----------
Comprehensive Income:
- ---------------------
Net income,
three-month
period ended
Mar. 31,
2001 - - - - - - (104,204) - - (104,204)
--------- --------- ---------- --------- -------- ----------
Total comprehensive
income - - - - - - (104,204) - - (104,204)
--------- --------- ---------- --------- -------- ----------
Balance,
Mar. 31,
2001 550 $ - - $ 5,500 $ (591,324)$ - - $ (585,824)
========= ========= ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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
period ended March 31, 2001 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001. 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, 2000.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or a
liability measured at its fair value. The Statement requires that changes
in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement No.
133, as amended, is effective for fiscal years beginning after June 15,
2000. The Company adopted Statement No. 133 as of September 30, 2000. The
adoption of Statement No. 133 did not have a material impact on the
financial position or results of operations of the Company.
In September, 2000, FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This new Statement replaces Statement No. 125, issued in
June, 1996. Statement No. 140 resolves certain implementation and other
issues that have arisen since the initial adoption of Statement No. 125, but it
carries over most of Statement No. 125's provisions without change. Statement
No. 140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The adoption of Statement No. 140 will
not have a significant impact on the financial position or results of
operations of the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
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PLAN 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
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, conducting the sale of the Company's common
stock, and identifying and acquiring the Company's permanent principal office
and banking site. All preliminary approvals from the OCC, the FDIC and the
FRB have been obtained.
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 public offering had been successfully completed as
652,705 shares of the Company's common stock were sold.
FINANCIAL RESULTS
For the three-month periods ended March 31, 2001 and 2000, net loss
amounted to $104,204 and $56,102, respectively. The increase in loss during
the three-month period ended March 31, 2001 when compared to the three-month
period ended March 31, 2000 was primarily due to the following two items:
(a) Salaries and benefits increased from $37,083 during the three-month
period ended March 31, 2000 to $61,593 during the three-month period
ended March 31, 2001, an increase of $24,510. The above increase was
due to the hiring of a chief financial officer and an administrative
assistant.
(b) Interest expense increased from $4,204 during the three-month period
ended March 31, 2000 to $27,618 during the three-month period ended
March 31, 2001, an increase of $23,414. This increase was caused by
the Company's increased borrowings of approximately $1,850,000. The
increase in borrowings funded (i) the purchase of two properties in the
amount of approximately $1,250,000; (ii) stock registration and selling
expenses in the amount of approximately $300,000; and (iii) pre-
operating activities also in the amount of approximately $300,000.
Because the Company is in the organizational stage, it has no operations
from which to generate revenues. Note that interest income earned on funds
raised from the sale of the Company's common stock and held in escrow by the
escrow agent will be released to the Company upon the Bank's opening for
business. 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 date of this report
have been funded through advances from and purchases of Common Stock by the
Company's organizers and the aggregate amount of certain borrowings from
unrelated parties. As of March 31, 2001, the borrowings are as follows:
Date of Director(s)'
Amount Maturity Collateral Guarantee
------ -------- ---------- ------------
$ 830,000 03-31-01 - - Yes
520,000 11-15-01 Lot Yes
640,000 06-27-01 Building, lot Yes
14,207 08-06-02 Automobile Yes
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Total $2,004,207
=========
Note that the first loan listed above was renewed with a borrowing
capacity of up to $1,200,000 and a maturity date of August 31, 2001.
The Company believes that the proceeds raised during 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 twelve 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
On March 29, 2001, the Company purchased a building located on Boundary
Street in Beaufort, South Carolina (the "Boundary Building") for the amount of
$640,000. The Company plans to renovate the Boundary Building for use as its
main banking facility. Renovation costs to the Boundary Building are
estimated at $650,000 and should be completed during the 2002 calendar year.
While the Boundary Building is undergoing renovation, the Company intends to
operate the Bank from a temporary facility on land adjacent to the Boundary
Building.
The Company also owns an approximate 2.3 acre lot located on Ladys
Island, South Carolina. The Company plans to build a branch on this lot, but
not in the next twelve months.
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.
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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 March 31, 2001, 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 March 31, 2001.
ITEM 5. OTHER INFORMATION.
- ---------------------------
This item is not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) Exhibits. None.
(b) Reports on Form 8-K. Registrant filed no reports on Form 8-K
during the three-month period ended March 31, 2001.
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
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(Registrant)
Date: May 14, 2001 By: /s/ William B. Gossett
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William B. Gossett
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)