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 March 31, 2002.
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) 521-1968
------------------------------------------------
(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 May
14, 2002.
Transitional small business disclosure format (check one):
Yes No X
---- ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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ISLANDS BANCORP
BEAUFORT, SOUTH CAROLINA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS March 31, December 31,
- ------ 2002 2001
----------- ----------
Cash and due from banks $ 287,830 $ 209,139
Federal funds sold, net 1,288,000 255,000
----------- ----------
Total cash and cash equivalents $ 1,575,830 $ 464,139
Securities:
Available-for-sale, at fair value 1,188,559 1,288,942
Loans, net 8,729,346 6,276,469
Property and equipment, net 1,589,931 1,533,326
Other assets 310,502 400,578
----------- ----------
Total Assets $13,394,168 $9,963,454
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 1,447,684 $ 837,439
Interest bearing deposits 6,608,251 2,695,873
----------- ----------
Total deposits $ 8,055,935 $3,533,312
Federal funds purchased and borrowings - - 1,000,000
Other liabilities 51,397 66,168
----------- ----------
Total liabilities $ 8,107,332 $4,599,480
----------- ----------
Commitments and contingencies
Shareholders' Equity:
Common stock, zero par value,
10,000,000 shares authorized,
652,705 shares issued and
outstanding $ 6,213,061 $6,213,061
Retained deficit (926,459) (848,572)
Accumulated other comprehensive loss 234 (515)
----------- ----------
Total Shareholders' Equity $ 5,286,836 $5,363,974
----------- ----------
Total Liabilities and
Shareholders' Equity $13,394,168 $9,963,454
=========== ==========
Refer to notes to the financial statements.
ISLANDS BANCORP
BEAUFORT, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
------------------------
2002 2001
---- ----
Interest income $ 168,918 $ - -
Interest expense 36,700 27,618
--------- ---------
Net interest income $ 132,218 $ (27,618)
Provision for loan losses 28,640 - -
--------- ---------
Net interest income after
provision for loan losses $ 103,578 $ (27,618)
--------- ---------
Other income:
Service fees on deposit accounts $ 15,187 $ - -
Miscellaneous, other 215 - -
--------- ---------
Total other income $ 15,402 $ - -
--------- ---------
Other expenses:
Salaries and benefits $ 133,968 $ 61,593
Organizational expenses - - 1,438
Depreciation expense 14,992 1,731
Data processing 20,893 - -
Rent expense 12,825 3,750
ATM machine expense 9,585 - -
Advertising and public relations 6,338 - -
Utilities and telephone 4,337 1,450
Legal & professional 9,549 156
Other operating expenses 31,280 6,468
--------- ---------
Total operating expenses $ 243,767 $ 76,586
--------- ---------
Loss before income tax $(124,787) $(104,204)
Income tax (benefit) (46,900) - -
--------- ---------
Net (loss) $ (77,887) $(104,204)
========= =========
Basic (loss) per share $ (.12) $ N/A
========= =========
Diluted (loss) per share $ (.12) $ N/A
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
BEAUFORT, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three-month
period ended March 31,
------------------------------
2002 2001
---- ----
Net cash used by operating activities $ 41,050 $ (113,212)
------------ ----------
Cash flows from investing activities:
Securities paydowns, calls, maturities $ 101,132 $ - -
Increase in loans (2,481,517) - -
Purchase of fixed assets (71,597) (652,061)
------------ ----------
Net cash used in investing activities $ (2,451,982) $ (652,061)
------------ ----------
Cash flows from financing activities:
Increase in deposits $ 4,522,623 $ - -
Increase in notes payable - - 732,352
Decrease in federal funds purchased (1,000,000) - -
------------ ----------
Net cash provided
from financing activities $ 3,522,623 $ 732,352
------------ ----------
Net increase in cash
and cash equivalents $ 1,111,691 $ (32,921)
Cash and cash equivalents,
beginning of period 464,139 40,232
------------ ----------
Cash and cash equivalents,
end of period $ 1,575,830 $ 7,311
============ ==========
Refer to notes to the financial statements.
ISLANDS BANCORP
BEAUFORT, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2002
(UNAUDITED)
Common Stock Accumulated
------------------ Other
No. of Retained Comprehensive
Shares Amount Earnings Income Total
------ ------ -------- ------ -----
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)
========= ========== ========= ======== ==========
- ---------------------------------
Balance,
Dec 31,
2001 652,705 $ 6,213,061 $ (848,572) $ 515 $ 5,363,974
--------- ---------- --------- -------- ----------
Comprehensive Income:
- --------------------
Net income,
three-month
period ended
Mar. 31, 2002 - - - - (77,887) - - (77,887)
Net unrealized
gains on
securities,
three-month
period ended
Mar. 31, 2002 - - - - - - 749 749
--------- ---------- --------- -------- ----------
Total comprehensive
income - - - - (77,887) 749 (77,138)
--------- ---------- --------- -------- ----------
Balance,
Mar. 31,
2002 652,705 $ 6,213,061 $ (926,459) $ 234 $ 5,286,836
========= ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
ISLANDS BANCORP
BEAUFORT, SOUTH CAROLINA
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002
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, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. 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, 2001.
NOTE 2 - SUMMARY OF ORGANIZATION
Islands Bancorp (the "Company") is a one-bank holding company with respect
to Islands Community Bank, N.A., Beaufort, South Carolina (the "Bank"). The
Company was incorporated July 23, 1999, ant its principal operations commenced
when the Bank opened for business on July 9, 2001. The Bank is engaged in the
business of gathering and obtaining customers' deposits and providing
commercial, consumer and real estate loans to the general public.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("FASB 141") addresses financial accounting and reporting for
business combinations and supersedes both APB Opinion No. 16, "Business
Combinations" and FASB Statement No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." All business combinations in the
scope of FASB 141 are to be accounted for using one method - the purchase
method. The provisions of FASB 141 apply to all business combinations initiated
after June 30, 2001. The adoption of FASB 141 is not expected to have a
material impact on the financial position or results of operation of the
Company.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("FASB 142") addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets." FASB 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial statements upon
their acquisition. FASB 142 also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. FASB 142 is effective for fiscal years beginning after
December 15, 2001. The adoption of FASB 142 is not expected to have a material
impact on the financial position or results of operation of the Company.
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("FASB 143") addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. FASB 143 applies to all
entities. FASB 143 also applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of leases. FASB 143 amends FASB Statement No. 19,
"Financial Accounting and Reporting by Oil and Gas Producing Companies".
FASB 143 is effective for fiscal years beginning after December 15, 2002. The
adoption of FASB 143 is not expected to have a material impact on the financial
position or results of operation of the Company.
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FASB 144") addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
FASB 144 supersedes both FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operation - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a Segment of a business (as previously
defined in that opinion). FASB 144 also amends ARB No. 51, "Consolidated
Financial Statements" to eliminate the exception to consolidation for a
subsidiary for which control is likely temporary. The provisions of FASB 144
are required to be applied with fiscal years beginning after December 15, 2001.
Adoption of FASB 144 is not expected to have a material impact on the financial
position or results of operation of the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS.
- --------------
As discussed earlier under Note 2, our banking operations commenced July
9, 2001. The Company cautions against comparing results obtained in periods
prior to the commencement of banking operations with results obtained after
commencement of our banking operations; in fact, such comparisons may not be
meaningful and may possibly be misleading.
Total assets increased by $3.4 million, from $10.0 million at December 31,
2001 to $13.4 million at March 31, 2002. More specifically, cash and cash
equivalents increased by $1.1 million, from $.5 million at December 31, 2001 to
$1.6 million at March 31, 2002; securities decreased by $.1 million, from $1.3
million at December 31, 2001 to $1.2 million at March 31, 2002; loans increased
by $2.4 million, from $6.3 million at December 31, 2001 to $8.7 million at March
31, 2002; property and equipment increased by $.1 million, from $1.5 million at
December 31, 2001 to $1.6 million at March 31, 2002; and all other remaining
assets decreased by $.1 million, from $.4 million at December 31, 2001 to $.3
million at March 31, 2002. To fund the growth in assets, deposits increased by
$4.5 million, from $3.6 millon at December 31, 2001 to $8.1 million at March 31,
2002; federal funds purchased decreased by $1.0 million, from $1.0 million at
December 31, 2001 to no federal funds purchased at March 31, 2002; and the
capital accounts decreased by $.1 million, from $5.4 million at December 31,
2001 to $5.3 million at March 31, 2002.
Liquidity and Sources of Capital
- --------------------------------
From its inception until July 6, 2001, the Company's operations were
funded primarily through loans and other borrowings. On July 6, 2001, the
Company received approximately $6.2 million from the sale of its common stock
to the public. Soon thereafter, the Company injected $6.0 million into the
Bank's capital accounts and used the majority of the remaining funds to pay-off
debt it had incurred during the development stage. The Bank, in turn, also
paid-off debts associated with its organizational costs, the purchase of its
facilities, and the purchase of its furniture and equipment.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The March
31, 2002 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $1.6 million, representing 11.8%
of total assets. Investment securities, which amounted to $1.2 million, or
8.9% of total assets, provide a secondary source of liquidity because they can
be converted into cash in a timely manner. The Bank is a member of the Federal
Reserve System and maintains relationships with several correspondent banks and,
thus, could obtain funds from these banks on short notice. The Company's
management closely monitors and maintains appropriate levels of interest earning
assets and interest bearing liabilities, so that maturities of assets can
provide adequate funds to meet customer withdrawals and loan demand. The
Company knows of no trends, demands, commitments, events or uncertainties
that will result in or are reasonably likely to result in its liquidity
increasing or decreasing in any material way. The Bank maintains an adequate
level of capitalization as measured by the following capital ratios and the
respective minimum capital requirements by the Bank's primary regulator, the
OCC.
Bank's Minimum required
March 31, 2002 by the OCC
-------------- ----------------
Leverage ratio 46.6% 4.0%
Risk weighted ratio 47.5% 8.0%
Results of Operations
- ---------------------
For the three-month period ended March 31, 2002, net (loss) amounted to
$(77,887), or $(.12) per both basic and diluted share. For the three-month
period ended March 31, 2001, net (loss) amounted to $(104,204). The primary
reasons for the improvement in income for the three-month period ended March 31,
2002 when compared with the three-month period ended March 31, 2001 are as
follows:
a. Net interest income increased by approximately $159,836, from $(27,618) for
three month period ended March 31, 2001 to $132,218 for the three-month
period ended March 31, 2002. The reason for the above improvement is as
follows: During the three-month period ended March 31, 2002, the Company
had interest earning assets while during the three-month period ended March
31, 2001 banking operations had not commenced. For the three-month period
ended March 31, 2002, average earning assets amounted to $9.5 million,
average yield on earning assets amounted to 7.11%, the average cost of funds
was 2.85%, and the net yield on average earning assets was 5.56%.
b. The Company booked $46,900 in income tax benefits during the three-month
period ended March 31, 2002; such benefit was not booked during 2001 as the
successful completion of the stock offering was not assured. With the
commencement of planned principal operations, however, the Company expects
to realize these income tax benefits in the future.
c. For the three-month period ended March 31, 2002, non-interest income
amounted to $15,402. As a percent of average assets, non-interest income
amounted to .51%.
d. Operating expenses were approximately $167,181 higher during the three-month
period ended March 31, 2002 when compared to the three-month period ended
March 31, 2001. As discussed earlier, banking operations commenced July 9,
2001, necessitating the need for a banking facility and a full staff during
the three-month period ended March 31, 2002. As a percent of average
assets, operating expenses amounted to 8.12%.
As of March 31, 2002, the allowance for loan losses amounted to $105,490.
As a percent of gross loans, the allowance for loan losses amounted to 1.19%.
Management considers the allowance for loan losses to be adequate and sufficient
to absorb possible future losses; however, there can be no assurance that
charge-offs in future periods will not exceed the allowance for loan losses or
that additional provisions to the allowance will not be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources, or results of operations.
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.
------------------------------------------
This item is not applicable.
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, 2002.
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, 2002.
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: May 9, 2002 BY: /s/ William B. Gossett
----------------- ----------------------------
William B. Gossett
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)