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, 2001.
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.)
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)
N/A
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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, 652,705 shares outstanding as of
August 7, 2001.
Transitional small business disclosure format (check one):
Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS June 30, December 31,
- ------ 2001 2000
--------- ------------
Cash $ 25,056 $ 40,232
Property and equipment, net 1,248,118 568,113
Deferred registration costs 313,989 296,813
Other assets 37,846 1,562
--------- ---------
Total Assets $1,625,009 $ 906,720
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities
Accounts payable and accrued expenses $ 70,245 $ 16,484
Advances from organizers 100,000 100,000
Notes payable 2,231,295 1,261,295
--------- ---------
Total current liabilities $2,401,540 $1,377,779
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Long term liabilities
Notes payable $ 5,259 $ 10,561
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Total long term liabilities $ 5,259 $ 10,561
--------- ---------
Total liabilities $2,406,799 $1,388,340
--------- ---------
Commitments and contingencies (Note 3)
Stockholders' Equity (Note 1):
Common stock, no par value,
10,000,000 shares authorized,
550 shares issued and outstanding $ 5,500 $ 5,500
(Deficit) accumulated during
the development stage (787,290) (487,120)
--------- ---------
Total Stockholders' Equity $ (781,790) $ (481,620)
--------- ---------
Total Liabilities and
Stockholders' Equity $1,625,009 $ 906,720
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the three-month
period ended June 30,
------------------------
2001 2000
- ---- ----
Revenues:
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Salaries and benefits $ 84,103 $ 24,368
Interest expense 67,784 7,405
Rent expense 20,860 3,750
Organizational expenses 100 2,171
Employee relocation 1,113 24,161
Depreciation expense 1,731 2,645
Legal & professional 8,954 2,827
Utilities and telephone 1,602 1,543
Other expenses 9,719 16,113
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Total expenses $ 195,966 $ 84,983
-------- --------
Net (loss) $(195,966) $ (84,983)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the six-month
period ended June 30,
------------------------
2001 2000
---- ----
Revenues:
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Salaries and benefits $ 145,696 $ 71,451
Interest expense 95,402 11,609
Rent expense 24,610 7,298
Organizational expenses 1,538 2,271
Employee relocation 1,113 24,161
Depreciation expense 3,462 5,290
Legal & professional 9,110 3,437
Utilities and telephone 3,052 2,839
Other expenses 16,187 12,730
-------- --------
Total expenses $ 300,170 $ 141,086
-------- --------
Net (loss) $(300,170) $(141,086)
======== ========
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,
------------------------
2001 2000
---- ----
Cash flows from pre-operating
activities of the development stage:
Net (loss) $ (300,170) $ (141,086)
Adjustments to reconcile net
(loss) to net cash used by
pre-operating activities
of the development stage:
Increase in registration costs (17,176) (141,646)
Decrease in payables and accruals 53,761 (16,036)
(Increase) in other assets (36,284) (15,080)
Depreciation expense 3,462 5,290
--------- ---------
Net cash used by pre-operating
activities of the development stage $ (296,407) $ (308,558)
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets $ (683,467) $ (12,932)
--------- ---------
Net cash used in investing activities $ (683,467) $ (12,932)
--------- ---------
Cash flows from financing activities:
Increase in notes payable $ 964,698 $ 299,750
--------- ---------
Net cash provided
from financing activities $ 964,698 $ 299,750
--------- ---------
Net (decrease) in cash $ (15,176) $ (21,740)
Cash, beginning of period 40,232 24,061
--------- ---------
Cash, end of period $ 25,056 $ 2,321
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six-month period ended June 30, 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 - Plan 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. 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.
On July 6, 2001, the Escrow Agent released the proceeds from the sale
of the Company's common stock to the Company, as all of the Escrow Agreement
requirements had been met. On July 9, 2001, the Bank opened for business and
the Company ceased to operate as a "development stage enterprise" when
planned, principal operations commenced. Note that the financial statements
in this filing reflect neither the release of the Escrow funds nor the
commencement of banking operations.
Financial Results
- -----------------
For the three-month periods ended June 30, 2001 and 2000, net loss
amounted to $195,966 and $84,983, respectively. The increase in loss during
the three-month period ended June 30, 2001 when compared to the three-month
period ended June 30, 2000 was primarily due to the following two items:
(a) Salaries and benefits increased from $24,368 during the three-month
period ended June 30, 2000 to $84,103 during the three-month period
ended June 30, 2001, an increase of $59,735. The above increase was due
to the hiring of personnel in preparation for the Bank's opening.
(b) Interest expense increased from $7,405 during the three-month period
ended June 30, 2000 to $67,784 during the three-month period ended June
30, 2001, an increase of $60,379. This increase was caused by the
Company's increased borrowings of $1.8 million. The increase in
borrowings aided in the funding of (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 $315,000; and (iii) pre-
operating activities in the amount of approximately $790,000.
For the six-month periods ended June 30, 2001 and 2000, net loss amounted
to $300,170 and $141,086, respectively. The increase in loss during the six-
month period ended June 30, 2001 when compared to the six-month period ended
June 30, 2000 is due primarily to the following:
(a) an increase in salaries and benefits from $71,451 during the six-month
period ended June 30, 2000 to $145,696 during the six-month period ended
June 30, 2001; and
(b) an increase in interest expense from $11,609 during the six-month
period ended June 30, 2000 to $95,402 during the six-month period ended
June 30, 2001;
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 are not reflected in the June 30, 2001 financial statements
as these funds were not released by the Escrow Agent on or prior to June 30,
2001. 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 June 30, 2001, the borrowings are as follows:
Director(s)'
Amount Collateral Guarantee
------ ---------- -----------
$1,065,000 - - Yes
520,000 Lot Yes
640,000 Building, lot Yes
11,553 Automobile Yes
Total $2,236,553
On July 6, 2001, upon the receipt of the funds released by the Escrow
Agent, the first three loans listed above in the aggregate amount of
$2,225,000 were paid-off; the automobile loan in the amount of $11,553
remained on the Company's books.
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. Salaries and benefits are expected to increase materially
because of the anticipated increase in the number of employees, from an
average of five employees prior to opening the Bank to approximately ten
employees when the Bank commences operations. All anticipated material
expenditures including salaries and benefits, and other operational expenses,
during the first year of operations are expected to be provided for out of the
proceeds of the Company's initial public offering and from revenues generated
by the Bank.
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.
- --------------------------
The Company is not a party to any pending litigation.
Item 2. Changes in Securities and Use of Proceeds.
- --------------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) 1. The effective date of the Registration Statement is March 13,
2000. The file number assigned to the Registration
Statement by the Securities and Exchange Commission is 33-
31013-A.
2. The Offering commenced on March 24, 2000.
3. The Offering did not terminate prior to the initial sale of
any securities.
4(i) The Offering was terminated on January 31, 2001 prior to the
sale of the maximum number of shares in the Offering.
4(ii) There were no managing underwriters.
4(iii) The only class of securities registered was the Registrant's
no-par-value common stock.
4(iv) Pursuant to the Registration Statement, 1,000,000 shares of
common stock were registered for sale at an aggregate
amount of $10,000,000. When the Offering was
terminated on January 31, 2001, a total of 652,705
shares of the Registrant's common stock had been sold
for an aggregate amount of $6,527,050.
4(v) The Registrant incurred selling expenses of $313,989,
including legal, accounting, filing and printing fees.
None of the above selling expenses was paid either
directly or indirectly to the Registrant's directors,
officers, general partners, affiliates or to persons
owning 10 percent or more of the Registrant's common
stock.
4(vi) The net Offering proceeds to the Registrant amounted to
$6,213,061.
4(vii) As of June 30, 2001, the total proceeds from the sale of
Registrant's common stock were in Escrow and thus not
available to Registrant. On July 6, 2001, all monies
were released from Escrow and given to Registrant.
Upon receipt of the Offering proceeds, which include
$249,175 in interest earned therefrom while held in
Escrow, the Registrant had $6,776,225. The Registrant
used these funds as follows:
Investment in subsidiary Bank $ 6,000,000
Interest income transferred
to subsidiary Bank 232,346
Pay-off selling expenses 313,989
Pay-off operating expenses
incurred since inception 203,101
Working capital funds 26,789
----------
Total $ 6,776,225
==========
The subsidiary bank, Islands Community Bank, N.A. (the "Bank")
utilized the $6,000,000 capital injection, as well as the
$232,346 in interest income, as follows:
Pay-off loans utilized to:
.acquire Ladys Island proposed
building site $ 546,828
.acquire Beaufort Plaza banking facility 665,394
.acquire other assets 48,288
Pay-off line of credit used
to fund operating expenses 584,188
Funds available for banking operations 4,387,648
----------
Total $ 6,232,346
==========
With the exception of salary expense paid to Registrant's
CEO, no funds received from the sale of stock were used for
direct or indirect payments to directors, officers, general
partners, affiliates or to persons owning 10 percent
or more of Registrant's common stock. As discussed
above, the Registrant invested $6,000,000 in its subsidiary
Bank and transferred $232,346 in interest income to the
subsidiary Bank.
4(viii)Material changes from prospectus to actual use of proceeds:
A. With respect to Registrant:
Prospectus Actual Difference
---------- ------ ----------
Selling expenses $160,000 $313,989 $153,989
Organizational expenses 100,000 186,272 86,272
As presented above, actual selling expenses and organizational
expenses exceeded the amounts noted in the prospectus by
approximately $240,000. The primary reasons for this
difference is both the unanticipated additional time
and related expenses incurred while completing the Offering.
Additional time was required due to the weakening economy
which led to losses in equity markets.
B. With respect to the subsidiary Bank:
Prospectus Actual Difference
---------- ------ ----------
Organizational expenses $ 402,300 $ 351,842 $ 50,458
Land, facility, fixtures 2,510,000 1,260,510 1,249,490
Working capital 3,607,700 4,387,648 (779,948)
As presented above, actual organizational expenses at the Bank
were $50,458 lower than projected in the prospectus. This,
in part, is due to the fact that a larger than expected portion
of organizational expenses were assigned to the Registrant.
Also, the actual cost of land, facility and fixtures was
significantly below projected cost. This is due to the fact
that the Bank has not yet purchased all of the equipment and
furniture necessary for operations, nor has the Bank begun to
renovate its permanent facility. Finally, due to the fact that
the current investment in land, facility and fixtures is lower
than the amount anticipated in the prospectus, actual working
capital funds available are higher than those anticipated in
the prospectus.
During the three-months ended June 30, 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 June 30, 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 June 30, 2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISLANDS BANCORP
-------------------------------------
(Registrant)
Date: August 7, 2001 BY: /s/ William B. Gossett
----------------- ----------------------------------
William B. Gossett
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)