ISLANDS BANCORP, SB-2, 1999-12-13

ISLANDS BANCORP
SB-2, 1999-12-13

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<PAGE>

Registration Statement No. 333-

---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

ISLANDS BANCORP
(Name of Small Business Issuer in Its Charter)
South Carolina 6021 57-1082388
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation or Classification Code Number)
Organization) Number)

500 Carteret Street, Suite A
Beaufort, South Carolina 29902
(843) 470-9962
(Address and Telephone Number of Principal Executive Offices
and Intended Principal Place of Business)

---------------

William B. Gossett
President and Chief Executive Officer, Islands Bancorp
500 Carteret Street, Suite A
Beaufort, South Carolina 29902
(843) 470-9962
(Name, Address and Telephone Number of Agent For Service)
Copy to:
William S. McMaster
Nexsen Pruet Jacobs & Pollard, LLP
1141 Main Street
P.O. Drawer 2426
Columbia, SC 29201
(803) 253-8217
(803) 253-8277 (Fax)

---------------

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered (1) Per Unit Offering Price Registration Fee
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (1)....... 1,210,115 $10.00 $ 12,101,150 $3,365.00
- ------------------------------------------------------------------------------------------
Warrants (2)........... 210,115 $ 0.00 $ 0.00 $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes 210,115 shares issuable upon exercise of common stock purchase
warrants reserved for issuance to directors of the registrant.
(2) Represents common stock purchase warrants reserved for issuance to
directors of the registrant.

---------------

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell the securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
This is a preliminary prospectus that is not yet complete. December 13, 1999

ISLANDS BANCORP

A Holding Company for

ISLANDS COMMUNITY BANK, N.A. (In Organization)

Common Stock
Purchase Price $10.00 Per Share

630,000 shares (Minimum) 1,000,000 shares (Maximum)

Islands Bancorp is offering shares of its common stock to organize Islands
Community Bank, N.A., a proposed national bank to be headquartered in Beaufort,
South Carolina. We will be the sole shareholder of Islands Community Bank after
it is organized. We expect the bank to open in the second quarter of 2000.
Islands Community Bank is expected to be a community-oriented financial
institution focused on providing a full range of personalized commercial and
consumer banking services and products designed to meet the needs of
individuals and businesses in our community. This is our initial public
offering, and no public market currently exists for our shares.

We will deposit all subscription funds with an independent escrow agent who
will hold the money until we have received subscriptions for at least 630,000
shares and have received preliminary approval from the bank regulatory agencies
to acquire the stock of Islands Community Bank. We have scheduled the offering
to end on April 30, 2000, but we may extend it to December 31, 2000. If we do
not receive subscriptions for 630,000 shares by the end of the offering period,
we will return all subscription funds to subscribers, without interest. The
minimum subscription amount is 100 shares per investor. Our directors will
receive warrants to purchase one share of common stock for $10.00 per share for
every share they purchase in the offering.

Investing in our common stock involves a high degree of risk. It is not a
deposit or an account, and it is not insured by the FDIC or any other
government agency. We urge you to read carefully the "Risk Factors" section
beginning on page 6, along with the rest of this prospectus, before you make
your investment decision. You should not invest in this offering unless you can
afford to lose your entire investment.

We will be offering the shares through the efforts of our officers and
directors. We may also engage the services of a sales agent to assist in the
offering. If we utilize a sales agent, we anticipate that the sales agent will
be paid no more than an eight percent commission for each share sold. In our
computation of the commissions in the table below, we have assumed that 200,000
of the shares will be sold through a sales agent. See "The Offering."

<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Selling Agent Proceeds to
Price to Public Commissions Islands Bancorp
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ........................ $10.00 $0.80 $9.20
Total Minimum..................... $6,300,000 $160,000 $6,140,000
Total Maximum..................... $10,000,000 $160,000 $9,840,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
December , 1999
<PAGE>

Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Offering............................................................. 11
Use of Proceeds.......................................................... 14
Capitalization........................................................... 15
Dividend Policy.......................................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Proposed Business of the Bancorp and the Bank............................ 18
Supervision and Regulation............................................... 24
Management............................................................... 28
Security Ownership of Management......................................... 33
Transactions with Management............................................. 34
Description of Securities................................................ 36
Legal Matters............................................................ 39
Experts.................................................................. 39
Additional Information................................................... 40
Index to Financial Statements............................................ F-1
Subscription Offer Forms
</TABLE>

------------------

You should rely only on the information contained in this prospectus. We
have not authorized anyone to give any information that is different. This
prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted. The information in this prospectus is complete and accurate as of
the date on the cover, but the information may change in the future.

Until , all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
It does not contain all of the information you should consider before investing
in our common stock. To fully understand this offering, you should read the
entire prospectus carefully, including the risk factors and the financial
statements.

Islands Bancorp and Islands Community Bank

Islands Bancorp is a South Carolina corporation that was incorporated on
July 23, 1999 to organize and serve as the holding company for Islands
Community Bank, N.A., a proposed national bank. The bank will operate as a
community bank emphasizing prompt, personalized customer service to the
individuals and businesses located in Beaufort County, South Carolina,
including the City of Beaufort, and its neighboring islands and communities.

We have filed an application for a charter to be granted to the bank by the
Office of the Comptroller of the Currency and an application for insurance of
its deposits to be obtained from the FDIC. We intend to apply to the Board of
Governors of the Federal Reserve System for authority to become a bank holding
company once the bank's charter is granted and insurance is obtained.

We hope to receive all necessary regulatory approvals by the end of March,
2000. At that point, if at least the minimum number of shares are sold in this
offering, we anticipate beginning operations out of a temporary facility to be
located at the intersection of Sea Island Parkway (federal highway 21) and
state highway 802 on Lady's Island, South Carolina. This site is approximately
two miles from downtown Beaufort and is currently under contract by the
Bancorp. We expect construction of our permanent facility at this site to be
completed in the second quarter of 2001.

Our Market Area

Our primary service area consists of a large portion of Beaufort County. It
includes the City of Beaufort and the adjacent communities of Port Royal and
Burton. It also includes the islands that are northeast of the Broad River and
south of the Coosaw River. Some of the major islands are Lady's Island, Fripp
Island, Parris Island, St. Helena Island, Hunting Island, Port Royal Island,
Dataw Island and Harbor Island. Located in the southernmost corner of coastal
South Carolina, Beaufort County is one of the fastest growing counties in South
Carolina, in terms of both population and commercial growth. The City of
Beaufort serves as the commercial and retail center for communities in the
southern corner of South Carolina and is considered a key economic focal point
of the Beaufort County area. According to CACI Marketing Systems, the 1998
population of Beaufort County was approximately 109,200 and is expected to grow
to approximately 123,700 in 2003. We anticipate that the deposit base in the
Beaufort County area will grow as its population and economic activity continue
to increase. As of June 30, 1998, there were eight commercial banks represented
in the Beaufort market with aggregate deposits of approximately $402 million.

Our Market Opportunity

We believe an attractive opportunity exists in our primary service area for
a locally headquartered community bank that focuses on personalized service to
individuals and businesses. The banking industry in our primary service area
has experienced significant consolidation in recent years principally as the
result of the liberalization of interstate banking and branching laws. Many of
our area's former community banks have been acquired by large regional
financial institutions headquartered outside our market area. As a result, none
of the eight commercial banks operating in our primary service area as of
November 30, 1999 were headquartered in Beaufort or Beaufort County. This
consolidation in the banking industry has also resulted in the dissolution of
local boards of directors and the dislocation of management and customer
service personnel with extensive banking experience and strong ties to our
local community. Accordingly, we believe that many customer relationships in
the Beaufort market have been disrupted as the bigger financial institutions
have increasingly

3
<PAGE>

focused their attention on larger corporate customers, standardized loan and
deposit products and other services. Generally, these products and services are
offered by less personalized delivery systems. We believe this has created a
demand for the delivery of higher quality, personalized banking services to
individuals and small to medium-sized businesses. For these reasons, we believe
we have a unique opportunity to attract and retain experienced and talented
individuals who are familiar with the banking needs of the local community. As
a locally owned community bank headquartered in Beaufort, we will offer
convenient service, local decision-making and competitive loans. Additionally,
by focusing our operations on the community we serve, we believe that we will
be able to respond to changes in the Beaufort market more quickly than large,
centralized institutions.

Our Organizers

Beaufort Bancorp was organized by ten individuals residing or doing business
in Beaufort County. These organizers have advanced approximately $100,000 and
have guaranteed a $90,000 line of credit that the Bancorp obtained from a third
party bank in order to pay organizational and offering expenses. Our organizers
all currently serve as directors of the Bancorp and have also agreed to serve
as directors of the bank. Our directors will not be compensated for their
services until the bank becomes cumulatively profitable. For the names of and
biographical information about our organizers, see "Management--Directors and
Executive Officers of the Bancorp and the Bank."

The board of directors of the Bancorp consists of the ten organizers and our
President and Chief Executive Officer, all of whom are also expected to be the
directors of the bank. All of our directors have significant business interests
in Beaufort County and are active participants in the Beaufort community. The
directors intend to utilize their diverse backgrounds and their extensive local
business relationships to attract customers from all segments of our community.
In connection with the initial organization and capitalization of the Bancorp,
each of these directors purchased 50 shares of common stock of the Bancorp at
$10.00 per share. In addition to these shares, the directors and executive
officers have indicated their intent to purchase an aggregate of approximately
135,000 more shares of common stock in the offering. In that event, the
directors and executive officers will own an amount of shares equal to
approximately 21 percent of the shares of stock to be outstanding after this
offering, assuming the completion of the minimum offering of 630,000 shares.
See "Security Ownership of Management." We believe that our directors'
ownership interests in the Bancorp should encourage their active participation
in growing our business.

The Offering

<TABLE>
<S> <C>
Common stock offered................ Minimum: 630,000 shares
Maximum: 1,000,000 shares
Common stock outstanding
prior to this offering............. 550 shares
Common stock to be outstanding
after this offering................ Minimum: 630,550 shares
Maximum:1,000,550 shares
Price to public..................... $10.00 per share
Net proceeds........................ $6,040,000 if the minimum number of shares of common
stock are sold and $9,740,000 if the maximum number
of shares are sold. These amounts are net of the
payment of an eight percent sales agent commission
on up to 200,000 shares sold and the payment of
offering and organizational expenses estimated at
$100,000.
</TABLE>

4
<PAGE>

<TABLE>
<S> <C>
Use of proceeds..................... We will use the proceeds of the offering as follows:
.To pay the offering expenses;
.To reimburse the organizational expenses incurred
by
the organizers;
.To repay the line of credit guaranteed by the
organizers;
.To capitalize the bank; and
.To add to the working capital of the Bancorp.
If the ultimate net proceeds of the offering are
greater than $7 million, then we may invest all or a
portion of the excess in the capital of the bank.
Any balance will be retained as working capital of
the Bancorp.
The bank will use the funds it receives from the
Bancorp as follows:
.To pay expenses;
.To purchase the site for its initial offices;
.To build and furnish its offices; and
.To provide working capital to operate the bank.
Offering conditions................. We must satisfy the following conditions to complete
the offering:
.At least $6,300,000 must be deposited in an escrow
account with an independent escrow agent;
.The Federal Reserve Board must approve our
application to become a bank holding company;
.We must obtain preliminary approval from the Office
of the Comptroller of the Currency to charter the
bank;
.The Federal Deposit Insurance Corporation must
approve the bank's application for deposit
insurance; and
.We must not have cancelled this offering before
funds are withdrawn from the subscription escrow
account.
Escrow arrangements................. Until we have satisfied all of the offering
conditions, we will place all funds in an escrow
account. If we have not satisfied the offering
conditions by December 31, 2000, we will return to
the subscribers all funds placed in the escrow
account, without interest. Once we have satisfied
all of the offering conditions, the escrow agent
will release all funds to the Bancorp. Any funds
received after that time will not be placed in
escrow, but will be immediately available for use by
the Bancorp. At that point, all subscribers may lose
a portion of their investment if either the Bancorp
or the bank does not receive final regulatory
approval.
</TABLE>

Plan of Distribution

Our officers and directors are expected to handle the sale of substantially
all of the shares of common stock in this offering. They will not be paid any
fees or commissions for their efforts. In addition, we may engage a registered
broker-dealer as our sales agent to use its best efforts to assist us in the
sale of shares above the minimum offering of 630,000 shares. If we utilize a
sales agent, we anticipate that the sales agent will be paid not more than an
eight percent commission on each share sold. See "The Offering--Plan of
Distribution."

5
<PAGE>

RISK FACTORS

An investment in our common stock involves a significant degree of risk. You
should not invest in our common stock unless you can afford to lose your entire
investment. You should consider carefully the following risk factors and other
information included in this prospectus before you decide to purchase any
shares of our common stock. You should also carefully read the cautionary
statement following the "Risk Factors" regarding the use of forward-looking
statements.

We have no operating history upon which to predict whether we will ever be
successful.

Neither the Bancorp nor the bank has any operating history on which to base
an assessment of the risk that they may be unsuccessful. The Bancorp was only
recently formed, and the bank is not expected to receive final approval from
regulatory authorities to begin operations until after this offering is
completed. Consequently, you will not have access to historical information
that would be helpful in deciding whether to invest in the Bancorp. You should
consider the risk of an investment in the Bancorp in light of the expenses,
complications and delays frequently encountered in connection with the
development of a new bank.

We will incur substantial start-up expenses, and there is a risk that we may
never become profitable.

We will be the sole shareholder of the bank, and it will be our only
operating asset. This means that our success, and any return on your investment
in our common stock, will depend entirely on the operations of the bank. If the
bank is ultimately unsuccessful, you may not recover all or any part of your
investment in the common stock. Typically, new banks are not profitable in the
first year of operation and sometimes they are not profitable for several
years. In order for us to become profitable, the bank will need to attract a
large number of customers to deposit and borrow money. Additionally, many of
the bank's loans initially will be new loans to new borrowers. Accordingly, it
will take several years to determine the borrowers' payment histories. As a
result, management will not be able to evaluate reliably the quality of the
loan portfolio until that time.

Delay in regulatory approvals could increase our pre-opening expenses and
postpone any revenue realization.

Although we expect to receive all regulatory approvals to begin operations
in the second quarter of 2000, we can give no assurance as to when, if ever,
these events will occur. Any delay in beginning our operations will increase
our pre-opening expenses and postpone realization of potential revenue by the
bank. A delay will cause our accumulated deficit to increase as a result of our
lack of revenues and our continuing operating expenses, such as salaries and
other administrative expenses.

If we fail to receive necessary regulatory approvals, you could lose a portion
of your investment.

If the conditions for releasing subscription funds from the escrow account
are satisfied and we release the funds, but fail to receive final regulatory
approval, we would seek to dissolve and liquidate the Bancorp. Upon
liquidation, we would return to subscribers all of their funds, without
interest, less all expenses incurred by the Bancorp. Consequently, subscribers
whose funds are originally placed in escrow, but became available to the
Bancorp, may lose a portion of their investment. In addition, funds available
for return to subscribers could be reduced by amounts necessary to satisfy
claims of creditors. See "The Offering--Failure of Bank to Begin Operations."

We will be competing with many other larger financial institutions which may
have an adverse effect on our success.

As a new bank in an established market, we expect to encounter strong
competition from existing banks and other types of financial institutions
operating in our market area and elsewhere. Our relatively small size may
affect our ability to compete effectively with these institutions in attracting
deposits and offering other

6
<PAGE>

financial services. We will compete with numerous other lenders and deposit-
takers including other commercial banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies and brokerage and
investment banking firms. These institutions may have competitive advantages
over the bank because they have greater capitalization and other resources, and
they can offer potential depositors higher lending limits and other services
which the bank may not be able to offer. Although we will compete primarily
with other financial institutions in our market area, we may also compete with
Internet banks and financial institutions located throughout the United States
for products such as large certificates of deposit. We are aware of a proposed
new community bank that plans to commence operations in our primary service
area in the first half of 2000. If that occurs, we would also face competition
with that community bank.

All of our competitors actively solicit business from residents of Beaufort
County. Some of these institutions are not subject to the same degree of
regulation as we will be, and some have greater resources than will be
available to us. Because of this competition, we may have to pay higher rates
of interest to attract deposits. We can offer you no assurance that the bank
will be successful in attracting the deposits it will need to sustain its
growth.

Because of the Glass-Steagal Act, the commercial banking business has
enjoyed legal barriers to entry by non-banking enterprises. It is possible that
the United States Congress will repeal the Glass-Steagal Act in the near
future. If this happens, the bank may face even greater competition in its
primarily service area from large, well-capitalized enterprises. At the same
time, regulations may prevent the Bancorp and the bank from diversifying into
non-banking businesses. See "Supervision and Regulation."

Our initial lending limit will be lower than many of our competitors, which may
discourage potential customers and limit our growth.

At least initially, the bank will have less capital than many of its
competitors. This means that its legally mandated lending limits would be lower
than those of these competitors. These lower lending limits may discourage
potential borrowers who have lending needs that exceed our limits, which may
restrict our ability to grow. Until the bank is profitable, we will lose money,
which will decrease our capital and therefore our lending limit. We may try to
serve the needs of our borrowers by selling loan participations to other
institutions, but this strategy may not succeed.

Departures of our key personnel or directors will impair our operations.

William B. Gossett will be our President and Chief Executive Officer. He
will be instrumental in our organization and will be the key management
official in charge of our daily business operations. Although we have entered
into an employment agreement with Mr. Gossett, we cannot be assured of his
continued service, and he would be difficult to replace. Additionally, our
directors' community involvement, diverse backgrounds and extensive local
business relationships are important to our success. Our growth could be
adversely affected if the composition of our board of directors changes
materially. See "Management."

Changes in interest rates may decrease our net interest income.

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 assets and the interest expense paid on its deposits and other
borrowings. This difference is largely affected by changes in market interest
rates and other economic factors beyond the control of the bank. Any increase
or decrease in interest rates could have a material adverse effect on our net
interest income, capital, and liquidity and may decrease or eliminate our
profitability.

7
<PAGE>

Our success will depend significantly upon general economic conditions in
Beaufort County.

A prolonged economic dislocation or recession affecting Beaufort County
could cause the bank's non-performing assets to increase, causing operating
losses, impaired liquidity and the erosion of capital. Such an economic
dislocation or recession could result from a variety of causes, including
natural disasters such as hurricanes or tornadoes, or a prolonged downturn in
various industries including the real estate development, resort and retirement
industries, upon which the economy of Beaufort County is highly dependent.
Moreover, as many of our shareholders are expected to be residents of the
Beaufort County area, a prolonged downturn in the economy of Beaufort County
could result in sales of large amounts of our common stock.

Because the offering price cannot be supported by value of assets or earnings,
you may be overpaying for the shares.

We set the offering price at $10.00 per share on the basis of the start-up
capital needs of the bank and the offering prices of other newly-organized bank
holding companies. This price bears no relationship to assets, book value,
earnings or other established criteria of value. As a result, you may be
overpaying for the shares.

You may have difficulty in selling your shares because of the absence of an
active public market.

There is no established market for the common stock. A public market having
depth and liquidity depends on having enough buyers and sellers at any given
time. Because the size of this offering is relatively small, it is unlikely
that there will be enough shareholders or outstanding shares to support an
active trading market. Consequently, you should only invest in the common stock
if you have a long-term investment intent. If an active market does not
develop, you may be required to locate a buyer on your own and may not be able
to do so.

The shares of common stock are not insured bank deposits.

Although deposits at the bank will be insured by the FDIC to the maximum
amount permitted by law, shares of the Bancorp common stock are not bank or
deposit accounts. Consequently, our common stock is not insured by the FDIC or
any other governmental agency.

We intend to grant warrants and stock options to the directors and to some of
our employees which, if exercised, would reduce your percentage ownership in
the Bancorp.

If the offering is unsuccessful, the organizers will lose the funds of
approximately $100,000 which they have advanced toward organizational and
offering expenses and the $5,500 they paid to purchase shares of the Bancorp.
They will also be obligated to repay the line of credit obtained to pay a
portion of such expenses which they have personally guaranteed. In recognition
of these financial risks, and their willingness to serve as directors without
pay until the bank is cumulatively profitable, we intend to grant to each of
the directors who purchases shares in this offering one warrant to purchase one
additional share of common stock for each share of common stock the director
purchases in this offering, up to an aggregate maximum for all directors of
210,115 shares. On the basis of the amount of shares our directors have
indicated they intend to purchase in this offering, we intend to issue to the
directors warrants to purchase up to an aggregate of 135,000 shares of common
stock. See "Management--Stock Warrants of Directors" and "Security Ownership of
Management." In addition, we intend to establish an incentive stock option plan
which will allow us to grant stock options to officers and other employees who
are contributing significantly to the management or operation of the business
of the Bancorp or the bank. Under this plan, we intend to reserve a number of
shares of common stock for the issuance of options equal to 15% of the shares
outstanding after this offering.

8
<PAGE>

Any future exercise of the organizer's warrants or any options that may be
granted under the stock option plan would reduce your percentage ownership in
the Bancorp. For example, prior to the exercise of their warrants, the
organizers will own approximately 21.4 percent of the shares outstanding. This
assumes the sale of only the minimum number of shares in this offering and the
purchase by the organizers of the aggregate number of shares of common stock
they have indicated they intend to purchase. See "Security Ownership of
Management." If the organizers exercised all of their warrants, they would own
approximately 35.3 percent of the outstanding shares. Again, this assumes the
sale of only the minimum number of shares in this offering and the purchase by
the organizers of the aggregate number of shares of common stock they have
indicated they intend to purchase.

Anti-takeover provisions in our articles of incorporation and state corporate
laws could deter or prevent take-over attempts by a potential purchaser of our
common stock and deprive you of the opportunity to obtain a takeover premium
for your shares.

In many cases, shareholders receive a premium for their shares when a
company is purchased by another. Various provisions in our articles of
incorporation and bylaws and state corporate laws could deter and make it more
difficult for a third party to bring about a merger, sale of control, or
similar transaction without approval of our board of directors. These
provisions tend to perpetuate existing management. As a result, you may be
deprived of opportunities to sell some or all of your shares at prices that
represent a premium over market prices. These provisions, which could make it
less likely that a change in control will occur, include:

. provisions in our articles of incorporation establishing three classes of
directors with staggered terms, which means that only one-third of the
members of the board of directors is elected each year and each director
serves for a term of three years.

. provisions in our articles of incorporation authorizing the board of
directors to issue a series of preferred stock without shareholder action,
which issuance could discourage a third party from attempting to acquire, or
make it more difficult for a third party to acquire, a controlling interest
in the Bancorp.

. provisions in our bylaws relating to meetings of shareholders which limit
who may call a meeting and what matters will be voted upon.

. state law provisions that require two-thirds of the shareholders to approve
mergers and similar transactions, and amendments to the articles of
incorporation.

See "Description of Securities--Change of Control and Anti-takeover
Effects".

We do not expect to pay dividends on our common stock for at least several
years.

The Bancorp will initially have no source of income other than dividends
that it receives from the bank. Our ability to pay dividends to you will
therefore depend on the bank's ability to pay dividends to the Bancorp. The
bank intends to retain future earnings, if any, to improve the bank's capital
structure to support future growth. In addition, there are regulatory
restrictions on the amount of dividends the bank can pay. Consequently, we do
not plan to pay dividends until we recover any losses that we may have incurred
and become profitable. Additionally, our future dividend policy will depend on
our earnings, capital requirements, financial condition and other factors that
the board of directors of the Bancorp and the bank consider relevant. See
"Dividend Policy."

You may suffer dilution in your interests in common stock if we offer
additional shares of common stock in the future.

The directors of the Bancorp believe that the sale of the minimum number of
630,000 shares of common stock in this offering will provide adequate capital
to sustain the bank during its initial years of operations. See "Use of
Proceeds." There is no present intent to offer for sale additional shares of
common stock over and above the maximum number of one million shares. However,
the bank's success will depend on a number of

9
<PAGE>

factors, including the factors set forth in this "Risk Factors" section of the
prospectus. Accordingly, no assurance can be given that, in the future, the
Bancorp will not have to seek additional capital by offering and selling
additional shares of common stock in order to continue to operate, satisfy
regulatory requirements or achieve successful operations. See "Supervision and
Regulation -- Capital Adequacy Requirements." If it becomes necessary to raise
additional capital to support the bank's operations, there is no assurance that
additional capital will be available to the bank, that additional capital can
be obtained on terms favorable to the bank or that the price of which
additional shares may be offered by the Bancorp in the future will not be less
than the subscription price in this offering. The effect on existing
shareholders of sales of additional shares of common stock cannot presently be
determined. However, those sales could have a dilutive effect on the interests
of subscribers who purchase common stock in this offering.

Government regulation may have an adverse impact on our operations and growth.

Bank holding companies and banks are subject to extensive state and federal
government supervision and regulation. These regulations are generally intended
to provide protections for depositors and borrowers, rather than for the
benefit of shareholders. These and other restrictions limit the manner in which
we may conduct our business and obtain financing, including our ability to
attract deposits, make loans and achieve satisfactory interest spreads. In
addition, the burden imposed by federal and state regulations may place us at a
competitive disadvantage as compared to competitors which are less regulated.
Applicable laws, regulations, interpretations and enforcement policies may be
subject to significant future changes. Our ability to achieve profitability and
grow could be adversely affected by the state and federal banking laws and
regulations. See "Supervision and Regulation."

It is possible that either our computer systems, or those of our data
processing vendor or loan customers, will fail to properly accommodate year
2000 dates.

As a financial institution, we expect to be heavily dependent upon computers
for the conduct of our business. As the year 2000 approaches, an important
business issue has emerged regarding the ability of existing software programs
and operating systems to recognize the year 2000 and other year 2000-sensitive
dates. This could result in a system failure or miscalculations causing
disruption of operations. We will not purchase our information systems or
commence our banking operations until several months after January 1, 2000.
Accordingly, we expect to be in a position to avoid much of the uncertainty
surrounding year 2000 compliance in our operating systems that would otherwise
exist if these systems were purchased and in operation prior to that date. In
any event, we intend to utilize third-party vendors to provide our primary
banking computer applications, including core processing systems. The bank will
depend on the efforts of these third party vendors to ensure that their data
processing systems accommodate year 2000 information. Although we intend to
require vendor certification regarding year 2000 readiness before we purchase
any equipment, we cannot verify independently that the equipment will, in fact,
be year 2000 compliant. In addition, the bank could be affected by year 2000
problems experienced by others over which it will have no control. These
parties include our customers, service providers, vendors, customers' vendors,
correspondent banks, government agencies, and the financial services industry
in general. We plan to include Year 2000 criteria in our loan approval process
and are developing a plan to address other year 2000 issues. Nevertheless, it
may be difficult to identify all problems, and any such problems could have a
significant adverse impact on the bank's operations, and in turn, the financial
condition and results of operations of the Bancorp.

Note Regarding Forward-looking Statements

Some of the statements contained in this prospectus discuss future
expectations or state other "forward-looking" information. Such statements can
be identified by the use of forward-looking words such as "may," "will,"
"expect," "anticipate," "estimate" or other similar words. Those statements
could be affected by known and unknown risks, uncertainties and other factors
that could cause the actual results to differ materially from those
contemplated by the statements. When considering such forward-looking
statements, you should keep in mind the preceding risk factors and other
cautionary statements in this prospectus.

10
<PAGE>

THE OFFERING

We are offering a minimum of 630,000 shares and a maximum of 1,000,000
shares of common stock at a public offering price of $10.00 per share. This
offering is intended to raise gross proceeds of between $6,300,000 and
$10,000,000. The minimum purchase for any investor is 100 shares and the
maximum purchase is 4.99 percent of the aggregate shares subscribed in the
offering, although we may accept subscriptions for more or less. We must
receive your subscription for shares before midnight, Eastern Standard Time, on
April 30, 2000, unless all of the shares are sold earlier, or unless the
offering is terminated or extended. We reserve the right to terminate the
offering at any time or to extend the expiration date up to December 31, 2000.
Extension of the expiration date might cause an increase in our expenses. We do
not have to give you any prior written notice of an extension. If we extend the
offering, subscriptions we have already accepted will still be binding. We may
also terminate the offering at any time prior to the sale of the minimum number
of shares offered in this offering by providing you with written notice of such
termination. In such event, we will cause all subscription funds to be refunded
to you, without interest.

Conditions of the Offering

The offering is conditioned upon fulfillment of the following conditions on
or prior to the expiration date of the offering. The offering conditions are as
follows:

. At least $6,300,000 must be deposited with the escrow agent in the
subscription escrow account;

. We must receive approval from the Federal Reserve Board of our
application to become a bank holding company;

. We must receive preliminary approval from the Office of the Comptroller
of the Currency to charter the bank;

. The bank must receive approval of its application for deposit insurance
from the FDIC; and

. We must not have terminated this offering prior to the time funds are
withdrawn from the subscription escrow account.

Escrow of Subscription Funds

Until the offering conditions above have been met, all subscriptions and
documents tendered by investors will be placed in an escrow account with an
independent escrow agent, The Bankers Bank. Under the terms of the escrow
agreement, if all of the offering conditions are met, the Bancorp may certify
this fact to the escrow agent and the escrow agent will release all funds, with
interest earned on the funds, to the Bancorp.

The escrow agent has not investigated the desirability, advisability or
merits of a purchase of the shares of common stock in this offering. The escrow
agent will invest escrowed funds in deposit accounts or certificates of deposit
which are fully insured by the FDIC or another agency of the United States
government, short-term securities issued or fully guaranteed by the United
States government, and/or federal funds. The Bancorp will invest all funds
obtained after the release of the funds from the escrow account and before it
invests capital into the bank in a similar manner. The Bancorp will use the
offering proceeds to purchase capital stock of the bank and to repay expenses
incurred in the organization of the Bancorp and the bank. See "Use of
Proceeds."

If the offering conditions are not satisfied by the expiration date, the
escrow agent will promptly return to the subscribers their proportionate share
of the funds from the escrow account, without interest. If the offering
conditions are not satisfied, the expenses incurred by the Bancorp will be
borne by the organizers and not by the shareholders. If all of the offering
conditions are satisfied, and the Bancorp withdraws the funds from the
subscription escrow account, all profits and earnings on such account will
belong to the Bancorp. If subscriptions for 630,000 shares of common stock are
received and accepted before the expiration date, a minimum closing will be
held at the Bancorp's offices. At that minimum closing, the funds will be
released from the subscription escrow account to the Bancorp and the
subscribers will become shareholders of the Bancorp.

11
<PAGE>

Failure of Bank to Begin Operations

If the conditions for releasing subscription funds from the escrow account
are met and the funds are released, but we do not receive final regulatory
approval to operate the bank, or if the bank does not open for any other
reason, our board of directors intends to propose that the shareholders approve
a plan to liquidate the Bancorp. Upon liquidation, the Bancorp would be
dissolved and the Bancorp's net assets, consisting primarily of the funds
received in this offering, less the costs and expenses we have incurred, would
be distributed to the shareholders other than the organizers, who will not
receive any distribution until all of the shareholders have received their
initial investments. If our expenses exceed the amounts by which the organizers
have contributed toward payment of such expenses, subscribers whose funds were
originally placed in escrow but became available to the Bancorp may lose a
portion of their investment.

It is also possible that the amount returned to subscribers may be further
reduced by amounts paid to satisfy claims of creditors. Once the Bancorp issues
shares of common stock following the release of funds from the escrow account,
the offering proceeds will be considered part of the Bancorp's general
corporate funds and may be subject to the claims of creditors of the Bancorp.
These claims would include claims against the Bancorp that may arise out of
actions of its officers, directors or employees. It is possible, therefore,
that one or more creditors may seek to attach the proceeds of the offering
before the Bancorp begins banking operations. If such an attachment occurred
and it became necessary to return funds to shareholders because of failure to
obtain all necessary regulatory approvals, the payment process might be delayed
further.

Plan of Distribution

We expect that the common stock will be sold by the Bancorp exclusively
through the efforts of our officers and directors. Our officers and directors
may also elect to have their selling efforts supplemented by a licensed broker-
dealer acting as a sales agent. In such event, the sales agent would be engaged
to offer the common stock on a best efforts basis to the general public.

No fees, commissions or other remuneration will be paid to any of our
officers or directors in connection with his or her solicitation activities. We
anticipate that if we engage a sales agent, we will pay the agent a commission
of no more than eight percent of the gross proceeds from the sales of shares
sold by the agent. We expect that our arrangement with any sales agent will
also include our obligation to reimburse the sales agent for some portion of
its out-of-pocket expenses in connection with the offering. We may also be
required to indemnify the sales agent against liabilities it may be exposed to
in connection with the offering, including liabilities under federal securities
laws.

None of our officers and directors who will participate in the offer and
sale of shares of common stock is affiliated with a securities broker or
dealer, and none of these persons is, or intends to become, registered or
licensed as a broker or dealer or an agent of a broker or dealer. We believe
that each of our personnel who will assist in sales activities in connection
with this offering will be exempt from federal registration as a broker or
dealer as provided in Rule 3a4-1 under the Securities Exchange Act of 1934.

Purchases of Common Stock by Our Directors

Each of our directors has purchased 50 shares of common stock of the
Bancorp. The directors have also indicated their intent to purchase up to an
aggregate of 135,000 additional shares of the common stock in this offering.
The aggregate of these shares will constitute approximately 21.5 percent of the
630,550 shares to be outstanding upon completion of the minimum offering, or
13.6 percent of the 1,000,550 shares to be outstanding should the maximum
number of shares be sold. The directors may also purchase shares in this
offering in excess of these amounts, although they have not indicated an intent
to do so. Because purchases by the directors may be substantial, you should not
assume that the sale of a specified minimum offering amount indicates the
merits of this offering. All purchases of shares by the directors will be made
at the same public offering price of $10.00 per share paid by other investors
in this offering and will count toward the achievement of the minimum offering.
The directors have represented to the Bancorp that any of these purchases will
be made for investment purposes only, and not with a view to the resale of the
shares. See "Security Ownership of Management."

12
<PAGE>

In consideration for their efforts in organizing the Bancorp and the bank,
and in recognition of financial risk of loss undertaken by each of them in
connection with the funding of the organizational expenses of the Bancorp and
the bank, each of our directors who purchases shares in this offering will be
granted one warrant for each share of common stock the director purchases. The
warrants are expected to be granted to the directors for no additional
consideration upon completion of this offering. Each warrant will entitle the
director to purchase, at any time within ten years from the date the bank opens
for business, one additional share of our common stock at a price of $10.00 per
share. The warrants will provide the directors with an opportunity to profit
from any future increase in the market value of our common stock, or any
increase in the net worth of the bank, without paying for the warrant shares up
front. See "Management--Stock Warrants of Directors."

If each of our directors purchases the number of shares he or she has
indicated he or she intends to purchase in this offering, and also exercises
his or her warrants in full, the directors' aggregate ownership of the Bancorp
would be 35.3 percent based on the minimum offering and 23.8 percent based on
the maximum offering. Consequently, any future exercise of the warrants by our
directors will reduce your percentage ownership interest in the Bancorp.

How to Subscribe

The minimum subscription is 100 shares or $1,000, but we reserve the right
to accept subscriptions for less than the minimum subscription. If you desire
to purchase shares of the common stock of the Bancorp, you must:

. Complete and sign the Subscription Offer Form accompanying this prospectus;

. Make full payment for the purchase price for the shares in United States
currency by check, bank draft or money order payable to "The Bankers Bank--
Islands Bancorp Escrow Account"; and

. Deliver the executed Subscription Offer Form, in person or by mail, together
with full payment for the purchase price, to 500 Carteret Street, Suite A,
Beaufort, South Carolina 29902.

We reserve the right to disregard any subscription which is not fully paid
when we receive it. No subscription will be binding until we have accepted it,
and we may refuse to accept any subscription for shares, in whole or in part,
for any reason. In determining which subscriptions to accept, in whole or in
part, we may take into account the order in which we receive subscriptions and
a subscriber's potential to do business with, or to refer customers to, the
bank. In the event we reject all or part of your subscription, the escrow agent
will refund by mail all or the appropriate portion of the amount paid in by you
with the subscription, without interest, promptly after the rejection. In the
event we do not satisfy the conditions to release the funds from the escrow
account, all subscription proceeds will be returned promptly by mail in full,
without interest. After a subscription is accepted and proper payment is
received, we will not cancel it unless all other accepted subscriptions are
also cancelled.

If we engage a sales agent to assist us in this offering, consistent with
Rule 15c2-4 under the Securities Exchange Act of 1934, the sales agent will
transmit all subscribers' checks to the escrow agent not later than the close
of the next business day. The sales agent will be entitled to any commission
only after the conditions to the release of subscription proceeds from the
escrow agent to us are satisfied and the proceeds are actually released to us.

Certificates representing shares of common stock of the Bancorp will be
issued as soon as practicable after funds are released to us from the
subscription escrow account.

If you have any questions about the offering or how to subscribe, please
call William B. Gossett, our President and Chief Executive Officer, at (843)
470-9962. If you subscribe, you should retain a copy of the completed
subscription documents for your records.

13
<PAGE>

USE OF PROCEEDS

The gross proceeds from the sale of shares of common stock offered by the
Bancorp will be $6,300,000 assuming the sale of a minimum of 630,000 shares,
and $10,000,000 assuming the sale of a maximum of 1,000,000 shares. We have set
forth below a description of our anticipated use of the proceeds of the
offering by the Bancorp and by the bank based on our plans and estimates of our
start-up expenses. The sales agent's commission reflects an eight percent
commission on the sale of 200,000 shares. The following numbers are estimates
only, and the actual numbers may be different. The following presentation
assumes that the offering proceeds are released from escrow and the bank is
capitalized on May 1, 2000. We cannot assure you that the bank will be
capitalized at that time or ever. If the opening of the bank is delayed, our
expenses will be substantially higher.

<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
(630,000 shares) (1,000,000 shares)
---------------- -----------------
<S> <C> <C>
Gross proceeds from offering............... $6,300,000 $10,000,000
Sales agent's commission................... 160,000 160,000
---------- -----------
Net proceeds to the Bancorp................ $6,140,000 $ 9,840,000
========== ===========
Anticipated use of proceeds by the Bancorp:
Offering and organizational expenses
funded by organizers' advances.......... 100,000 100,000
Investment in the common stock of the
bank.................................... 6,000,000 7,000,000
Working capital.......................... 40,000 2,740,000
---------- -----------
Total.................................... $6,140,000 $ 9,840,000
========== ===========
</TABLE>

Anticipated use of capital by the bank:

As reflected below, a minimum of $6,000,000 will be invested by the Bancorp
to capitalize the bank. The land upon which the bank's main office will be
located is under contract by the Bancorp for a purchase price of $1 million.
This contract will be assigned to the bank prior to the closing of the real
estate acquisition. We expect that construction of the bank's main office at
this site will commence shortly following the closing of the bank's purchase of
the real estate. That closing is expected to occur on or before May 31, 2000.
The estimated cost of the building is approximately $1,050,000. See "Proposed
Business of the Bancorp and the Bank--Facilities." If the total offering
proceeds exceed $7 million, we may invest all or a portion of the excess in the
bank. We will retain any proceeds which are not invested in the bank and will
initially invest them in United States government securities or deposit them
with the bank. These funds will be held by us for the operational expenses of
the Bancorp and for other general corporate purposes, including the provision
of additional capital to the bank, if necessary. We may also use the proceeds
to expand, for example, by opening additional branches or acquiring other
financial institutions. We do not currently have any definitive plans for
expansion.

<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
(630,000 shares) (1,000,000 shares)
---------------- ------------------
<S> <C> <C>
Organizational and pre-opening expenses... $ 352,700 $ 352,700
Land and bank facility.................... 2,050,000 2,050,000
Furniture, fixtures and equipment......... 420,000 420,000
Working capital........................... 3,177,300 4,177,300
---------- ----------
Total..................................... $6,000,000 $7,000,000
========== ==========
</TABLE>

14
<PAGE>

CAPITALIZATION

The following table shows the Bancorp's capitalization as of September 30,
1999 and the pro forma consolidated capitalization of the Bancorp and the bank,
as adjusted to give effect to the sale of the minimum and maximum number of
shares in this offering and after deducting estimated sales agent commissions
and estimated expenses of the offering. The Bancorp's capitalization as of
September 30, 1999 reflects the purchase of an aggregate of 550 shares of
common stock at a purchase price of $10.00 per share by each of our directors
shortly following the incorporation of the Bancorp. The "As Adjusted" columns
reflect the estimated costs of organizing the Bancorp and organizing and
preparing to open the bank through the expected opening date, which is
anticipated to be in the second quarter of 2000. See "Use of Proceeds."

<TABLE>
<CAPTION>
September 30, As Adjusted for As Adjusted for
1999 Minimum Offering Maximum Offering
Shareholders' Equity: ------------- ---------------- ----------------
<S> <C> <C> <C>
Common stock , no par value per
share, 10,000,000 shares
authorized, 550 shares issued
and outstanding, 630,550
shares issued and outstanding
as adjusted (minimum
offering), 1,000,550 shares
issued and outstanding
(maximum offering)............ $ 5,500 $6,140,000 $9,840,000
Preferred stock, undesignated
par value, 2,000,000 shares
authorized; no shares issued
and outstanding 0 0 0
Accumulated deficit during pre-
opening stage................. (96,832) (452,700) (452,700)
-------- ---------- ----------
Total shareholder's equity..... $(91,332) $5,687,300 $9,387,300
======== ========== ==========
Book value per share........... $ N/A $ 9.02 $ 9.38
======== ========== ==========
</TABLE>

DIVIDEND POLICY

The Bancorp and the bank are both start-up operations. In order to preserve
capital to facilitate growth and expansion of the bank, we do not anticipate
paying cash dividends on the shares of common stock in the near future. Our
board of directors intends to reinvest earnings for a period of time as is
necessary to ensure the success of the operations of the bank. Our board of
directors will make a determination whether to pay cash dividends on the basis
of operating results, financial condition, tax considerations and other
relevant factors. Our ability to pay any dividends will depend on the ability
of the bank to pay dividends to us, which depends on the profitability of the
bank. The bank similarly does not anticipate paying cash dividends to us in the
near future in order to preserve its capital to facilitate growth and expansion
of its business. Payment of cash dividends by the bank is also limited by
regulatory requirements and limitations. See "Supervision and Regulation--
Dividends."

15
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

Since December 10, 1998, our organizers have been engaged in activities to
establish the Bancorp and the bank. On July 23, 1999, we incorporated the
Bancorp to serve as the holding company for the bank. On August 25, 1999, we
succeeded to all of the assets and liabilities of the partnership through which
the organizers' activities had been conducted. We are still in the development
stage and will remain in that stage until the bank opens for business. Since
December 10, 1998, our main activities have been centered on:

. seeking, interviewing and selecting the directors and officers for the
Bancorp and the bank,

. identifying and acquiring our permanent principal office and banking
site,

. applying for a national bank charter,

. applying for FDIC deposit insurance,

. applying to become a bank holding company, and

. raising equity capital through this offering.

Funding of Our Initial Operations

Our operations from December 10, 1998 through the closing date of this
offering have been and will continue to be funded through:

. advances from our organizers in the aggregate amount of $100,000,

. a line of credit obtained by the Bancorp from GrandSouth Bank in the
amount of $90,000, and

. the purchase by our directors of an aggregate of $5,500 of our common
stock (550 shares).

As of November 30, 1999, approximately $60,000 was outstanding on the line
of credit. This line of credit has been guaranteed by each of our organizers,
bears interest at the annual rate of GrandSouth Bank's prime rate and is due on
March 7, 2000. We are currently in the process of obtaining a line of credit
from another third party bank to replace and repay the GrandSouth Bank line of
credit. We expect that this replacement line of credit will be in place by
February 2000. It will also be guaranteed by each of our organizers. We intend
to use the proceeds of this offering to repay the advances of the organizers
and the line of credit. See "Use of Proceeds."

We believe the minimum net proceeds from the minimum offering will be
adequate capital to support the growth of both the Bancorp and the bank for
their initial years of operations. We do not anticipate that the Bancorp will
need to raise additional funds to meet expenditures required to operate the
business of the Bancorp or 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 this offering. See "Use of Proceeds."

Financial Results

Total organizational costs as of September 30, 1999 amounted to $66,351.
From December 10, 1998 to September 30, 1999, the net loss of the Bancorp
amounted to $96,832. The estimated net loss for the period from October 1, 1999
through May 1, 2000, the anticipated opening date for the bank, is $246,000.
This amount is attributable to estimated expenses for salaries and benefits of
approximately $151,000, legal and professional fees of approximately $30,000
and other pre-opening expenses of approximately $65,000.

16
<PAGE>

Initially, the bank anticipates deriving its income 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, purchase of federal funds from other banks, repayment of
outstanding loans and sale of loans and investment securities.

Operating Facilities

The Bancorp has entered into an agreement for the purchase of approximately
1.5 acres of land at the intersection of Sea Island Parkway (federal highway
21) and state highway 802 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
$1 million. The purchase agreement is expected to be assigned from the Bancorp
to the bank upon the commencement of the bank's operations. Promptly following
that assignment, the bank is expected to close the purchase. The Bancorp is
entitled to extend the closing date of the land purchase beyond the scheduled
closing date of February 5, 2000 in return for the non-refundable payment to
Hird Island Investments, Inc. of $10,000 for each 30-day extension. The closing
date may not be extended beyond August 3, 2000. For additional information
regarding our acquisition of this site, see "Proposed Business of the Bancorp
and the Bank--Facilities."

We expect that construction of the bank's main office building at this site
will commence shortly following the closing of the bank's purchase of the real
estate. That closing is expected to occur on or before May 31, 2000. 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 Bancorp. See "Use of Proceeds." Pending the completion of
the bank's permanent facility, we expect to commence the bank's operations from
temporary modular facilities located at this site.

17
<PAGE>

PROPOSED BUSINESS OF THE BANCORP AND THE BANK

Background

The Bancorp was incorporated as a South Carolina corporation on July 23,
1999 to serve as a bank holding company for the bank. The Bancorp plans to use
$6 million of the net proceeds of this offering to capitalize the bank through
the Bancorp's purchase of 600,000 shares of the bank's common stock at $10.00
per share. This purchase price has been established at the level that is
intended to provide the bank with the total amount of capital and surplus
sufficient to meet the minimum capitalization level set for the bank by the
Office of the Comptroller of the Currency. The Bancorp will be the bank's sole
shareholder. The Bancorp initially will engage in no business other than owning
and managing the bank.

We have organized the Bancorp as a holding company to make it easier for the
bank to serve its future customers. The holding company structure is expected
to provide flexibility for expansion of the Bancorp's banking business. This
could occur through the possible acquisition by the Bancorp of other financial
institutions and the provision of additional capital for banking-related
services which the traditional commercial bank may not provide under existing
laws. A holding company structure should make it easier for the Bancorp to
raise capital for the bank because the Bancorp will be able to issue securities
without the need for prior banking regulatory approval. The proceeds of
securities issued by the Bancorp can be invested by the Bancorp in the bank as
primary capital.

The Bancorp has no present plans to acquire any operating subsidiaries other
than the bank. However, it is expected that the Bancorp may make additional
acquisitions in the event that the bank becomes profitable and the acquisitions
are deemed to be in the best interests of the Bancorp and its shareholders. Any
acquisitions will be subject to regulatory approvals and requirements. See
"Supervision and Regulation."

Once the bank has received approvals from the Office of the Comptroller of
the Currency and the FDIC, the Bancorp will apply to the Federal Reserve Board
and the South Carolina State Board of Financial Institutions for approval to
capitalize the bank. If these agencies grant the necessary approvals, the
Bancorp will become a bank holding company within the meaning of the Bank
Holding Company Act of 1956 and the South Carolina Bank Holding Company Act
upon its purchase of the bank's common stock. See "Supervision and Regulation."

The bank is currently being organized under the laws of the United States as
a national bank whose deposits are insured by the FDIC. The bank will not be
authorized to conduct its banking business until it obtains a charter from the
Office of the Comptroller of the Currency. The issuance of the charter will
depend, among other things, upon the bank's receipt of at least $6 million in
capital from the Bancorp and upon compliance with other standard conditions
expected to be imposed by the FDIC and the Office of the Comptroller of the
Currency. These conditions are generally designed to familiarize the bank with
operating requirements and to prepare it to begin business operations. We
expect to receive preliminary approval from the Office of the Comptroller of
the Currency and from the FDIC by the end of March, 2000.

Immediately upon obtaining all regulatory approvals and being capitalized,
the bank will engage in attracting deposits from the general public and will
make commercial, consumer and real estate loans. We anticipate that the bank
will commence operations on or about May 1, 2000, assuming completion by that
date of at least the minimum offering of shares of common stock.

Business Strategy of the Bank

The bank's business strategy for its initial years of operation will rely
principally upon local advertising and promotional activity and upon personal
contacts by its directors, officers and shareholders to attract business and to
acquaint potential customers with the bank's personalized services. Our
marketing approach will emphasize the advantages of dealing with an
independent, locally owned and headquartered commercial bank to meet the
particular needs of individuals, professionals and small to medium-sized
businesses. We intend to emphasize a high degree of personalized client service
in order to be able to serve each customer's banking needs. In particular, we
intend to

18
<PAGE>

. respond to credit requests more quickly (in some cases within the same
day);

. be more flexible in approving complex loans based on a combination of
collateral quality, financial strength, market tenure and personal
knowledge of the customer;

. cross-train our staff to ensure that customers' questions can be
resolved by the first person contacted;

. require that our staff and officers operate with the attitude that the
customer deserves to be treated politely and efficiently; and

. have our employees personally greet customers as they enter the bank.

We expect that these approaches will produce a competitive edge that will
enable the bank to capture a significant share of the existing and future
growth in our market.

We will continually evaluate all banking services as to their profitability
and make efforts to modify the bank's business plan if the plan does not prove
successful. We believe that the bank's business plan will make it profitable by
the end of its third year of operations. However, it has been the experience in
the banking industry for new financial institutions to lose money in the first
several years of operations. There can be no assurance as to when, if ever, the
bank's operations will become profitable.

The Banks Primary Service Area

The bank's primary service area will be in Beaufort County, South Carolina,
including the towns of Beaufort, Port Royal and Burton, as well as many
neighboring islands. Some of the major islands are Lady's Island, Fripp Island,
Parris Island, St. Helena Island, Hunting Island, Port Royal Island, Dataw
Island and Harbor Island. The primary service area from which the bank expects
to draw at least 75 percent of its business is defined as the area northeast of
the Broad River, northwest of the Atlantic Ocean and south of the Coosaw River.
According to CACI Marketing Systems, the 1998 population in our primary service
area was approximately 63,800. It has been projected to rise to approximately
70,800 by the Year 2003.

Services and retail trade industries employ approximately two-thirds of the
work force and account for almost two-thirds of the payroll dollars in Beaufort
County. In 1998, the primary service area had a median household income of
$39,408, which is projected to increase to $44,665 by 2003, with more than 48
percent of the households in the primary service area having an annual income
over $35,000.

The Beaufort County area has a lower unemployment rate that the state of
South Carolina and its climate and geography have encouraged strong population
and economic growth. The premier resort destinations of Hilton Head Island,
Fripp Island and Dafuskie Island have also given the Beaufort County area a
higher profile regionally and nationally. Beaufort County has many positive
attributes that contribute to the area's business growth and stability. These
include easy access to Interstate Highway 95, rail service, and an employment
base comprised substantially of federal, state and local government employers.
These include the United States Marine Corps recruit depot at Parris Island,
the Marine Corps Air Station, the Beaufort Naval Hospital and the Beaufort
County Board of Education. This employment base, along with the real estate and
tourism industries, form the core of the area's economy.

Competition

As a commercial bank, the bank will compete primarily with other financial
institutions for deposits. In turn, our deposit base will directly affect our
loan activities and general growth. Primary methods of competition include
interest rates on deposits and loans, service charges on deposit accounts,
convenience of office locations, flexible office hours, and the range of
financial services offered. The bank will face strong competition in its
primary service area with other commercial banks, savings and loan
associations, credit unions, finance companies and brokerage firms.

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The Beaufort County area is currently served by at least eight commercial
banks with a total of fifteen offices holding over $402 million in deposits as
of June 30, 1998. There are also two credit unions. We are also aware of a
proposed new community bank that plans to commence operations in our primary
service area during the first half of 2000. A number of the existing
competitors are well established in the Beaufort County area. These competitors
have substantially greater resources and lending limits than the bank will
have, and offer services, including extensive and established branch networks
and trust services, that we either do not expect to provide or will not provide
initially. As a result of these competitive factors, the bank may have to pay
higher interest rates to attract depositors or extend credit with lower
interest rates to attract borrowers. Among the larger competitors operating in
our primary service area are Wachovia, Regions Bank, Firstbank, NA, Branch
Banking and Trust, Bank of America and Palmetto State Bank. Due to the growth
of the bank's primary service area, it is anticipated that additional
competition will continue to be created by new entrants to the financial
services market. We believe that the advantage of being a locally owned and
managed community bank headquartered in Beaufort will provide the bank with a
unique opportunity to obtain a share of those institutions' deposits.

Deposit Activities

The bank will offer a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement accounts, savings accounts, and other
time deposits of various types, ranging from daily money market accounts to
longer-term certificates of deposits. All deposit accounts will be insured by
the FDIC up to the maximum amount permitted by law. The bank's transaction
accounts and time certificates will be tailored to its principal market area at
competitive rates. The sources of deposits will be residents, businesses and
employees of businesses within the bank's primary service area. These deposits
are expected to be obtained through the personal solicitation of the bank's
officers and directors, direct mail solicitations, and advertisements published
in the local media.

Lending Activities

General.

The bank will use its deposits, together with borrowings and other sources
of funds, to originate and purchase loans. It will offer a full range of short
and medium-term small business and commercial, consumer and real estate loans.
The bank intends to generally allocate its loan portfolio as follows: small
business and commercial loans, 19 percent; real estate loans, 42 percent; and
consumer loans, 39 percent. Management intends to originate loans and to
participate with other banks with respect to loans which exceed the bank's
lending limits. The bank intends to develop a loan approval process which will
provide for various levels of officer lending authority. When a loan amount
exceeds an officer's lending authority, it will be transferred to an officer
with a higher limit, with ultimate lending authority resting with the Loan
Committee of the bank's board of directors.

The risk of nonpayment of loans is inherent in making all loans. However,
management intends to carefully evaluate all loan applicants and to attempt to
minimize its credit risk exposure by use of thorough loan application and
approval procedures that will be established for each category of loan prior to
beginning operations. In determining whether to make a loan, the bank will
consider the borrower's credit history, analyze the borrower's income and
ability to service the loan, and evaluate the need for collateral to secure
recovery in the event of default. The bank will maintain an allowance for loan
losses based upon management's assumptions and judgments regarding the ultimate
collectibility of loans in its portfolio and based upon a percentage of the
outstanding balances of specific loans when their ultimate collectibility is
considered questionable. Risks with regard to specific categories of loans are
described below.

Lending activities will be directed primarily to individuals and businesses
in the bank's primary service area whose demands for funds fall within the
bank's legal lending limits and which are also potential deposit customers of
the bank. The following is a description of each of the major categories of
loans anticipated to be made by the bank.

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Commercial Loans.

Commercial lending activities will be directed principally toward businesses
whose demand for funds falls within the bank's anticipated lending limits. This
category of loans includes loans made to individuals, partnerships or corporate
borrowers, and obtained for a variety of business purposes. Particular emphasis
will be placed on loans to small to medium-sized professional firms, retail and
wholesale businesses, light industry and manufacturing concerns operating in
and around the primary service area. The bank considers "small businesses" to
include commercial, professional and retail businesses with annual gross sales
of less than $15 million or annual operating costs of less than $3 million.
Within small business lending, the bank intends to focus on niches in the
market and expects to offer small business loans utilizing government
enhancements, such as the Small Business Administration's 7(a) program. The
types of commercial and small business loans provided will include principally
term loans with variable interest rates secured by equipment, inventory,
receivables and real estate, as well as secured and unsecured working capital
lines of credit. Risks of these types of loans depend on the general business
conditions of the local economy and the local business borrower's ability to
sell its products and services in order to generate sufficient business profits
to repay the loan under the agreed upon terms and conditions. Personal
guarantees may be obtained from the principals of business borrowers and third
parties to further support the borrower's ability to service the debt and
reduce the risk of nonpayment.

Consumer and Installment Loans.

Consumer loans will include lines of credit and term loans secured by second
mortgages on the residences of borrowers for a variety of purposes including
home improvements, education and other personal expenditures. Consumer loans
will also include installment loans to individuals for personal, family and
household purposes, including automobile loans to individuals and pre-approved
lines of credit. Consumer loans will generally involve more risk than first
mortgage loans because the collateral for a defaulted loan may not provide an
adequate source of repayment of the principal due to damage to the collateral
or other loss of value while the remaining deficiency often does not warrant
further collection efforts. In addition, consumer loan performance is dependent
upon the borrower's continued financial stability and is, therefore, more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Various federal and state laws also limit the amount that can be
recovered.

Real Estate Loans. The bank will make commercial real estate loans,
construction and development loans, and residential real estate loans. These
loans include commercial loans where the bank takes a security interest in real
estate out of an abundance of caution and not as the principal collateral for
the loan, but will exclude home equity loans, which are classified as consumer
loans. Interest rates for all categories may be fixed or adjustable, and will
more than likely be fixed for shorter-term loans. The bank will compete for
real estate loans with competitors who are well established in the Beaufort
County area and have greater resources and lending limits. As a result, we may
have to charge lower interest rates to attract borrowers.

Commercial Real Estate. The bank expects to offer commercial real estate
loans to developers of both commercial and residential properties. The bank
intends to manage its credit risk by actively monitoring such measures as
advance rate, cash flow, collateral value and other appropriate credit factors.
Risks associated with commercial real estate loans include the general risk of
the failure of each commercial borrower, which will be different for each type
of business and commercial entity. We will evaluate each business on an
individual basis and attempt to determine its business risks and credit
profile. Management will attempt to reduce credit risks in the commercial real
estate portfolio by emphasizing loans on owner-occupied office and retail
buildings where the loan-to-value ratio, established by independent appraisals,
does not exceed 80 percent. In addition, we may also require personal
guarantees of the principal owners.

Construction and Development Loans. Construction and development loans will
be made both on a pre-sold and speculative basis. If the borrower has entered
into an arrangement to sell the property prior to beginning construction, the
loan will be considered to be on a pre-sold basis. If the borrower has not
entered

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into an agreement to sell the property prior to beginning construction, the
loan will be considered to be on a speculative basis. Residential and
commercial construction loans will be made to builders and developers and to
consumers who wish to build their own home. The term of construction and
development loans will generally be limited to 18 months, although payments may
be structured on a longer amortization basis. The ratio of the loan principal
to the value of the collateral as established by independent appraisal will not
exceed 75 percent. Speculative loans will be based on the borrower=s financial
strength and cash flow position. Loan proceeds will be disbursed based on the
percentage of completion and only after the project has been inspected by an
experienced construction lender or appraiser. These loans generally command
higher rates and fees commensurate with the risks warranted in the construction
lending field. The risk in construction lending is dependent upon the
performance of the builder and building the project to the plans and
specifications of the borrower and the bank's ability to administer and control
all phases of the construction disbursements. Upon completion of the
construction, management anticipates that the mortgage will be converted to a
permanent loan and may be sold to an investor in the secondary mortgage market.

Residential Real Estate Loans. Residential real estate loans will be made to
qualified individuals for the purchase of existing single-family residences in
our primary service area. These loans will be made consistent with the bank's
appraisal policy and real estate lending policy which will detail maximum loan-
to-value ratios and maturities. We expect these loan-to-value ratios will be
sufficient to compensate for fluctuations in real estate market value and to
minimize losses that could result from a downturn in the residential real
estate market. Mortgage loans that do not conform to the bank's policies will
be sold in the secondary markets. The risk of these loans depends on the
salability of the loan to national investors and on interest rate changes. The
bank intends to limit interest rate risk and credit risk on these loans by
locking in the interest rate for each loan with the secondary market investor
and receiving the investor's underwriting approval before originating the loan.
The bank will retain loans for its portfolio when it has sufficient liquidity
to fund the needs of the established customers and when rates are favorable to
retain the loans. The loan underwriting standards and policies will generally
be the same for both loans sold in the secondary market and those retained in
the bank's portfolio.

Asset and Liability Management

The primary assets of the bank will consist of its loan portfolio and its
investment accounts. Its liabilities will consist primarily of its deposits.
Our objective is to support asset growth primarily through growth of core
deposits, which include deposits of all categories made by individuals,
partnerships, corporations and other entities. Consistent with the requirements
of prudent banking necessary to maintain liquidity, we will seek to match
maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching is not always possible. Management will seek
to invest the largest portion of the bank's assets in commercial, consumer and
real estate loans. We anticipate that loans will be limited to less than 75
percent of deposits and capital funds. This ratio may be exceeded, however, in
the initial period of operation. We anticipate that the bank's investment
account will consist primarily of marketable securities of the United States
Government, federal agencies and state and municipal governments, generally
with varied maturities.

We expect that the bank's asset/liability mix will be monitored on a regular
basis with a monthly report detailing interest-sensitive assets and interest-
sensitive liabilities prepared and presented to the board of directors. The
objective of this policy is to control interest-sensitive assets and
liabilities so as to minimize the impact of substantial movements in interest
rates on the bank's earnings.

Correspondent Banking

Correspondent banking involves the providing of services by one bank to
another bank which, from an economic or practical standpoint, cannot provide
that service for itself. The bank may purchase correspondent services offered
by larger banks, including check collections, purchase of federal funds,
securities safekeeping, investment services, coin and currency supplies,
overline and liquidity loan participations, and sales of loans to or
participations with correspondent banks. We anticipate that we will sell loan
participations to correspondent banks with respect to loans which exceed our
lending limits. As compensation for services provided by a correspondent bank,
we may maintain balances with correspondents in non-interest bearing accounts.

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Other Banking Services

Other anticipated services include cash management services, safe deposit
boxes, traveler's checks, direct deposit of payroll and social security checks,
wire transfers, telephone banking, and automatic drafts for various accounts.
We plan to offer a debit card, VISA(R) and/or MasterCard(R) credit card
services through a correspondent bank as an agent for the bank. We also plan to
offer extended banking hours, both drive-in and lobby, and an after-hours
depository. We expect to become associated with a shared network of automated
teller machines that our customers will be able to use throughout our primary
service area and other regions. We also intend to associate with a third party
Internet banking service provider that will enable us to provide our customers
with a cost effective, secure and reliable Internet banking solution. We do not
plan to exercise trust powers during our initial years of operation.

Employees

When it begins operations, the bank is anticipated to have approximately
eleven full-time employees and no part-time employees. We do not expect that
the Bancorp will have any employees other than its officers who are also
employees of the bank. We anticipate that in its first year of operation, the
bank will hire five additional persons on a full-time basis and one additional
person on a part-time basis, subject to the bank's needs.

Facilities

The temporary office for the Bancorp is located at 500 Carteret Street,
Suite A, in downtown Beaufort, South Carolina. This office space, consisting of
approximately 500 square feet, is part of the executive offices of Renaissance
Marketing, LLC. This space is being provided to the Bancorp at no charge by
Renaissance Marketing, LLC. Veronica C. Clardy, a director of the Bancorp, is a
principal and executive officer of Renaissance Marketing, LLC.

The Bancorp has entered into an agreement with Hird Island Investments, Inc.
for the purchase of approximately 1.5 acres of land at the intersection of Sea
Island Parkway (federal highway 21) and state highway 802 in Lady's Island,
South Carolina to be used as the site for the main office of the bank. Hird
Island Investments, Inc. is owned 50% by Veronica C. Clardy, a director of the
Bancorp, and 50% by the spouse of Martha B. Fender, a director of the Bancorp.
See "Transactions With Management." The purchase agreement with Hird Island
Investments, Inc. is expected to be assigned from the Bancorp to the bank upon
the commencement of the bank's operations. Promptly following that assignment,
the bank is expected to close the purchase of the real estate. The Bancorp is
entitled to extend the closing date of the land purchase beyond the scheduled
closing date of February 5, 2000 in return for the non-refundable payment to
Hird Island Investments, Inc. of $10,000 for each 30-day extension. The closing
date may not be extended beyond August 3, 2000.

We expect that construction of the bank's main office at this site will
commence shortly following the closing of the bank's purchase of the real
estate. That closing is expected to occur on or before May 31, 2000. The
estimated cost of the building is approximately $1,050,000. The bank will fund
the purchase of this real estate acquisition and the construction of the main
building with a portion of the net proceeds received from the issuance of its
common stock to the Bancorp. See "Use of Proceeds." Pending the completion of
the bank's permanent facility, we expect to commence the bank's operations from
temporary modular facilities located at this site.

Legal Proceedings

Neither the Bancorp, the bank, nor any of their properties are subject to
any legal proceedings as of the date of this prospectus.

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SUPERVISION AND REGULATION

General

The Bancorp and the bank will be subject to an extensive collection of state
and federal banking laws and regulations which impose specific requirements and
restrictions on, and provide for general regulatory oversight with respect to,
virtually all aspects of the Bancorp's and the bank's operations. Each will
also be affected by government monetary policy and by regulatory measures
affecting the banking industry in general. The actions of the Federal Reserve
System affect the money supply, and in general, the lending abilities of the
bank in increasing or decreasing the costs and availability of funds to the
bank. Additionally, the Federal Reserve System regulates the availability of
bank credit in order to combat recession and curb inflationary pressures in the
economy by open market operations in United States government securities,
changes in the discount rate on member bank borrowings, changes in the reserve
requirements against bank deposits and limitations on interest rates which
banks may pay on time and savings deposits.

The following is a brief summary of some of the statutes, rules and
regulations affecting the Bancorp and the bank. This summary is qualified in
its entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of the Bancorp and the bank.
Any change in applicable laws or regulations may have a material adverse effect
on the business and prospects of these entities.

The Bancorp

The Bancorp is a bank holding company within the meaning of the Federal Bank
Holding Company Act of 1956 and the South Carolina Banking and Branching
Efficiency Act of 1996. The Bancorp will be registered with both the Federal
Reserve System and the South Carolina State Board of Financial Institutions.
The Bancorp is required to file with both of these agencies annual reports and
other information regarding its business operations and those of any
subsidiary. It is also subject to the supervision of, and to regular
examinations by, these agencies. The regulatory requirements to which the
Bancorp will be subject also set forth various conditions regarding the
eligibility and qualifications of its directors and officers.

The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before:

. acquiring all or substantially all of the assets of a bank,

. acquiring direct or indirect ownership or control of more than five
percent of the voting shares of any bank, or

. merging or consolidating with another bank holding company.

Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than five percent of the voting shares of any company engaged in any business
other than the business of banking or managing and controlling banks. Some of
the activities the Federal Reserve Board has determined by regulation to be
proper incidents to the business of banking, and thus permissible for bank
holding companies, include:

. making or servicing loans and certain types of leases,

. engaging in certain insurance and discount brokerage activities,

. performing certain data processing services,

. acting in certain circumstances as a fiduciary or investment or
financial advisor,

. owning savings associations, and

. making investments in corporations or projects designed primarily to
promote community welfare.

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In determining whether an activity is so closely related to banking as to be
permissible for bank holding companies, the Federal Reserve Board is required
to consider whether the performance of the particular activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased competition and
gains in efficiency that outweigh possible adverse effects such as undue
concentration of resources, decreased or unfair competition, conflicts of
interests and unsound banking practices. Generally, bank holding companies are
required to obtain prior approval of the Federal Reserve Board to engage in any
new activity not previously approved by the Federal Reserve Board. Despite
prior approval, the Federal Reserve Board may order a bank holding company or
its subsidiaries to terminate any activity or to terminate its ownership or
control of any subsidiary when it has reasonable cause to believe that the
holding company's continued ownership, activity or control constitutes a
serious risk to the financial safety, soundness or stability of any of its bank
subsidiaries.

The Bank Holding Company Act and the Federal Change in Bank Control Act,
together with regulations promulgated by the Federal Reserve Board, require
that, depending on the particular circumstances, either the Federal Reserve
Board's approval must be obtained or notice must be furnished to the Federal
Reserve Board and not disapproved prior to any person or company acquiring
control of a bank holding company, such as the Bancorp, subject to certain
exemptions. Control is conclusively presumed to exist when an individual or
company acquires 25 percent or more of any class of voting securities of the
bank holding company. Control is rebuttably presumed to exist if a person
acquires 10 percent or more, but less than 25 percent, of any class of voting
securities and either the bank holding company has registered securities under
Section 12 of the Securities Exchange Act of 1934 or no other person owns a
greater percentage of that class of voting securities immediately after the
transaction. The Bancorp may be required to register its common stock under
Section 12 of the Securities Exchange Act of 1934 once its common stock is held
by more than 500 shareholders of record. The regulations provide a procedure
for challenge of the rebuttable control presumption.

The Federal Reserve Board, pursuant to regulation and published policy
statements, has maintained that a bank holding company must serve as a source
of financial strength to its subsidiary banks. In adhering to the Federal
Reserve Board policy, the Bancorp may be required to provide financial support
to a subsidiary bank at a time when, absent such Federal Reserve Board policy,
the Bancorp may not deem it advisable to provide such assistance. Under the
Bank Holding Company Act, the Federal Reserve Board may also require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve
Board's determination that the activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository
institution of the bank holding company. Further, federal bank regulatory
authorities have additional discretion to require a bank holding company to
divest itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institution's financial condition.

Under the South Carolina Banking and Branching Efficiency Act, the Bancorp
must obtain the approval of the South Carolina State Board of Financial
Institutions before the Bancorp acquires all or substantially all of the assets
of a bank or any other bank holding company or more than five percent of the
voting shares of any bank or any other bank holding company, or merges or
consolidates with any other bank holding company.

Under the Glass-Steagal Act of 1933, the Bancorp will be prohibited from
owning subsidiaries that are engaged principally in the issue, flotation,
underwriting, public sale or distribution of securities.

The Bank

As a national bank, the bank is subject to the supervision of the Office of
the Comptroller of the Currency and, to a limited extent, the FDIC and the
Federal Reserve Board. The bank's deposits will be insured by the FDIC for a
maximum of $100,000 per depositor. For this protection, the bank will pay a
semi-annual statutory assessment and will have to comply with the rules and
regulations of the FDIC. The Office of the Comptroller of the Currency and the
FDIC will regulate and monitor all areas of the bank's operations, including:

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. security devices and procedures,

. adequacy of capitalization and loss reserves,

. loans,

. investments,

. borrowings,

. deposits,

. mergers,

. issuances of securities,

. payment of dividends,

. interest rates payable on deposits,

. interest rates or fees chargeable on loans,

. establishment of branches,

. corporate reorganizations,

. maintenance of books and records, and

. adequacy of staff training to carry out safe lending and deposit
gathering practices.

In addition, the bank will be prohibited from engaging in tie-in arrangements
in connection with any extension of credit, or the providing of any property or
service. The regulatory requirements to which the bank will be subject also set
forth various conditions regarding the eligibility and qualification of its
officers and directors.

Capital Adequacy Requirements

Both the Bancorp and the bank will be subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Office of the
Comptroller of the Currency which vary based on differences in risk profiles.
The capital adequacy guidelines issued by the Federal Reserve Board are applied
to bank holding companies on a consolidated basis with the banks owned by the
holding company. The Office of the Comptroller of the Currency's risk-based
capital guidelines apply directly to national banks, such as the bank,
regardless of whether they are a subsidiary of a bank holding company. Both
agency's requirements, which are substantially similar, provide that banking
organizations must have capital (as defined in the rules) equivalent to eight
percent of risk-weighted assets. The risk weights assigned to assets are based
primarily on credit risks. Depending upon the riskiness of a particular asset,
it is assigned to a risk category. For example, securities with an
unconditional guarantee by the United States government are assigned to the
lowest risk category. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to
determine the weighted values, which are added together to determine total
risk-weighted assets.

Both the Federal Reserve Board and the Office of the Comptroller of the
Currency have also adopted minimum capital leverage ratios to be used in tandem
with the risk-based guidelines in assessing the overall capital adequacy of
banks and bank holding companies. The guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholder's equity, less goodwill and other adjustments. Tier 2 capital
consists of mandatory convertible, subordinated, and other qualifying term
debt, preferred stock not qualifying for Tier 1, and a limited allowance for
credit losses up to a designated percentage

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of risk-weighted assets. Under the guidelines, institutions must maintain a
specified minimum ratio of "qualifying" capital to risk-weighted assets. At
least 50 percent of an institution's qualifying capital must be "core" or "Tier
1" capital, and the balance may be "supplementary" or "Tier 2" capital. The
guidelines imposed on the bank will include a minimum leverage ratio standard
of capital adequacy. The leverage standard requires top-rated institutions to
maintain a minimum Tier 1 capital to assets ratio of three percent, with
institutions receiving less than the highest rating required to maintain a
ratio of four percent or greater, based upon their particular circumstances and
risk profiles.

Federal bank regulatory authorities have adopted regulations revising the
risk-based capital guidelines to further ensure that the guidelines take
adequate account of interest rate risk. Interest rate risk is the adverse
effect that changes in market interest rates may have on a bank's financial
condition and is inherent to the business of banking. Under the regulations,
when evaluating a bank's capital adequacy, the revised capital standards now
explicitly include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates. The exposure of a bank's economic
value generally represents the change in the present value of its assets, less
the change in the value of its liabilities, plus the change in the value of its
interest rate off-balance sheet contracts. The Office of the Comptroller of the
Currency's risk assessment approach used to evaluate a bank's capital adequacy
for interest rate risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure or weak
management practices will be directed by the Office of the Comptroller of the
Currency to take corrective action.

The foregoing capital guidelines could affect the bank in several ways. If
the bank grows rapidly, its capital base may become insufficient to support
continued growth, making an additional capital infusion necessary. The capital
guidelines could also impact the bank's ability to pay dividends. It is
expected that the bank's capital levels will initially be more than adequate.
Rapid growth, poor loan portfolio performance or poor earnings performance, or
a combination of these factors, could change our capital position in a
relatively short period of time. Failure to meet these capital requirements
would require the bank to develop and file a plan with the Office of the
Comptroller of the Currency describing the means and a schedule for achieving
the minimum capital requirements. In addition, we would not be able to receive
regulatory approval of any application that required consideration of capital
adequacy, such as a branch or merger application, unless we could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.

Dividends

The ability of the Bancorp to pay cash dividends will depend entirely upon
the amount of dividends paid by the bank. The Bancorp is subject to the South
Carolina state business corporation law requirements that dividends may be paid
only if the dividend payment would not render the Bancorp insolvent or unable
to meet its obligations as they come due. The Bancorp is not presently subject
to any direct legal or other regulatory restrictions on dividends.

The bank is subject to regulatory restrictions on the payment of dividends,
including the prohibition of payment of dividends from the bank's capital. All
dividends of the bank must be paid out of undivided profits then on hand, after
deducting expenses, including losses and bad debts. In addition, the bank is
prohibited from declaring a dividend on its shares of common stock until its
surplus equals its stated capital, unless there has been transferred to surplus
not less than one-tenth of the bank's net income of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the Office of the Comptroller of the Currency is required if the total of
all dividends declared by the bank in any calendar year exceeds the total of
its net income for that year combined with its retained net income for the
preceding two years, less any required transfers to surplus or a fund for the
retirement of any preferred stock.

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Other Regulations

Interest and various other charges collected or contracted for by the bank
will be subject to state usury laws and federal laws concerning interest rates.
The bank's loan operations will also be subject to federal laws applicable to
credit transactions, such as the:

. Federal Truth-In-Lending Act governing disclosures of credit terms to
consumer borrowers,

. Community Reinvestment Act of 1977 requiring financial institutions to
meet their obligations to provide for the total credit needs of the
communities they serve, including investing their assets in loans to low
and moderate-income borrowers,

. Home Mortgage Disclosure Act of 1975 requiring financial institutions to
provide information to enable public officials to determine whether a
financial institution is fulfilling its obligations to meet the housing
needs of the community it serves,

. Equal Credit Opportunity Act prohibiting discrimination on the basis of
race, creed or other prohibitive factors in extending credit,

. Fair Credit Reporting Act governing the manner in which consumer debts
may be collected by collection agencies, and

. the rules and regulations of various federal agencies charged with the
responsibility of implementing such federal laws.

The deposit operations of the bank will also be subject to the:

. Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records, and

. Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve Board to implement that act, which govern automatic deposits to,
and withdrawals from, deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.

Interstate Banking and Branching

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, eligible bank holding companies in any state are permitted, with Federal
Reserve Board approval, to acquire banking organizations in any other state. As
such, all regional compacts and substantially all then-existing regional
limitations on interstate acquisitions of banking organizations have been
eliminated. The Interstate Banking and Branching Efficiency Act removed
substantially all of the then-existing prohibitions on interstate branching by
banks. The authority of a national bank to establish and operate branches
within a state continues to be subject to applicable state branching laws.
Subject to these laws, a bank operating in any state may now establish one or
more branches within any other state without the establishment of a separate
banking structure within the other state. Under current South Carolina law, the
bank may open branch offices throughout South Carolina with the prior approval
of the Office of the Comptroller of the Currency. In addition, with prior
regulatory approval, the bank will be able to acquire existing banking
operations in South Carolina. Although the Interstate Banking and Branching
Efficiency Act has the potential to increase the number of competitors in the
market area of the bank, we cannot predict the actual impact of such
legislation on the competitive position of the bank.

MANAGEMENT

Directors and Executive Officers of the Bancorp and the Bank

Set forth below is information regarding the directors and executive
officers of the Bancorp. The President and Chief Executive Officer and each of
the directors of the Bancorp are expected to hold these same positions with the
bank. The Bancorp, as the sole shareholder of the bank, will nominate each of
the following individuals to serve as a director of the bank at the bank's
first shareholders meeting. That meeting is expected

28
<PAGE>

to convene shortly after the bank receives its charter. Directors of the bank
will serve for a term of one year and will be elected by the Bancorp each year
at the bank's annual meeting of shareholders. The bank's officers will be
appointed by its board of directors and will hold office at the will of its
Board.

Under the articles of incorporation of the Bancorp, the board of directors
is divided into three classes of directors that serve staggered three-year
terms. The members of one class are elected at each annual meeting of
shareholders and hold office until the third annual meeting following their
election, or until their successors are elected and qualified. The terms of
office of the classes of directors expire as follows: Class I at the 2000
annual meeting of shareholders, Class II at the 2001 annual meeting of
shareholders, and Class III at the 2002 annual meeting of shareholders.
Executive officers of the Bancorp serve at the discretion of the board of
directors. Unless otherwise set forth below, each of the individuals listed
below has served as a director of the Bancorp since its incorporation on July
23, 1999.

<TABLE>
<CAPTION>
Name Age Position with Bancorp
- ---- --- ---------------------
<S> <C> <C>
William B. Gossett...... 56 President and Chief Executive Officer, Class I Director
Veronica C. Clardy...... 53 Class II Director
Avery E. Cleland........ 39 Class III Director
Louis O. Dore........... 54 Class I Director
Paul M. Dunnavant, III.. 35 Treasurer, Class II Director
Martha B. Fender........ 54 Vice President, Class I Director
D. Martin Goodman....... 53 Chairman of the Board, Class I Director
Edward J. McNeil, Jr.... 45 Secretary, Class II Director
Frances K. Nicholson.... 45 Class II Director
J. Frank Ward........... 52 Class III Director
Bruce K. Wyles.......... 45 Class III Director
</TABLE>

William B. Gossett has served as the President and Chief Executive Officer
of the Bancorp since its inception on July 23, 1999, and will be the President
and Chief Executive Officer of the bank. Prior to joining the Bancorp, he
served for 16 years as the President and Chief Executive Officer of Liberty
National Bank in Longwood, Florida. Liberty National Bank, which Mr. Gossett
helped organize, was named by the American Bankers Association as Florida's
Most Profitable Bank and was listed in the Nation's 50 Most Profitable Banks
since 1992. Liberty National Bank operated three banking offices in Greater
Orlando, Florida and had loan production offices in Jacksonville and Tampa,
Florida. During his years with Liberty National Bank, Mr. Gossett developed a
reputation for his small business and entrepreneurial financing expertise. He
served as a frequent local and national speaker on small business and minority
financing. In 1973, Mr. Gossett was selected to organize and charter Tropic
Bank of Seminole (formerly known as Atlantic Bank of Casselberry) where he
served as President and Chief Executive Officer for seven years. Prior to
joining Tropic Bank of Seminole, Mr. Gossett served as a Commercial Loan
Officer with Atlantic National Bank of Jacksonville, Florida. Mr. Gossett has
been very involved in professional and civic activities. He is past Chairman of
the Bank Operations Committee of the Independent Bankers Association of
America, as well as a past member of its Lending Issues Sub-Committee, its
Policy Development Committee, and its Long-Term Planning Committee. He is past
Chairman of the District Advisory Committee of the United States Small Business
Administration, Jacksonville, Florida and a member of the Wholesale Financial
Services Advisory Group of the American Bankers Association.

Veronica C. Clardy has served as the President and controlling shareholder
of Ausper Construction Incorporated in Beaufort, South Carolina since she
started the company in 1994. Ausper is the parent company of Renaissance
Marketing LLC which specializes in real estate development and sales. In
September 1999, she retired from the South Carolina Department of Public Safety
where she had been employed for over twenty-five years, having most recently
served as the manager of its Belton, South Carolina office.

Avery E. Cleland has served as President of Cleland Construction Co., Inc.
since 1986 and is currently its sole shareholder. Under his leadership, Cleland
Construction has grown from a small land site development

29
<PAGE>

company into a multi-company enterprise specializing in subdivision, shopping
mall, highway and public utility construction. Mr. Cleland currently serves as
Chairman of the Jasper County Council and is active in many community
organizations.

Louis O. Dore has practiced as a trial lawyer in Beaufort, South Carolina
since 1976, and has practiced with Louis O. Dore, P.A. since he formed the firm
in 1991. He is a member of the Beaufort County and South Carolina Bar
Associations and the Advisory Board of Branch Banking and Trust in Beaufort.
His past activities include service on the Boards of Trustees of Beaufort
Memorial Hospital, Penn Community Services, and Benedict College (Columbia,
South Carolina); and service as Chairman of the Beaufort County Democratic
Party, Chairman of the South Carolina Board of Education, and a member of the
South Carolina Democratic Party Executive Council. Mr. Dore has served as a
director of the Bancorp since August 17, 1999.

Paul M. Dunnavant, III has served as Chief Financial Officer and Treasurer
of Amick Farms, Inc., an integrated poultry processor, in Batesburg, South
Carolina for over six years. Prior to joining Amick Farms, Inc. in 1993, Mr.
Dunnavant was employed for six years by Arthur Andersen & Co. in Columbia,
South Carolina, having served as Tax Manager for two of the six years. Mr.
Dunnavant is a Certified Financial Planner, a Certified Public Accountant, a
member of the South Carolina Association of CPA's, a member of the Palmetto
Baptist Foundation Development Board and a member of the Deacon Board of First
Baptist Church of Columbia, South Carolina.

Martha B. Fender has served as President and owner of Coastal Carolina
Realty, Inc. since 1987, having joined that firm in 1984. For the past fifteen
years, Mrs. Fender has also been actively involved in multiple positions with
the Child Abuse Prevention Association for the Open Arms Shelter for Abused and
Neglected Children in Beaufort, including service in various executive offices
and as a member of its board of directors, service as Chairman of the Building
and Personnel Committees, and service for eleven years as the Volunteer Shelter
Administrator. She is a member of the National Association of Realtors, the
South Carolina Association of Realtors and the Beaufort Board of Realtors where
she has held various executive officer and committee chairman positions since
1989.

D. Martin Goodman has served as Area Manager of the University of South
Carolina Small Business Development Center in Beaufort, South Carolina since
July 1992. He has been the co-owner, with his wife, of Ollie's Seafood
Restaurants in Beaufort since 1996. Prior to moving to Beaufort in 1991, Mr.
Goodman held various management positions with several companies in the United
States tire industry. Mr. Goodman is a Director of Mainstreet Beaufort, USA,
past President of the Greater Beaufort Chamber of Commerce, Board Member of the
Beaufort County Economic Development Board, Advisory Board Member of the
Business Department of the Technical College of the Lowcountry, Finance
Committee Chairman of Carteret Street United Methodist Church and has served as
President and is a Board Member of the Beaufort Small Business Assistance
Corporation.

Edward J. McNeil, Jr. has served as a practicing physician with Low Country
Medical Group, specializing in internal medicine, since January 1998. He
currently serves as Medical Director for his multi-speciality group, as well as
Lab Director. Prior to joining Low Country Medical Group, Dr. McNeil had
practiced as a physician with Internal Medicine Health Care in Beaufort from
January 1997 to December 1997, and with Southeast Health Care Association from
January 1995 to December 1996. Prior to that, he had operated his own medical
practice in Beaufort since 1987. Dr. McNeil is currently a Member of the
American Medical Association as well as the South Carolina Medical Association.
He also serves as the Medical Director for Care One Home Health Agency and is a
member as well as Chairman of the Trustee Board and Steward Board at Wesley
United Methodist Church.

Frances K. Nicholson has served since 1992 as the manager and principal
owner of Nicholson Investments LLC, a real estate leasing and securities
portfolio company; since 1998 as the manager and principal owner of Big Nickel
Properties, LLC, a manager of rental properties; and since 1992 as the business
manager and a principal of Carolina Capital Leasing, Inc., an equipment and
vehicle sales and leasing

30
<PAGE>

company. Mrs. Nicholson was a buyer and product manager for a large
distribution company from 1985 to 1990 and served as a part-time faculty member
of Southern State Community College in Wilmington, Ohio from 1991 to 1992. She
currently serves as an Executive Board Member of J.L. Mann High School and is a
sustaining member of the Junior League of Greenville. Mrs. Nicholson has served
as a director of the Bancorp since August 17, 1999.

J. Frank Ward has served as Sales Coordinator and Realtor with Renaissance
Marketing, LLC in Beaufort, South Carolina since February 1998. Prior to
joining Renaissance Marketing, LLC, Mr. Ward was employed with Toyota Center in
West Columbia/Lexington, South Carolina for 21 years, spending the last 12
years of that period as new car sales manager. He has been a Mason since 1976
and a Shriner since 1980.

Bruce K. Wyles has served as a practicing dentist in Beaufort, South
Carolina since 1983 and is a real estate investor.

Remuneration of Directors

The directors of the Bancorp and the bank have not received and will not
receive any fees or other compensation in connection with the organization of
the Bancorp or the bank. We do not intend to pay director's fees until the bank
is cumulatively profitable. In addition, after the offering, we expect to adopt
a stock option plan which will permit the Bancorp to grant options to its
officers, directors and employees. We anticipate that we will initially
authorize the issuance of a number of shares under the stock option plan equal
to 15 percent of the shares outstanding after the offering. We will not issue
stock options at less than the fair market value of the common stock on the
date of grant.

Employment Agreement

On July 27, 1999, we entered into an employment agreement with William B.
Gossett pursuant to which Mr. Gossett serves as President and Chief Executive
Officer of the Bancorp and, upon its organization, the bank, for a term of five
years. The agreement automatically renews for additional two-year terms unless
either party notifies the other party of its intent not to renew at least 180
days prior to the end of the then current term. Mr. Gossett's initial annual
base salary under the agreement is $135,000. His annual salary becomes $130,000
effective August 1, 2000. He is also entitled to receive a bonus of $10,000
upon the opening of the bank, which bonus may increase to $27,500 based upon
the board of directors' consideration of various factors. For each year
following the first full calendar year of the bank's operations, Mr. Gossett is
also entitled to a bonus of five percent of the bank's net income if the board
of directors determines the bonus is appropriate in light of its analysis of
various performance criteria.

In addition to his salary and bonus compensation, Mr. Gossett will be
provided with an automobile, or an automobile allowance; life insurance of
$300,000 payable to his spouse and heirs; and reimbursement for automobile
expenses, club dues, business expenses, and moving and relocation expenses. He
will also participate in the bank's retirement, medical and other benefit
programs.

Mr. Gossett will be eligible to participate in any long-term equity
incentive program of the Bancorp and will be eligible for the grant of stock
options, restricted stock and other awards under such program or any similar
program adopted by the Bancorp. Upon closing of this offering, or as soon after
the closing as an appropriate stock option plan is adopted by the Bancorp, Mr.
Gossett will be granted options to purchase a number of shares of the Bancorp's
common stock equal to three percent of the number of shares sold in this
offering at a purchase price of $10.00 per share. One-third of the shares
covered by the option will vest on each of the first, second and third
anniversaries of the date the bank opens for business, subject to accelerated
vesting upon a change in control of the Bancorp.

The employment agreement with Mr. Gossett also provides that during the term
of his employment and for a period expiring on the earlier to occur of (a) one
year after termination of his employment for any reason

31
<PAGE>

other than without cause, (b) six months after expiration of the employment
agreement where expiration results from Mr. Gossett's timely notification of
his intent not to renew the agreement, and (c) the expiration of the agreement
where expiration results from the Bancorp's or the bank's timely notification
to Mr. Gossett of its intent not to renew the agreement, Mr. Gossett will not
compete, directly or indirectly, with the Bancorp or the bank, or any of their
subsidiaries, or have more than a two percent passive investment in any
financial institution that maintains an office or branch within 25 miles of
each location where the Bancorp or the bank maintains an office or branch at
any time during Mr. Gossett's employment under the agreement. The agreement
also provides that during the term of his employment and for a period expiring
on the earlier to occur of one year after termination of his employment for any
reason and one year following the expiration of the agreement, Mr. Gossett will
not solicit employees of the bank or the Bancorp for employment and will not
solicit customers of the bank to any other financial institution.

Upon termination of Mr. Gossett's employment by the Bancorp or the bank
without cause or for any reason following a change in control of the Bancorp,
Mr. Gossett will be entitled to a lump sum severance payment equal to two times
his base salary in effect at the time, plus any accrued bonus, and all of his
outstanding options will immediately vest. If the Bancorp terminates Mr.
Gossett's employment as a result of abandoning its effort to organize the bank,
Mr. Gossett will be entitled to any earned but unpaid portion of his base
salary and a cash lump sum severance payment equal to the amount of his base
salary in effect at the time of the termination that would have been payable to
him for the period from the date of such termination to the later to occur of
July 27, 2000 and the date 120 days following the date of such termination.

Stock Warrants of Directors

Each of the directors has devoted substantial time and effort in the
activities necessary to organize the Bancorp and the bank, including attendance
at meetings over a period of several months. In addition, each of the
organizers has undertaken a substantial financial risk of loss in connection
with the funding of the organizational expenses of the Bancorp and the bank. In
consideration for these efforts and in recognition of these risks, upon
completion of this offering, each of the directors who purchases shares in this
offering will be granted, for no additional consideration, one warrant for each
share of common stock the director purchases in the offering, up to an
aggregate maximum for all directors of 210,115 shares. Each warrant will
entitle the director to purchase, at any time within ten years from the date
the bank opens for business, one additional share of our common stock at a
price of $10.00 per share. The warrants will not be immediately exercisable.
The right to exercise the warrants will vest for one-third of the shares
covered by the warrants on each of the first three anniversaries of the date
the bank opened for business, so long as the director has served continuously
as a director of the Bancorp and the bank from its opening until that
particular anniversary date. All of the warrants, however, will become vested
upon a change in control of the Bancorp or the bank, or sale of all or
substantially all of their assets.

Whether the grant of warrants will occur at all, and the term of the
warrants, are still to be approved by the Office of the Comptroller of the
Currency. One of the conditions for the Office of the Comptroller of the
Currency's approval is likely to be that the Bancorp has the right, upon notice
from any regulatory authority, to require immediate exercise or forfeiture of
the warrants if, in the opinion of the Office of the Comptroller of the
Currency, the exercise is reasonably necessary in order to inject additional
capital into the bank.

Director Liability and Indemnification

The articles of incorporation of the Bancorp contain a provision which,
subject to certain limited exceptions, limits the liability of a director to
the Bancorp or its shareholders for any breach of duty as a director. There is
no limitation of liability for:

. a breach of the director's duty of loyalty to the corporation or its
shareholders;

. an act or omission not undertaken in good faith;

. an act or omission which involves gross negligence, intentional
misconduct or a knowing violation of law;

32
<PAGE>

. any transaction from which the director derives an improper personal
benefit; or

. as to any payments of a dividend or any other type of distribution that
is illegal under Section 33-8-330 of the South Carolina Business
Corporation Act of 1988.

In addition, if the South Carolina Business Corporation Act is amended to
authorize further elimination or limitation of the liability of a director,
then the liability of each director will be eliminated or limited to the
fullest extent permitted by such provisions, as so amended, without further
action by the shareholders, unless the law requires such action. The provision
does not limit the right of the Bancorp or its shareholders to seek injunctive
or other equitable relief not involving payments in the nature of monetary
damages.

The bylaws of the Bancorp provide that the Bancorp shall indemnify its
directors to the maximum extent provided by the South Carolina Business
Corporation Act. This protection is broader than the protection expressly
mandated in Section 33-8-520 of the South Carolina Business Corporation Act.
That statutory section provides that a company must indemnify a director or an
officer only to the extent that the director has been wholly successful, on the
merits or otherwise, in the defense of any action or proceeding brought by
reason of the fact that the person was a director or officer. This requirement
would include indemnifying directors against expenses, including attorney's
fees, actually and reasonably incurred in connection with the matter.

In addition to this mandatory indemnification right, our bylaws make
mandatory the indemnification permitted, but not mandated, by Section 33-8-510
of the South Carolina Business Corporation Act. Accordingly, under our bylaws,
the Bancorp shall indemnify a director where (a) the director conducted himself
or herself in good faith, (b) the director reasonably believed that conduct in
the director's official capacity with the Bancorp was either in the Bancorp's
best interest or was not opposed to the best interest of the Bancorp; and (c)
in the case of any criminal proceeding, the director had no reasonable cause to
believe the director's conduct was unlawful.

Our board of directors also has the authority to extend to officers,
employees, and agents the same indemnification rights held by directors,
subject to all of the accompanying conditions and obligations. The board of
directors intends to extend indemnification rights to all of its executive
officers.

The Securities and Exchange Commission has informed us that indemnification
for officers, directors, and controlling persons for liabilities arising under
the Securities Act of 1933 is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.

We have the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee, or agent against any liability
asserted against him or incurred by him in any such capacity, whether or not we
would have the power to indemnify him against such liability under the bylaws.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the number and percentage of outstanding
shares of common stock beneficially owned as of the date of this prospectus by
the officers and directors of the Bancorp, and the proposed officers and
directors of the bank. The following table also sets forth the anticipated
purchases by these individuals in this offering and the percentage of common
stock to be owned by each of them assuming completion of the minimum offering
of 630,000 shares.

33
<PAGE>

The amounts in the table below include, for each individual, 50 shares of
common stock which were purchased by the individual prior to the offering at a
purchase price of $10.00 per share. The table does not include shares which may
be purchased by the individuals pursuant to their exercise of warrants that are
expected to be granted to them upon completion of the offering. For additional
information regarding the grant of these warrants, see "Management--Stock
Warrants of Directors."

Beneficial ownership, as reflected in the table, is determined in accordance
with the rules and regulations of the Securities and Exchange Commission. It
generally includes securities of which a person has or shares the power to vote
or to direct the vote, or has or shares the power to dispose or to direct the
disposition. A person is also deemed to be a beneficial owner of any security
of which that person has the right to acquire beneficial ownership within 60
days, including shares of common stock subject to currently exercisable stock
options or warrants. The percentage ownership has been calculated on the
assumption that the Bancorp has completed the minimum offering of 630,000
shares.

<TABLE>
<CAPTION>
Shares Anticipated to Be Beneficially Owned
After the Offering
Percentage of
Name Number of Shares Total Shares
- ---- ----------------------- -------------------------
<S> <C> <C>
William B. Gossett........... 30,050 4.8%
Avery E. Cleland............. 10,050 1.6
Veronica C. Clardy........... 15,050 2.4
Louis O. Dore................ 10,050 1.6
Paul M. Dunnavant, III....... 10,050 1.6
Martha B. Fender............. 10,050 1.6
D. Martin Goodman............ 10,050 1.6
Edward J. McNeil, Jr......... 10,050 1.6
Frances K. Nicholson......... 10,050 1.6
J. Frank Ward................ 10,050 1.6
Bruce K. Wyles............... 10,050 1.6
----------------------- --------------------
Total...................... 135,550 21.7%
======================= ====================
</TABLE>

TRANSACTIONS WITH MANAGEMENT

Transactions in the Ordinary Course of Business

Once the bank opens for business, it is anticipated that our directors,
officers and their affiliates, including members of their families or
businesses and other organizations with which they are associated, will have
banking and other transactions in the ordinary course of business with the
bank. It will be the policy of the bank that any loans or other transactions
with those persons or entities (a) will be made in accordance with applicable
law and the bank's lending policies, (b) will be made on substantially the same
terms, including price, interest rates and collateral, as those prevailing at
the time for comparable transactions with other unrelated parties of similar
standing, and (c) will not be expected to involve more than the normal risk of
collectibility or present other unfavorable features to the Bancorp and the
bank. In addition, all future transactions with our directors, officers and
their affiliates are intended to be on terms no less favorable than could be
obtained from an unaffiliated third party, and must be approved by a majority
of our directors, including a majority of the directors who do not have an
interest in the transaction.

Operating Facilities

The temporary office for the Bancorp and the bank is located at 500 Carteret
Street, Suite A, in downtown Beaufort, South Carolina. This office space,
consisting of approximately 500 square feet, is part of the executive offices
of Renaissance Marketing, LLC. This space is being provided to us at no charge
by Renaissance Marketing, LLC. Veronica C. Clardy, a director of the Bancorp,
is a principal and executive officer of Renaissance Marketing, LLC.

34
<PAGE>

The Bancorp has entered into a contract to purchase from Hird Island
Investments, Inc. the 1.5 acres of real property on which our permanent banking
facility is to be built. The purchase price under the contract is $1 million.
Hird Island Investments, Inc., is owned 50 percent by Veronica C. Clardy and 50
percent by the spouse of Martha B. Fender. Ms. Clardy and Ms. Fender are
directors of the Bancorp and are proposed directors of the bank. The purchase
of this site is conditioned on our receipt of appraisals from two independent
third party appraisers which value the property at or above the purchase price
in the contract. Our board of directors approved this purchase by the unanimous
vote of all of the directors who had no interest in the transaction. Their
approval followed their determination that the contemplated purchase was on
terms no less favorable to the Bancorp than if the purchase was between the
Bancorp and unrelated third parties. The site being purchased is part of a six
acre tract that was acquired by Hird Island Investments, Inc. in October 1999
from two unrelated third parties. In connection with that earlier purchase, the
sellers' broker was a company that is wholly owned by Ms. Fender. Renaissance
Marketing, LLC acted as broker for Hird Island Investments, Inc. No broker
commissions or similar fees will be paid by any party in our acquisition of the
site from Hird Island Investments, Inc.

Funding by the Organizers

In order to fund various costs and expenses associated with the development
and organization of the Bancorp and the bank, we obtained a $90,000 line of
credit from GrandSouth Bank. As of November 30, 1999, approximately $60,000 was
outstanding under this line of credit. Each of the organizers has personally
guaranteed the line of credit. We intend to repay the line of credit with a
portion of the net proceeds from this offering of common stock. See "Use of
Proceeds."

In addition to the line of credit described above, each of the organizers
has advanced $10,000 pursuant to an Organizer Contribution Agreement to fund
various costs and expenses associated with the development and organization of
the Bancorp and the bank. The Bancorp intends to repay the $100,000 aggregate
amount advanced by the organizers pursuant to that agreement using a portion of
the net proceeds from this offering of common stock. See "Use of Proceeds."

Warrants

In consideration for their efforts in organizing the Bancorp and the bank,
and in recognition of financial risk of loss undertaken by each of them in
connection with the funding of the organizational expenses of the Bancorp and
the bank, upon completion of this offering, each of the directors who purchases
shares in this offering will be granted, for no additional consideration, one
warrant for each share of common stock the director purchases. Each warrant
will entitle the director to purchase, at any time within ten years from the
date the bank opens for business, one additional share of our common stock at a
price of $10.00 per share. See "Management--Stock Warrants of Directors."

35
<PAGE>

DESCRIPTION OF SECURITIES

The authorized capital stock of the Bancorp is 12,000,000 shares, consisting
of 10,000,000 shares of common stock, no par value per share, and 2,000,000
shares of preferred stock, the par value, rights and preferences of which may
be designated as the board of directors may determine. As of the date of this
prospectus, 550 shares of common stock were outstanding and no shares of
preferred stock were outstanding.

Common Stock

Subject to the rights of the holders of any outstanding shares of preferred
stock and any restrictions that may be imposed by any lender to the Bancorp,
holders of common stock are entitled to receive ratably dividends, if any,
declared by the board of directors out of funds legally available for
dividends. See "Dividend Policy." In the event of the liquidation, dissolution
or winding up of the Bancorp, holders of common stock are entitled to share
ratably, based on the number of shares held, in the assets, if any, remaining
after payment of all the debts and liabilities of the Bancorp and the
liquidation preference of any outstanding series of preferred stock.

Holders of common stock are entitled to one vote per share for each share
held of record on any matter submitted to the holders of common stock for a
vote. Because holders of common stock do not have cumulative voting rights with
respect to the election of directors, the holders of a majority of the shares
of common stock represented at a meeting can elect all of the directors.
Holders of common stock do not have preemptive or other rights to subscribe for
or purchase any additional shares of capital stock issued by the Bancorp or to
convert their common stock into any other securities. There are no redemption
or sinking fund provisions applicable to the common stock.

Preferred Stock

The authorized shares of preferred stock may be issued in one or more
series, and the board of directors is authorized, without further action by the
shareholders, to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The board of directors also may designate par
value, preferences in liquidation, as well as any sinking fund terms and the
number of shares constituting any series or the designation of such series. The
Bancorp believes that the availability of preferred stock issuable in series
will provide increased flexibility for structuring possible future financings
and acquisitions, if any, and in meeting other corporate needs. It is not
possible to state the actual effect of the authorization and issuance of any
series of preferred stock upon the rights of holders of common stock until the
board of directors determines the specific terms, rights and preferences of a
series of preferred stock. However, the effects might include, among other
things, restricting dividends on the common stock, diluting the voting power of
the common stock, or impairing liquidation rights of such shares without
further action by holders of the common stock. In addition, the board of
directors is authorized at any time to issue preferred stock with voting,
conversion or other features that may have the effect of impeding or
discouraging a merger, tender offer, proxy contest, the assumption of control
by a holder of a large block of the securities of the Bancorp or the removal of
incumbent management. Issuance of preferred stock could also adversely affect
the market price of the common stock. The Bancorp has no present plan to issue
any shares of preferred stock.

Change of Control and Anti-takeover Effects

General. Our articles of incorporation and bylaws and South Carolina state
law contain provisions designed to enhance the ability of the board of
directors to deal with attempts to acquire control of the Bancorp. These
provisions may be deemed to have an anti-takeover effect and may discourage
takeover attempts which have not been approved by the board of directors. This
would include takeover attempts that some of our shareholders may deem to be in
their best interest. These provisions may also adversely affect the price that
a potential purchaser will be willing to pay for our common stock and deprive
you of the opportunity

36
<PAGE>

to obtain a takeover premium for your shares. To the extent that takeover
attempts are discouraged, temporary fluctuations in the market price of the
common stock resulting from actual or rumored takeover attempts may be
inhibited. These provisions also could make the removal of incumbent management
more difficult and may permit a minority of our directors and the holders of a
minority of our outstanding voting stock to prevent, discourage or make more
difficult a merger, tender offer or proxy contest, even though the transaction
may be favorable to the interests of shareholders. These provisions could also
potentially adversely affect the market price of the common stock.

The following briefly summarizes protective provisions contained in the
articles of incorporation and South Carolina law and is not intended to be a
complete description of all the features and consequences of these provisions.
The following is qualified in its entirety by reference to the articles of
incorporation and the relevant provisions of South Carolina law.

Classified Board of Directors. Our articles of incorporation and bylaws
provide for a classified board of directors so that, as nearly as possible,
one-third of the board of directors is elected each year to serve a three-year
term. This classification would delay an attempt by dissatisfied shareholders
or anyone who obtains a controlling interest in the Bancorp to elect a new
board of directors, because, absent the removal, resignation or death of the
members of the Board, it would take three annual meetings of shareholders to
change fully the composition of the Board, and at least two annual meetings to
change a majority of the directors.

Authorized but Unissued Stock. The authorized but unissued shares of common
stock and preferred stock will be available for future issuance without
shareholder approval. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved shares of common stock and preferred
stock may enable the board of directors to issue shares of stock to persons
friendly to existing management. This may have the effect of discouraging
attempts to obtain control of the Bancorp through a proxy contest, tender
offer, merger or otherwise, thereby protecting the continuity of current
management.

Evaluation of Acquisition Proposals. Our articles of incorporation expressly
permit the board of directors, when evaluating any proposed tender or exchange
offer, any merger, consolidation or sale of substantially all of the assets of
the Bancorp, or any similar extraordinary transaction, to consider (a) all
relevant factors including, without limitation, the social, legal, and economic
effects on the employees, customers, suppliers, and other constituencies of the
Bancorp and its subsidiaries, on the communities and geographical areas in
which the Bancorp and its subsidiaries operate or are located, and on any of
the business and properties of the Bancorp or any of its subsidiaries, and (b)
the consideration being offered, not only in relation to the then current
market price for the Bancorp's outstanding shares of capital stock, but also in
relation to the then current value of the Bancorp in a freely negotiated
transaction and in relation to the board of directors' estimate of the future
value of the Bancorp as an independent going concern. The board of directors
believes that these provisions are in the long-term best interests of the
Bancorp and its shareholders.

Advance Notice Requirements. Our bylaws set forth advance notice procedures
in connection with shareholder proposals at shareholder meetings and
nominations of directors, other than by the board of directors. Specifically,
notice of a shareholder proposal as well as a nomination for the election of
any director by a shareholder must be received by the Bancorp on or before 90
days prior to the shareholders' meeting at which the proposal or nomination is
to be considered. Proposals which fail to be made in accordance with the notice
requirements may be rejected by the Bancorp.

Director Nomination Requirements. Our bylaws require that any shareholder
proposing to nominate an individual for election as a director provide in the
notice of nomination (a) a representation of the shareholder's status as a
record holder of common stock and the shareholder's intent to appear at the
meeting to make the nomination; (b) a description of any arrangements between
the shareholder and the nominee regarding the making of the nomination; (c) the
name of and other biographical information regarding the nominee; and (d) a
statement that the nominee has consented to the nomination. The chairman of any
shareholders' meeting may,

37
<PAGE>

for good cause shown, waive the operation of these provisions. These provisions
could reduce the likelihood of third-party nominations of directors.

Supermajority Voting on Significant Transactions. South Carolina law
provides that, unless a corporation's articles of incorporation provide for a
higher or lower vote, significant corporation actions, such as a merger, share
exchange or sale of all or substantially all of the corporation's assets, must
be approved by the holders of two-thirds of the shares entitled to vote on the
matter. Our articles of incorporation do not provide for a different vote
requirement. Consequently, a two-thirds shareholder vote is required to approve
any of such transactions involving the Bancorp.

Control Share Acquisitions. We are currently subject to the South Carolina
control share acquisitions statute which is designed to afford shareholders of
public corporations in South Carolina and meet share ownership requirements set
forth in the statute protection against acquisitions in which a person, entity
or group seeks to gain voting control of the public corporation. With
enumerated exceptions, the statute provides that shares of a public corporation
acquired within certain specific ranges will not possess voting rights in the
election of directors unless the voting rights are approved by a majority vote
of the public corporation's disinterested shareholders. Disinterested shares
are shares other than those owned by the acquiring person or by a member of a
group with respect to a control share acquisition, or by any officer of the
corporation or any employee of the corporation who is also a director. The
specific acquisition ranges that trigger the statute are: acquisitions of
shares possessing one-fifth or more but less than one-third of all voting
power; acquisitions of shares possessing one-third or more but less than a
majority of all voting power; or acquisitions of shares possessing a majority
of more of all voting power. Under certain circumstances, the statute permits
the acquiring person to call a special shareholders meeting for the purpose of
considering the grant of voting rights to the holder of the control shares.
Unless otherwise provided in a corporation's articles of incorporation or
bylaws before a control share acquisition has occurred, in the event the shares
acquired in a control share acquisition are accorded full voting rights and the
acquiring person has acquired a majority or more of all voting power, then all
shareholders of the public corporation have dissenter's rights to receive fair
value for their shares. There is currently no provision in our articles or our
bylaws limiting or eliminating such rights. The statute also enables a
corporation to provide the redemption under certain circumstances of control
shares with no voting rights. Among the acquisitions specifically excluded from
the statute are acquisitions consummated pursuant to a merger or plan of share
exchange in compliance with law if the public corporation is a party to the
agreement of merger or plan or share exchange. A corporation may opt-out of the
statute by so providing in its articles of incorporation. We have not opted out
of the statute.

Business Combinations with Interested Shareholders. We are also currently
subject to the South Carolina business combination statute which, with
enumerated exceptions, places restrictions on mergers, consolidations, sales of
assets, liquidations, reclassifications or other similar kinds of transactions
with or between a public corporation in South Carolina and any person who owns,
directly or indirectly, 10% or more of the voting power of the outstanding
voting shares of the public corporation. The statute provides that the public
corporation may not engage in any business combination with any 10% or greater
shareholder of the corporation for a period of two years following the date the
person became a 10% shareholder unless before the date the person became a 10%
shareholder either (a) the business combination or (b) the purchase of shares
that first made the shareholder a 10% shareholder is approved by a majority of
the "disinterested" members of the board of directors of the corporation. A
member of the board is "disinterested" if the director is not a present or
former officer or employee of the public corporation or a related corporation.
The statute further provides that, subject to various exceptions, a public
corporation may not engage at any time in a business combination with a 10%
shareholder unless the business combination complies with all of the
requirements of the public corporation's articles of incorporation and either
(a) the business combination is approved by the board of directors of the
public corporation before the date the shareholder first became a 10%
shareholder, or the purchase of shares made by the 10% shareholder on the date
the shareholder first became a 10% shareholder has been approved by the board
of directors of the public corporation before the date the shareholder first
became a 10% shareholder, (b) the business combination is approved by the
affirmative vote of the holders of a

38
<PAGE>

majority of the outstanding voting shares not beneficially owned by the 10%
shareholder proposing the business combination at a meeting called for that
purposes no earlier than two years after the date the shareholder first became
a 10% shareholder, or (c) the business combination meets specified fair price
and form of consideration requirements. A company may opt-out of the business
combination statute by so providing in its articles of incorporation. We have
not opted out of the statute.

Transfer Agent and Registrar

Unless we otherwise become required by law or administrative action to
appoint an independent transfer agent and registrar, or our board of directors
otherwise deems it appropriate to do so, we will act as transfer agent and
registrar for our common stock.

Shares Eligible for Future Sale

Upon completion of the offering, we will have a minimum of 630,550 shares
and a maximum of 1,000,550 shares of common stock outstanding. Except for the
550 shares purchased originally by the directors and any shares held by
affiliates, all of the shares will be freely tradeable without restriction or
registration under the Securities Act of 1933. Affiliates of the Bancorp will
need to comply with the resale limitations of Rule 144 under the Securities Act
of 1933. Rule 144 defines an "affiliate" of a company as a person who directly,
or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the company. Affiliates of a company
generally include its directors, officers and principal shareholders. An
expected total of 135,000 shares owned directly or indirectly by our directors
will be eligible for public sale under Rule 144 following the offering.

Purchasers of the common stock in this offering or on the open market may
resell those shares immediately, although as noted above, affiliates of the
Bancorp will be subject to the volume and other limitations of Rule 144. In
general, under Rule 144, as currently in effect, affiliates will be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding his or her sale.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about the
Bancorp. Rule 144 also requires persons holding restricted securities to hold
the shares for at least one year prior to resale. The 550 shares originally
purchased by the directors constitute restricted securities and will be subject
to this resale limitation.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for the
Bancorp by Nexsen Pruet Jacobs & Pollard, LLP, Columbia, South Carolina.

EXPERTS

The financial statements of the Bancorp as of September 30, 1999, included
in this prospectus have been examined by Francis and Company, CPAs, independent
public accountants, as stated in their opinion, and have been so included in
reliance upon the opinion, which has been rendered upon the authority of said
firm as experts in accounting and auditing.

39
<PAGE>

ADDITIONAL INFORMATION

The Bancorp has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933. That
registration statement covers the common stock offered in this offering. As
permitted by the rules and regulations of the Securities and Exchange
Commission, this prospectus does not contain all of the information contained
in that registration statement and its exhibits, and references made to that
registration statement and its exhibits for further information concerning and
the securities offered hereby.

Each statement contained in this prospectus as to the contents of a document
filed as an exhibit to the Registration Statement is qualified by reference to
that exhibit for a complete statement of its terms and conditions. Copies of
this materials, as well as periodic reports and information filed by the
Bancorp, can be obtained upon payment of the fees prescribed by the Securities
and Exchange Commission, or may be examined at the offices of the Securities
and Exchange Commission without charge, at the public reference section of the
SEC, Room 1024, 450 Fifth Street, NW, Washington, DC 20549.

The SEC also maintains a website that contains reports, proxy and
information statements and other information regarding registrants such as the
Bancorp that file electronically with the Securities and Exchange Commission.
The address of the SEC's website is http://www.sec.gov.

We have filed or will file various applications with the Office of the
Comptroller of the Currency and the FDIC You should rely only on information in
this prospectus and in our related registration statement in making an
investment decision. If other available information is inconsistent with
information in this prospectus, including information in public files or
provided by the Office of the Comptroller of the Currency and the FDIC, such
other information is superseded by the information in this prospectus.
Projections appearing in the applications to such agencies were based on
assumptions that the organizers believed were reasonable at the time, but which
may have changed or may otherwise be wrong. The Bancorp and the bank
specifically disclaim all projections for purposes of this prospectus and
caution prospective investors against placing reliance on them for purposes of
making an investment decision.

40
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page Number
-----------

<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
</TABLE>

<TABLE>
<S> <C>
Balance Sheet as of September 30, 1999...................................... F-3
</TABLE>

<TABLE>
<S> <C>
Statement of Operations
from inception, December 10, 1998 through September 30, 1999 and from
January 1, 1999 through September 30, 1999................................ F-4
</TABLE>

<TABLE>
<S> <C>
Statement of Changes in Stockholders' Equity
from inception, December 10, 1998 through September 30, 1999 and from
January 1, 1999 through September 30, 1999................................ F-5
</TABLE>

<TABLE>
<S> <C>
Statement of Cash Flows
from inception, December 10, 1998 through September 30, 1999 and from
January 1, 1999 through September 30, 1999................................ F-6
</TABLE>

<TABLE>
<S> <C>
Notes to Financial Statements............................................... F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITOR' REPORT

To the Board of Directors
Islands Bancorp (In organization)
Beaufort, South Carolina

We have audited the accompanying balance sheet of Islands Bancorp (in
organization) Beaufort, South Carolina, (the "Company") a development stage
enterprise, as of September 30, 1999 and the related statements of operations,
changes in stockholders' equity and cash flows from inception, December 10,
1998 through September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Islands Bancorp (in
organization) as of September 30, 1999, and the results of its operations and
its cash flows for the period from inception, December 10, 1998 through
September 30, 1999, in conformity with generally accepted accounting
principles.

/s/ FRANCIS & CO., CPAs
Atlanta, Georgia
October 10, 1999

F-2
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Balance Sheet

<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
ASSETS
</TABLE>

<TABLE>
<S> <C>
Cash................................................................... $28,266
Property and equipment, net............................................ 29,975
Deferred registration costs............................................ 20,900
Other assets........................................................... 1,888
-------
Total Assets........................................................... $81,029
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
</TABLE>

<TABLE>
<S> <C>
Liabilities:
Current liabilities
Accounts payable..................................................... $ 12,363
Advances from organizers............................................. 100,000
Notes payable........................................................ 40,484
--------
Total current liabilities.......................................... $152,874
--------
Long term liabilities
Notes payable........................................................ $ 19,514
--------
Total long term liabilities........................................ $ 19,514
--------
Commitments and contingencies (Note 3)
</TABLE>

<TABLE>
<S> <C>
Stockholders' Equity (Note 1):
Common stock, zero par value,
10,000,000 shares authorized,
550 shares issued and outstanding................................... $ 5,500
(Deficit) accumulated during
the development stage............................................... (96,832)
--------
Total Stockholders' Equity......................................... (91,332)
--------
Total Liabilities and
Stockholders' Equity................................................. $ 81,029
========
</TABLE>

Refer to notes to the financial statements.

F-3
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Statement of Operations

<TABLE>
<CAPTION>
From inception, For the
December 10, 1998 nine-month
through period ended
September 30, September 30,
1999 1999
----------------- -------------
<S> <C> <C>
Revenues:
Interest income................................ $ -- $ --
-------- --------
Total revenues................................ -- --
-------- --------
Expenses:
Organizational expenses........................ $ 66,351 $ 61,101
Salaries and benefits.......................... 22,299 22,299
Depreciation expense........................... 1,764 1,764
Other expenses................................. 6,418 6,418
-------- --------
Total expenses................................ $ 96,832 $ 91,582
-------- --------
Net (loss)...................................... $(96,832) $(91,582)
======== ========
Basic (loss) per share (Note 2) ................ $(176.06) $(166.51)
======== ========
</TABLE>

Refer to notes to the financial statements.

F-4
<PAGE>

Statement of Changes in Stockholders' Equity
from inception, December 10, 1998 through September 30, 1999

<TABLE>
<CAPTION>
Common (Deficit)
Stock Accumulated
zero Additional During Total
Par Paid-in- the Development Stockholders'
Value Capital Stage Equity
------ ---------- --------------- -------------
<S> <C> <C> <C> <C>
Net (loss), 1998................ $ -- $ -- $ (5,250) $ (5,250)
------ ---- --------- ---------
Balance,
December 31, 1999.............. $ -- $ -- $ (5,250) $ (5,250)
====== ==== ========= =========
Issuance of 550 shares
of Common stock................ $5,500 $ -- $ -- $ 5,500
Net (loss) for the
nine-month period ended
September 30, 1999............. -- -- (91,582) (91,582)
------ ---- --------- ---------
Balance,
September 30, 1999............. $5,500 $ -- $ (96,832) $ (91,332)
====== ==== ========= =========
</TABLE>

Refer to notes to the financial statements.

F-5
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Statement of Cash Flows

<TABLE>
<CAPTION>
From inception, For the
December 10, 1998 nine-month
through period ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Cash flows from pre-operating activities
of the development stage:
Net (loss)............................. $(96,832) $(91,582)
</TABLE>

<TABLE>
<S> <C> <C>
Adjustments to reconcile net (loss) to net cash used
by pre-operating activities of the development stage:
Increase in registration costs........................ (20,900) (20,900)
Increase in accounts payable.......................... 12,363 12,363
(Increase) in other assets............................ (1,888) (1,888)
Depreciation expense.................................. 1,764 1,764
---------- ----------
Net cash used by pre-operating activities of the
development stage..................................... $ (105,493) $ (100,243)
---------- ----------
Cash flows from investing activities:
Purchase of fixed assets............................... $ (31,739) $ (31,739)
---------- ----------
Net cash used in investing activities.................. (31,739) $ (31,739)
---------- ----------
Cash flows from financing activities:
Issuance of common stock............................... $ 5,500 $ 5,500
Advances from organizers............................... 100,000 90,000
Increase in notes payable.............................. 59,998 59,998
---------- ----------
Net cash provided from financing activities............ $ 165,498 $ 155,498
---------- ----------
Net increase in cash................................... $ 28,266 $ 23,516
Cash, beginning of period.............................. -- 4,750
---------- ----------
Cash, end of period.................................... $ 28,266 $ 28,266
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest............................................... $ 61 $ 61
========== ==========
Income taxes........................................... $ -- $ --
========== ==========
</TABLE>

Refer to notes to the financial statements.

F-6
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Notes to Financial Statements
September 30, 1999

Note 1--Summary of Organization

Islands Bancorp (in organization) (the "Company") is a proposed one-bank
holding company with respect to a de novo bank, Islands Community Bank, N.A.,
Beaufort, South Carolina (the "Bank"). Prior to the Company's incorporation on
July 23, 1999, a group of organizers, on December 10, 1998 formed a
partnership, NBB Partnership (the "Partnership"), to facilitate in the initial
process of organizing and forming both the Company and the Bank. All assets,
liabilities, rights, revenues and expenses acquired, incurred or undertaken by
the Partnership from inception have been transferred, by mutual agreement of
the Board of Directors of the Company and the partners of the Partnership, to
the Company. Accordingly, all financial transactions undertaken by the
Partnership from inception until July 23, 1999 are reflected in the Company's
financial statements as of September 30, 1999.

The Company filed applications with the Office of the Comptroller of the
Currency (the "OCC") to charter the Bank and with the Federal Deposit
Insurance Corporation (the "FDIC") to insure deposits up to $100,000 per
depositor. Once preliminary approvals on the above applications are obtained,
an application for prior approval to form a bank holding company will be filed
with the Federal Reserve Board (the "FRB").

The Company is authorized to issue up to 10.0 million shares of its zero
par value per share common stock ("Common Stock"). Each share is entitled to
one vote and shareholders have no preemptive, cumulative voting or conversion
rights. The organizers capitalized the Company by acquiring 550 shares of the
Company's Common Stock for an aggregate amount of $5,500. The organizers
intend to purchase additional shares of Common Stock in the public offering.

The Company intends to file a Registration Statement on Form SB-2 with the
Securities and Exchange Commission offering for sale a minimum of 630,000 and
maximum of 1,000,000 shares of its zero par value Common Stock (the
"Offering"). The sales price for each share of Common Stock is $10.00. All
subscription proceeds will be held by an Escrow Agent pending acceptance of
subscriptions, completion of the Offering, and the receipt of preliminary
approvals from the OCC, FDIC and the FRB. If the sale of the minimum (630,000)
shares of Common Stock is not accomplished by the expiration date, as
extended, all subscriptions will be canceled and all proceeds returned,
without interest, to the subscribers.

If the sale of the minimum (630,000) shares of Common Stock is accomplished
and all preliminary regulatory approvals obtained, the Company will capitalize
the Bank and commence banking operations.

The Company is also authorized to issue of up to 2.0 million shares of
Preferred Stock. The Company's Board of Directors may, without further action
by the shareholders, direct the issuance of Preferred Stock for any proper
corporate purpose with preferences, voting powers, conversion rights,
qualifications, special or relative rights and privileges which could
adversely affect the voting power or other rights of shareholders of Common
Stock. As of September 30, 1999, there were no shares of the Company's
Preferred Stock issued or outstanding.

The Company's Articles of Incorporation and Bylaws contain certain
provisions that might be deemed to have potential defensive "anti takeover"
effects. These certain provisions include: (i) provisions relating to meetings
of shareholders which limit who may call meetings and what matters will be
voted upon; (ii) the ability of the Board of Directors to issue additional
shares of authorized Preferred Stock without shareholder approval, thus
retaining the ability to dilute any potential acquirer attempting to gain
control by purchasing Company stock; (iii) a staggered Board of Directors,
limiting the ability to change the members of the Board in a timely manner,
and (iv) a provision that requires two-thirds of the shareholders to approve
mergers and similar transactions, and amendments to the articles of
incorporation.

F-7
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Notes to Financial Statements
September 30, 1999

The organizers of the Company will receive one warrant, at no additional
cost, for each share of Common Stock purchased by that organizer in the
Offering. Each warrant entitles its holder to purchase one share of the
Company's Common Stock for $10.00 for a period of ten years from the date the
Bank opens for business. The warrants will vest equally on each of the first
three anniversaries of the date which the Bank opens for business, and may be
exercised either in whole or in part. All warrants are subject to approval by
the banking regulatory agencies.

The Company is a development stage enterprise as defined by the Financial
Accounting Standards Board Statement No. 7, "Accounting and Reporting by
Development Stage Enterprises," as it devotes substantially all its efforts to
establishing a new business, its planned principal operations have not
commenced and there has been no significant revenue from the planned principal
operations.

Note 2--Summary of Significant Accounting Policies

Basis of Accounting. The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices in
the banking industry. The Company uses the accrual basis of accounting by
recognizing revenues when they are earned and expenses in the period incurred,
without regard to the time of receipt or payment of cash. The Company has
adopted a fiscal year that ends on December 31, effective for the period ending
December 31, 1999.

Organizational Expenses. Organizational costs are costs that have been
incurred in the expectation that they will generate future revenues or
otherwise benefit periods after the Company reaches the operating stage.
Organizational costs generally include incorporation, legal and accounting fees
incurred in connection with establishing the Company. In accordance with recent
accounting pronouncements, all organizational expenses have been expensed when
incurred.

Deferred Registration Costs. Deferred registration costs are deferred and
incremental costs incurred by the Company in connection with the underwriting
and issuance of its own Common Stock. Deferred registration costs do not
include any allocation of salaries, overhead or similar costs. In a successful
offering, deferred registration costs are deducted from the Company's Common
Stock account. Registration costs associated with an unsuccessful offering are
charged to operations in the period during which the offering is deemed
unsuccessful.

Income Taxes. The Company will be subject to taxation whenever taxable
income is generated. As of September 30, 1999, no income taxes had been accrued
since no taxable income had been generated.

Basic (Loss) Per Share. Basic loss per share of $(176.06) is based on 550
shares outstanding for the period from inception, December 10, 1998 through
September 30, 1999. Note that the above result may not be indicative of future
performance primarily due to (i) the fact that the number of outstanding shares
will increase significantly and (ii) planned principal operations have not
commenced.

F-8
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Notes to Financial Statements
September 30, 1999

Note 2--Summary of Significant Accounting Policies (continued)

Statement of Cash Flows. The statement of cash flows was prepared using the
indirect method. Under this method, net loss was reconciled to net cash flows
from pre-operating activities by adjusting for the effects of current assets
and short term liabilities.

Note 3--Commitments and Contingencies

In connection with the Company's formation and the organization of its
subsidiary Bank, the Company has entered into two separate agreements with a
bank consulting firm and an accounting firm. The consulting firm's
responsibilities are to assist the organizers in preparing and filing all
applications with the Bank's regulatory authorities (OCC, FDIC, FRB). The
accounting firm's responsibilities are to perform an audit and prepare a report
on the Company's financial statements as of September 30, 1999. The aggregate
cost of the above services is estimated to approximate $55,000. The Company
also engaged a law firm to prepare and file all organizational and
incorporation papers, as well as prepare a Registration Statement on Form SB-2.
The law firm is compensated for its services based on an hourly basis.

On July 27, 1999, the Company entered into an employment agreement (the
"Agreement") with the proposed president and chief executive officer (the
"CEO") of both the Company and the Bank. The Agreement covers a period of five
years with a renewal option for an additional two-year period. The initial
annual base salary is $135,000, and becomes $130,000 effective August 1, 2000.
The CEO is also entitled to receive a bonus of $10,000 upon opening of the
Bank, which bonus may increase to $27,500 based on other factors considered by
the Company's Board of Directors. For each year following the first full
calendar year of the Bank's operations, the CEO is also entitled to a bonus of
five percent of the Bank's net income if the board of directors determines the
bonus is appropriate in light of its analysis of various performance criteria.
Additionally, when a stock option plan is adopted, the CEO will be granted
options to purchase Company's shares equal to three percent of the number of
shares sold in the Offering. The Agreement provides for other customary
benefits such as health and life insurance, retirement benefits, club dues, use
of an automobile and relocation expenses. The Agreement also includes a non-
compete clause prohibiting the CEO, once he ceases to serve in the Company,
from competing against the Company and/or its subsidiary Bank for a certain
period of time and within certain geographical boundaries.

On September 7, 1999, the Company borrowed under an unsecured line of credit
arrangement, $90,000 at a prime rate of interest for a period of ninety days.
As of September 30, 1999, $30,000 was outstanding on the above line.

On August 6, 1999, the Company borrowed $31,739 to purchase an automobile.
The loan, which is secured by the above automobile, amortizes over thirty six
months at an interest rate of 0.9 percent. The outstanding balance on this loan
as of September 30, 1999 was $29,998.

The organizers advanced $10,000 each or $100,000 in the aggregate to the
Company in order to fund a portion of the pre-operating activities. The
advances are interest-free and will be repaid only after the successful
completion of the minimum Offering (630,000 shares) is accomplished.

Note 4--Related Party Transactions

Please refer to Note 1 regarding all assets, liabilities, rights, revenues
and expenses undertaken by the Partnership, all of which have been assumed by
and transferred to the Company.

F-9
<PAGE>

Islands Bancorp (in organization)
(A Development Stage Enterprise)
Notes to Financial Statements
September 30, 1999

Please refer to Note 1 for a discussion concerning the organizers' warrants.

Please refer to Note 3 concerning interest-free advances made by the
organizers as well as a description of the CEO's employment Agreement.

F-10
<PAGE>

SUBSCRIPTION OFFER FORMS

Two Subscription Offer Forms are attached hereto. Any prospective investor
desiring to purchase common stock should complete and execute one Subscription
Offer Form and mail or deliver it, together with full payment, to:

Islands Bancorp
500 Carteret Street, Suite A
Beaufort, South Carolina 29902
Attention: William B. Gossett

If you ordered through a broker-dealer, please deliver a completed
Subscription Offer Form to your account representative.

Payments for common stock subscribed may be made by check, draft or money
order payable to "The Bankers Bank--Islands Bancorp Escrow Account."
Subscribers should carefully read the terms and conditions contained in the
Subscription Offer Form before subscribing for common stock. Any questions
concerning subscriptions or the offering may be directed to the Bancorp at
(843) 470-9962.

Stock will be registered in the name of the subscriber as that name appears
on the Subscription Offer Form. Stock ownership must be registered in one of
the following ways:

Individual Subscribers

In completing the name of the investor on the Subscription Offer Form,
please include the investor=s first name in full (instead of using only an
initial), middle initial and last name. Please omit words of limitation that do
not affect ownership rights, such as "special account," "single man," and
"personal property," etc.

Joint Subscribers

Joint ownership of stock by two or more persons will be inscribed on the
certificate as either Joint Tenants, or Tenants in Common, as indicated by the
investor. On the Subscription Offer Form, names should be joined by the word
"and," and not by the word "or." Please omit titles such as "Mrs.," "Dr.," etc.
The designation "Joint Tenancy with Right of Survivorship and not as Tenants in
Common" may be specified to identify two or more owners where ownership is
intended to pass automatically to the surviving owner(s). The designation
"Tenants in Common" may also be specified to identify two or more owners. When
stock is held as tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All joint owners must agree to the transfer or sale of
shares held in this form of ownership. Please consult your attorney for full
details regarding the legal effect of joint ownership.

Entity Subscribers

Stock may be held by corporations or partnerships. In that case, please
include the entire official name of the entity, including designations such as
"Inc.," "Co.," "Ltd.," etc.

IRA and Retirement Accounts

In most cases, you may use funds in an IRA or other retirement account to
purchase the common stock. If you wish to purchase common stock through your
IRA or other retirement account, please contact your own broker-dealer.
<PAGE>

Uniform Transfers to Minors

Stock may be held in the name of a custodian for a minor under the Uniform
Transfers to Minor Act. There may only be one custodian and one minor
designated on a stock certificate. The standard abbreviation of custodian is
"CUST," while the description "Uniform Transfers to Minors Act" is abbreviated
"UTMA." For example, stock held by Mary B. Smith as custodian for John L.
Smith under the South Carolina Uniform Transfers to Minors Act will be
abbreviated: MARY B. SMITH CUST JOHN L. SMITH UTMA.

Fiduciaries

Information provided with respect to stock to be held in a fiduciary
capacity must contain the following:

1.The name(s) of the fiduciaries.

2. The fiduciary capacity, either as Administrator, Conservator, Committee,
Executor, Trustee, Personal Representative, or Custodian.

3. The type of document governing the fiduciary relationship. Generally,
the relationships are either a form of trust agreement or court order.
Without the existence of a document establishing a fiduciary
relationship, the stock may not be registered in a fiduciary capacity.

4. The date of the document governing the relationship, except with respect
to a trust created by a will.

5. Either the name of the beneficiary, or the name of the maker, donor, or
testator.

Example: JOHN Q. PUBLIC, TRUSTEE FOR MARY Q. PUBLIC
UNDER AGREEMENT DATED 9/1/95.

ALL INFORMATION REQUESTED ON THE SUBSCRIPTION OFFER FORM IS IMPORTANT AND
SHOULD BE COMPLETED.

THE SECOND COPY OF THE SUBSCRIPTION OFFER FORM SHOULD BE RETAINED FOR YOUR
RECORDS.
<PAGE>

<TABLE>
<S> <C>
For Internal Use (Do Not Fill In) Paid with Subscription $
---------------
No of Shares Requested Refund (if any) $
------------- ---------------
No. of Shares Accepted Balance Due (if any) $
------------- ---------------
</TABLE>

SUBSCRIPTION OFFER FORM

ISLANDS BANCORP

Beaufort, South Carolina

The undersigned, having received and reviewed the prospectus dated ,
2000, of Islands Bancorp (the "Bancorp"), a South Carolina corporation and the
holding company for the proposed Islands Community Bank, N.A. (in
organization), and in sole reliance on the information contained therein,
hereby subscribes for the number of shares of the common stock, no par value
per share, of the Bancorp (the "Common Stock") indicated below at a purchase
price of $10.00 per share. The minimum subscription is 100 shares. No one
person may purchase that number of shares which when added to shares of the
Bancorp already owned, would equal more than 4.99 percent of the Bancorp's
issued and outstanding shares after the offering. The Bancorp reserves the
right to waive that restriction or otherwise to limit or restrict the amount of
shares that may be purchased by any individual or group.

The subscription is payable in United States dollars by check, bank draft or
money order payable to "The Bankers Bank--Islands Bancorp Escrow Account" in
the amount indicated below, representing the payment of $10.00 per share
multiplied by the number of shares of common stock subscribed. The total
subscription price must be paid at the time this Subscription Offer Form is
executed.

In connection with this subscription, the undersigned acknowledges and
agrees that:

1. This Subscription Offer may not be withdrawn, cancelled, terminated or
revoked once it is tendered to the Bancorp, and this Subscription Offer
shall survive the death or disability of the undersigned.

2. The Bancorp shall have the right to accept or reject a subscription in whole
or in part, for any reason whatsoever. The Bancorp also reserves the right
to cancel any accepted Subscription Offer for any reason, or for no reason,
until the date the shares purchased through this offering are issued. If
this subscription is accepted in part, the undersigned agrees to purchase
the accepted number of shares subject to the terms of this Subscription
Offer. This subscription is nonassignable and nontransferable, except with
the written consent of the Bancorp.

3. All terms of the offering as described in the prospectus are incorporated
herein by reference, and this Subscription Offer is made in accordance with
and subject to those terms and conditions. The undersigned has read the
prospectus and understands it, or has had it explained to him/her by his/her
legal representative. By his/her signature below, the undersigned
acknowledges and confirms that, in making a decision to purchase common
stock of the Bancorp, the undersigned has relied solely upon the information
contained in the prospectus, and confirms that this Subscription Offer is
made in accordance therewith.

4. If the undersigned is an individual, the undersigned is a bona fide resident
of the state listed in the undersigned's address indicated below, and the
undersigned has no present intention of moving from that state of residency.
If the undersigned is an entity, the undersigned is organized and its
principal office is located in the state listed in the undersigned's address
herein, and the undersigned has no present intention of changing the state
of its organization or moving its principal office.

5. SUBSTITUTE FORM W-9: Under penalties of perjury, I certify that (1) the
Social Security Number or Taxpayer Identification Number given below is
correct; and (2) I am not subject to backup withholding. (Instruction: You
must cross out Item (2) directly above if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because
of underreporting interest or dividends on your tax return and you have not
subsequently been notified by the Internal Revenue Service that you are no
longer subject to backup withholding.)
<PAGE>

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY OR PERSON AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE ENTIRE AMOUNT INVESTED.

The undersigned has signed this Subscription Offer on the date indicated
below, and hereby requests that certificates evidencing shares of common stock
of the Bancorp purchased pursuant to this Subscription Offer be registered in
the name and form of ownership described below.

<TABLE>
<S> <C>
- ---------------------------- ---------------------------------------------
Number of Shares Subscribed: Print or type the full name or names in which
(Minimum 100 shares) stock is to be registered

$
- ---------------------------- ---------------------------------------------
Total subscription price at Signature of Subscriber
$10.00 per share

Date:
- ---------------------------- ---------------------------------------------
Signature of Subscriber

SUBSCRIBER RESIDENCE
ADDRESS: IF SUBSCRIBER IS AN ENTITY:

By:
- ---------------------------- ---------------------------------------------
Subscriber's Street Address (signature of authorized representative
(P.O Box Not Acceptable)

Print Name:
- ---------------------------- ---------------------------------------------
City/State/Zip Code

Title or Office:
---------------------------------------------

- ---------------------------- ---------------------------------------------
Area Code and Telephone Social Security or Federal Taxpayer
Number Identification Number

</TABLE>

<TABLE>
<S> <C> <C>
Legal form of ownership desired (check one):
[ ] Individual [ ] Join Tenants With Right of [ ] Other (describe)
Survivorship

[ ] Tenants in Common [ ] Uniform Transfers to
Minors Act
</TABLE>

If purchasing through a broker/dealer, please complete the following:

<TABLE>
<S> <C>
Name of Broker/Dealer: Street Address:
---------------- ----------------------
Name of Account Rep: City, State, Zip:
------------------ --------------------
Account Number: Phone Number ( )
----------------------- --------------------
</TABLE>

Complete all blanks on this Subscription Offer Form, make check, draft or money
order payable in the amount of $10.00 for each share subscribed payable to "The
Bankers Bank--Islands Bancorp Escrow Account" and mail or deliver this executed
Subscription Offer Form and check, draft or money order to:

ISLANDS BANCORP
500 Carteret Street, Suite A
Beaufort, South Carolina 29902
Attention: William B. Gossett

Any questions concerning subscriptions or the offering may be directed to the
above address or to (843) 470-9972.

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

Except as hereinafter set forth, there is no statute, charter provision,
bylaw, contract or other arrangement under which any controlling person,
director or officer of the Registrant is insured or indemnified in any manner
against liability which such person may incur in such person's capacity as
such.

The bylaws of the Registrant provide that the Registrant shall indemnify its
directors to the maximum extent provided by the South Carolina Business
Corporation Act. This protection is broader than the protection expressly
mandated in Section 33-8-520 of the South Carolina Business Corporation Act.
That statutory section provides that a company must indemnify a director or an
officer only to the extent that the director has been wholly successful, on the
merits or otherwise, in the defense of any action or proceeding brought by
reason of the fact that the person was a director or officer. This requirement
would include indemnifying directors against expenses, including attorney's
fees, actually and reasonably incurred in connection with the matter.

In addition to this mandatory indemnification right, the Registrant's bylaws
make mandatory the indemnification permitted, but not mandated, by Section 33-
8-510 of the South Carolina Business Corporation Act. Accordingly, under our
bylaws, the Registrant shall indemnify a director where (a) the director
conducted himself or herself in good faith, (b) the director reasonably
believed that conduct in the director's official capacity with the Registrant
was either in the Registrant's best interest or was not opposed to the best
interest of the Registrant; and (c) in the case of any criminal proceeding, the
director had no reasonable cause to believe the director's conduct was
unlawful.

The Securities and Exchange Commission has informed the Registrant that
indemnification for officers, directors, and controlling persons for
liabilities arising under the Securities Act of 1933 is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

The Registrant has the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer against any liability asserted
against him or incurred by him in any such capacity, whether or not we would
have the power to indemnify him against such liability under the bylaws.

Item 25. Other Expenses of Issuance and Distribution.

The expenses in connection with the sale of the shares of common stock
(excluding any selling agent commissions) are estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 3,365
Printing and engraving expenses................................. 30,000
Legal fees and expenses......................................... 50,000
Accounting fees and expenses.................................... 4,000
Blue Sky fees and expenses...................................... 1,000
Miscellaneous................................................... 11,635
--------
TOTAL.......................................................... $100,000
========
</TABLE>

II-1
<PAGE>

Item 26. Recent Sales of Unregistered Securities.

In connection with its initial capitalization, on August 17, 1999, the
Registrant issued a total of 50 shares of its common stock to each of its 11
directors at a purchase price of $10.00 per share, for a total purchase price
of $5,500 for an aggregate of 550 shares. Each purchaser represented the
purchaser=s intention to acquire the securities for investment purposes only
and not for resale or distribution. Each of the purchasers was a director
and/or officer of the Registrant at the time of purchase, and the Registrant
believes that each purchaser had access to detailed information with respect to
the Registrant and possessed requisite financial sophistication. All of such
shares were issued pursuant to the exemption from registration contained in
Section 4(2) of the Securities Act, and Rule 506 under Regulation D promulgated
thereunder, as transactions, not involving a general solicitation, in which the
purchasers were purchasing for investment.

Item 27. Exhibits.

<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Specimen common stock certificate. See Exhibits 3.1 and 3.2 for provisions in the
Articles of Incorporation and Bylaws of the Registrant defining the rights of
holders of common stock.
5.1 Opinion of Nexsen Pruet Jacobs & Pollard, LLP.
10.1 Employment Agreement dated as of July 27, 1999 between the Registrant and William
B. Gossett.
10.2 Form of Organizers Warrant Agreement.
10.3 Assignment and Assumption Agreement dated August 25, 1999, between the Registrant
and NBB General Partnership.
10.4 Contract of Sale dated December 5, 1999 between the Registrant and Hird Island
Investments, Inc.
10.5 Escrow Agreement dated November 23, 1999 between the Registrant and The Bankers
Bank.
10.6 Loan Agreement dated September 7, 1999 between the Registrant and GrandSouth
Bank, as extended on December 7, 1999, and form of Guaranty Agreement issued to
GrandSouth Bank by each of the organizers of the Registrant.
23.1 Consent of Nexsen Pruet Jacobs & Pollard, LLP. (contained in Exhibit 5.1)
23.2 Consent of Francis & Co., CPAs.
24.1 Powers of Attorney (filed as part of the signature page to the registration
statement).
27.1 Financial Data Schedule (for electronic filing purposes).
</TABLE>

II-2
<PAGE>

Item 28. Undertakings.

The Registrant hereby undertakes to do the following:

(a) The Registrant will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.

(iii) Include any additional or changed material information on the
plan of distribution.

(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial bona fide offering.

(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.

II-3
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Beaufort, state of South Carolina, on December 10, 1999.

ISLANDS BANCORP

/s/ William B. Gossett
By: _________________________________
William B. Gossett
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William B. Gossett and D. Martin Goodman,
and each of them acting individually, as his attorney-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Registration
Statement.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ William B. Gossett President, Chief Executive December 10, 1999
______________________________________ Officer (principal
William B. Gossett executive officer) and
Director

/s/ D. Martin Goodman Chairman of the Board December 10, 1999
______________________________________
D. Martin Goodman

/s/ Martha B. Fender Vice President and December 10, 1999
______________________________________ Director
Martha B. Fender

/s/ Paul M. Dunnavant, III Treasurer (principal December 10, 1999
______________________________________ financial and accounting
Paul M. Dunnavant, III officer) and Director

/s/ Edward J. McNeil, Jr. Secretary and Director December 10, 1999
______________________________________
Edward J. McNeil, Jr.

/s/ Veronica C. Clardy Director December 10, 1999
______________________________________
Veronica C. Clardy

/s/ Avery E. Cleland Director December 10, 1999
______________________________________
Avery E. Cleland

/s/ Louis O. Dore Director December 10, 1999
______________________________________
Louis O. Dore

/s/ Frances K. Nicholson Director December 10, 1999
______________________________________
Frances K. Nicholson

/s/ J. Frank Ward Director December 10, 1999
______________________________________
J. Frank Ward

/s/ Bruce K. Wyles Director December 10, 1999
_____________________________________
Bruce K. Wyles
</TABLE>

II-4
<PAGE>

Exhibit Index

Number Exhibit
- ------ -------

3.1 Articles of Incorporation of the Registrant.

3.2 Bylaws of the Registrant.

4.1 Specimen common stock certificate. See Exhibits 3.1 and 3.2 for
provisions in the Articles of Incorporation and Bylaws of the
Registrant defining the rights of holders of common stock.

5.1 Opinion of Nexsen Pruet Jacobs & Pollard, LLP.

10.1 Employment Agreement dated as of July 27, 1999 between the
Registrant and William B. Gossett.

10.2 Form of Organizers Warrant Agreement.

10.3 Assignment and Assumption Agreement dated August 25, 1999, between
the Registrant and NBB General Partnership.

10.4 Contract of Sale dated December 5, 1999 between the Registrant and
Hird Island Investments, Inc.

10.5 Escrow Agreement dated November 23, 1999 between the Registrant and
The Bankers Bank.

10.6 Loan Agreement dated September 7, 1999 between the Registrant and
GrandSouth Bank, as extended on December 7, 1999, and form of
Guaranty Agreement issued to GrandSouth Bank by each of the
organizers of the Registrant.

23.1 Consent of Nexsen Pruet Jacobs & Pollard, LLP. (contained in Exhibit
5.1)

23.2 Consent of Francis & Co., CPAs.

24.1 Powers of Attorney (filed as part of the signature page to the
registration statement).

27.1 Financial Data Schedule (for electronic filing purposes).

<PAGE>

Exhibit 3.1 (as filed with the South Carolina
Secretary of State on July 23, 1999)

STATE OF SOUTH CAROLINA
SECRETARY OF STATE

ARTICLES OF INCORPORATION

ISLANDS BANCORP

1. Name. The name of the Corporation is Islands Bancorp.

2. Registered Office and Agent. The registered office of the Corporation is
500-A, Carteret Street in the city of Beaufort, South Carolina 29902,
and the registered agent at such address is William B. Gossett.

3. Stock. The Corporation is authorized to issue two classes of stock as
follows:

Class of Shares Authorized Number of Each Class
--------------- -------------------------------
Common Stock 10,000,000 shares
Preferred Stock 2,000,000 shares

The relative rights, preferences, and limitations of the shares of each
class, and of each series within a class, are as follows:

a. Common Stock. Authority is hereby expressly granted to and vested
------------
in the Board of Directors of the Corporation to provide for the issue of
common stock. The Corporation's shares of common stock shall have no par
value. The holders of record of shares of common stock shall be entitled
to unlimited voting rights equating to one (1) vote per outstanding share
of common stock on all matters upon which shareholders are entitled to
vote. Shares of common stock shall have distribution, dividend, and
liquidation rights granted by law or declared by resolution or resolutions
of the Board of Directors from time to time, except that in the absence of
the establishment of liquidation rights for one or more series of preferred
stock (either preferentially to, or on a parity with, the common stock) as
provided below, the holders of record of shares of common stock shall be
entitled to receive the net assets of the Corporation upon dissolution.
The distribution, dividend, and liquidation rights associated with the
shares of common stock will be subordinated only to the comparable
distribution, dividend, or liquidation rights associated with shares of
certain series of preferred stock, if any, but only to the extent such
preferences, if any, are established for one or more series of preferred
stock by the Board of Directors in its discretion as provided below.

ARTICLES OF INCORPORATION
ISLANDS BANCORP
Page 2
<PAGE>

b. Preferred Stock. Authority is also hereby expressly granted to
---------------
and vested in the Board of Directors of the Corporation to provide for the
issue of preferred stock in one or more series, and in connection therewith
to establish by resolution or resolutions of the Board of Directors from
time to time providing for the issue of such series, the number of shares
to be included in such series, the designation thereof, and the relative
rights, preferences, and limitations of each series and the variations in
such rights, preferences, and limitations as between series, all to the
fullest extent permitted by Section 33-6-102 of the South Carolina Business
Corporations Act of 1988, as amended from time to time (the "Act").
Without limiting the generality of the grant of authority contained in the
preceding sentence, the Board of Directors is authorized to determine any
or all of the following with respect to any series of the preferred stock,
and the shares of each series may vary from the shares of any other series
in any or all of the following respects:

(i) The number of shares of such series (which may
subsequently be increased, except as otherwise provided by the
resolution or resolutions of the Board of Directors providing for the
issue of such series, or decreased to a number not less than the
number of shares then outstanding) and the distinguishing designation
thereof.

(ii) The distribution, dividend, and liquidation rights, if
any, of such series; the distribution, dividend, or liquidation
preferences, if any, as between such series and any other class or
series of stock; whether and the extent to which shares of such series
shall be entitled to participate in any distributions, dividends, or
liquidation proceeds with shares of any other class or series of
stock; whether and the extent to which any distributions, dividends,
or liquidation proceeds on such series shall be cumulative,
noncumulative, or partially cumulative, and any limitations,
restrictions, or conditions on the payment of such distributions,
dividends, or liquidation proceeds; and whether and the extent to
which share dividends of one series of preferred stock may be issued
in respect of shares of another series or class without approval of
the holders of the series from which the share dividend is to be
issued.

(iii) The time or times during which, the price or prices at
which, and any other terms or conditions on which, the shares of such
series may be redeemed, if redeemable, including without limitation,
whether redeemable at the option of the Corporation, the shareholder,
or any other person.

(iv) The par value or absence of par value, and other economic
features of such series.

(v) The voting powers, if any, in addition to the voting
powers prescribed by law for shares of such series as a voting group,
if any, and the conditions upon effectiveness, and the terms and
limitations for exercise of, such voting powers.

ARTICLES OF INCORPORATION
ISLANDS BANCORP
Page 3
<PAGE>

(vi) Whether shares of such series shall be convertible into or
exchangeable for shares of any other series or class of stock
(including without limitation, shares of common stock) or any other
securities, and the terms and conditions, if any, applicable to such
right, including without limitation, whether convertible or
exchangeable at the option of the Corporation, the shareholder or any
other person.

(vii) The terms and conditions of applicable purchase,
retirement, or sinking fund, if any, which may be provided for the
shares of such series.

(viii) The restrictions, if any, upon the creation of
indebtedness, payment of distributions on other classes or series of
stock, or creation or issuance of additional securities, ranking on a
parity with or prior to such series.

(ix) Other relative, participating, optional, or special
rights, qualifications, limitations, values, or restrictions, if any,
for shares of such series.

Each such series of preferred stock shall be eligible for issue upon the
Board of Directors duly adopting the appropriate resolution or resolutions
and filing with the Secretary of State of South Carolina of articles of
amendment as set forth in Section 33-6-102 of the Act, which shall be
effective without shareholder action.

4. Existence. The existence of the corporation shall begin when these
Articles of Incorporation are filed with the Secretary of State, and
the period of duration of the Corporation shall be perpetual.

5. Optional Provisions. The optional provisions which the Corporation elects
to include in the Articles of Incorporation are as follows:

a. Preemptive Rights. The Corporation elects not to have preemptive
-----------------
rights. No shareholder shall be entitled to preemptive rights, and no
shares of stock of any class issued by the Corporation shall be subject to
any preemptive rights.

b. Cumulative Voting. The Corporation elects not to have cumulative
-----------------
voting. No shareholder shall be entitled to vote cumulatively for election
of directors, and no shares of stock of any class issued by the Corporation
may be cumulatively voted for election of directors.

c. Staggered Director Terms. At any time that the Board of Directors
------------------------
of the Corporation consists of six or more directorships, unless provided
otherwise by the Articles of Incorporation, the terms of office of
directors will be staggered by dividing the total number of directors into
three classes, with each class accounting for one-third, as near as may be,
of the total number of directorships. The terms of directors in the first
class will expire at the first annual shareholders' meeting after their
election, the terms of the second class will expire at the second annual
shareholders' meeting after their election, and the terms

ARTICLES OF INCORPORATION
ISLANDS BANCORP
Page 4
<PAGE>

of the third class will expire at the third annual shareholders' meeting
after their election. At each annual shareholders' meeting held thereafter,
directors shall be chosen for a term of three years to succeed those whose
terms expire. If the number of directorships is changed, any increase or
decrease shall be so apportioned among the classes as to make all classes
as nearly equal in number as possible, and when the number of directorships
is increased and any newly created directorships are filled by the Board of
Directors, the terms of the additional directors shall expire at the next
election of directors by the shareholders. Each director, except in the
case of his or her earlier death, written resignation, retirement,
disqualification or removal, shall serve for the duration of his or her
term, as staggered, and thereafter until his or her successor shall have
been elected and qualified.

d. Director Immunity. No director of the Corporation shall be
-----------------
personally liable to the Corporation or its shareholders for monetary
damages for breach of such director's fiduciary duty as a director;
provided however, the foregoing shall not eliminate or limit the liability
of a director: (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders; (ii) for acts or omissions not in good
faith or which involve gross negligence, intentional misconduct, or a
knowing violation of law; (iii) imposed for unlawful distributions as set
forth in Section 33-8-330 of the Act; or (iv) for any transaction from
which the director derived an improper personal benefit. This provision
shall eliminate or limit the liability of a director of the Corporation to
the maximum extent permitted from time to time by the Act or any successor
law or laws. Any repeal or modification of the foregoing protection by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.

e. Evaluation of Offers. To the fullest extent permitted by law, the
--------------------
Board of Directors, when evaluating any offer by another party to (i) make
a tender or exchange offer for any equity security of this Corporation
outside of the ordinary course of business, (ii) merge or consolidate this
Corporation with any other Corporation, (iii) purchase or otherwise acquire
all or substantially all of the properties and assets of this Corporation,
or (iv) undertake any similar extraordinary corporate transactions with
this Corporation, may in its discretion, in connection with the exercise of
its judgment in determining what is in the best interests of this
Corporation and its shareholders, give due consideration to: (aa) all
relevant factors, including without limitation the social, legal, and
economic effects on the employees, customers, suppliers, and other
constituencies of this Corporation and its subsidiaries, on the communities
and geographical areas in which this Corporation and its subsidiaries
operate or are located, and on any of the businesses and properties of this
Corporation or any of its subsidiaries, as well as such other factors as
the directors deem relevant; and (bb) all features of the consideration
being offered, not only in relation to the then current market price for
the Corporation's outstanding shares of capital stock, but also in relation
to the then current value of the Corporation in a freely negotiated
transaction and in relation to the Board of Director's estimate of the
future value of this Corporation (including the unrealized value of its
properties and assets) as an independent going concern.

ARTICLES OF INCORPORATION
ISLANDS BANCORP
Page 5
<PAGE>

f. Miscellaneous. Terms used herein which are not otherwise defined
-------------
shall have the meanings ascribed to them in the Act. All references to
statutory provisions shall be deemed to include corresponding sections of
succeeding law. Each provision of these Articles of Incorporation shall be
deemed severable from, and shall survive the illegality or invalidity of,
any other provision herein.

6. Incorporator. The name, address and signature of each incorporator is as
follows:

Name Address Signature
---- ------- ---------

Martin Goodman 500-A Carteret Street ___________________________
Beaufort, SC 29902

7. Attorney's Certificate. I, William S. McMaster, an attorney licensed to
practice in the State of South Carolina, certify that the corporation, to
whose articles of incorporation this certificate is attached, has complied
with the requirements of Chapter 2 of the South Carolina Business
Corporation Act of 1988 as amended to date relating to the articles of
incorporation.

Date: July 15, 1999 /s/ WILLIAM S. MCMASTER
----------------------------------------------------
William S. McMaster
NEXSEN PRUET JACOBS & POLLARD, LLP
P.O. Drawer 2426
Columbia, South Carolina 29202
(803) 771-8900

ARTICLES OF INCORPORATION
ISLANDS BANCORP
Page 6

<PAGE>

Exhibit 3.2

BYLAWS OF

ISLANDS BANCORP

ARTICLE I

OFFICES AND REGISTERED AGENT

Section 1.01. Principal Office. The Corporation shall maintain its
Principal Office in the City of Beaufort, State of South Carolina or such other
place as designated from time to time by the Board of Directors for the
principal executive offices of the Corporation.

Section 1.02. Registered Office. The Corporation shall maintain a
Registered Office as required by the South Carolina Business Corporation Act of
1988, as amended from time to time (the "Act"), at a location in the State of
South Carolina designated by the Board of Directors from time to time. In the
absence of a contrary designation by the Board of Directors, the Registered
Office of the Corporation shall be located at its Principal Office.

Section 1.03. Other Offices. The Corporation may have such other offices
within and without the State of South Carolina as the business of the
Corporation may require from time to time. The authority to establish or close
such other offices may be delegated by the Board of Directors to one or more of
the Corporation's Officers.

Section 1.04. Registered Agent. The Corporation shall maintain a
Registered Agent as required by the Act who shall have a business office at the
Corporation's Registered Office. The Registered Agent shall be designated by
the Board of Directors from time to time to serve at its pleasure. In the
absence of such designation the Registered Agent shall be the Corporation's
Secretary.

Section 1.05. Filings. In the absence of directions from the Board of
Directors to the contrary, the Secretary of the Corporation shall cause the
Corporation to maintain currently all filings in respect of the Registered
Office and Registered Agent with all governmental officials as required by the
Act or otherwise by law.

ARTICLE II

SHAREHOLDERS

Section 2.01. Annual Meetings. An annual meeting of the Corporation's
shareholders shall be held once each calendar year for the purpose of electing
Directors and for the transaction of such other business as may properly come
before the meeting. The annual meeting shall be held at the time and place
within or without the State of South Carolina designated by the Board of
Directors.

Section 2.02. Special Meetings. Special meetings of the Corporation's
shareholders for any purpose or purposes described in the meeting notice, may be
called by the Chairman of the Board or by the Board of Directors, and shall be
called by the Chairman of the Board upon the written request made to the
Secretary of the Corporation by the holders of record of not less than ten
percent of the Corporation's outstanding shares of stock entitled to vote at
such meeting. The written request made to the Secretary of the Corporation
shall describe the purpose for which the special meeting is to be held. Special
meetings of the shareholders shall be held at a time and location designated by
the Chairman of the Board or by the Board

Bylaws of Islands Bancorp
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<PAGE>

of Directors as reflected in the notice of the meeting as provided for
hereinafter; provided, however, that if the Chairman of the Board or a majority
of Directors do not designate a time and location, such meetings shall be held
at the Corporation's Principal Office at the hour of ten o'clock in the morning
on the date designated in the notice of the meeting provided for below. In the
event that the Chairman of the Board and a majority of Directors timely
designate different times or locations, then the designations of the majority of
the Directors shall control.

Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed
notice of all meetings of shareholders shall be delivered not less than ten nor
more than sixty days before the meeting date, either personally, by mail, or by
any other method permitted under the Act, to all shareholders of record entitled
to vote at such meeting. If mailed, the notice shall be deemed to be delivered
when deposited with postage thereon prepaid in the United States mail, addressed
to the shareholder at the shareholder's address as it appears on the
Corporation's records, or if a shareholder shall have filed with the Secretary
of the Corporation a written request that notices to him be mailed to some other
address, then directed to such shareholder at that other address. Such notice
shall state the date, time, and place of the meeting and, in the case of a
special meeting, the purpose or purposes for which such meeting was called. At
the written request, delivered personally or by registered or certified mail, of
the person or persons calling a special meeting of shareholders, the President
or Secretary of the Corporation shall fix the date and time of the meeting and
provide notice thereof to the shareholders as required above; provided, however,
such date shall in no event be fixed less than ten or more than sixty days from
the date the request was received. If the notice of the meeting is not given
within fifteen days after the request is made to the President or Secretary, the
person or persons calling the meeting may fix the date and time of the meeting
and give or cause to be given the notice thereof required above. Notice of a
meeting of shareholders need not be given to any shareholder who attends such
meeting or who, in person or by proxy, signs a waiver of notice either before or
after the meeting. To be effective such waiver shall contain statements or
recitals sufficient to identify beyond a reasonable doubt the meeting to which
it applies. Such statements or recitals may, but need not necessarily, include
reference to the date and purpose of the meeting and the business to be
transacted thereat. Statement or recital of the proper date of a meeting shall
be conclusive identification of the meeting to which a waiver of notice applies
unless the waiver contains additional statements or recitals creating a patent
ambiguity as to its proper application.

Section 2.04. Quorum. Except as may otherwise be required by the Act or
the Corporation's Articles of Incorporation, at any meeting of shareholders the
presence, in person or by proxy, of the holders of a majority of the outstanding
shares entitled to vote thereat shall constitute a quorum for the transaction of
any business properly before the meeting. Shares entitled to vote as a separate
voting group on a matter may take action at a meeting on such matter only if a
quorum of the shares in the separate voting group are present in person or by
proxy at the meeting. Except as may otherwise be required by law or the
Corporation's Articles of Incorporation, at any meeting of shareholders the
presence, in person or by proxy, of the holders of a majority of the outstanding
shares in a separate voting group entitled to vote thereat as separate voting
group, if any, shall constitute a quorum of such separate voting group for
purposes of such matter. In the absence of a quorum a meeting may be adjourned
from time to time, in accordance with the provisions concerning adjournments
contained elsewhere in these Bylaws, by the holders of a majority of the shares
represented at the meeting in person or by proxy. At such adjourned meeting a
quorum of Shareholders may transact such business as might have been properly
transacted at the original meeting.

Section 2.05. Transaction of Business. Business transacted at an annual
meeting of shareholders may include all such business as may properly come
before the meeting. Business transacted at a special meeting of shareholders
shall be limited to the purposes stated in the notice of the meeting.

Bylaws of Islands Bancorp
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<PAGE>

Section 2.06. Shareholders of Record. For the purpose of determining
shareholders entitled to vote at any meeting of shareholders, or entitled to
receive dividends or other distributions, or in connection with any other proper
purpose requiring a determination of shareholders, the Board of Directors shall
by resolution fix a record date for such determination. The date shall be not
more than fifty and not less than ten days prior to the date on which the
activity requiring the determination is to occur. The shareholders of record
appearing in the stock transfer books of the Corporation at the close of
business on the record date so fixed shall constitute the shareholders of right
in respect of the activity in question. In the absence of action by the Board
of Directors to fix a record date, the record date shall be ten days prior to
the date on which the activity requiring a determination of shareholders is to
occur. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
to a date not later than one hundred twenty days after the date fixed for the
original meeting; provided, however, that the Board of Directors may in its
discretion fix a new record date for any adjourned meeting.

Section 2.07. Voting. Except as may otherwise be required by the Act or
the Corporation's Articles of Incorporation, and subject to the provisions
concerning shareholders of record contained elsewhere in these Bylaws, a person
(or such person's proxy) present at a meeting of shareholders shall be entitled
to one vote for each share of voting stock as to which such person is the
shareholder of record. In elections of Directors, those candidates receiving
the greater number of votes cast (although not necessarily a majority of votes
cast) at the meeting shall be elected. Any other corporate action shall be
authorized by a majority of the votes cast at the meeting unless otherwise
provided by the Act, the Corporation's Articles of Incorporation, or these
Bylaws.

Section 2.08. Voting Inspectors. For each meeting of shareholders an odd
number of persons (which may be only one person) shall be appointed to serve as
voting inspectors, either by the Board of Directors prior to the meeting or by
the presiding official at the meeting. The voting inspectors may include one or
more representatives of the Corporation's Transfer Agent, if any. The voting
inspectors shall by majority decision (if more than one inspector) resolve all
disputes which may arise concerning the qualification of voters, the validity of
proxies, the existence of a quorum, the voting power of shares, and the
acceptance, rejection, and tabulation of votes. Each voting inspector shall
take an oath (which may be in writing) to execute his duties impartially and to
the best of his ability. Such oath shall be administered to each voting
inspector before a voting inspector enters upon the discharge of his duties.
The Corporation is entitled to reject a vote, consent, waiver, or proxy
appointment if the voting inspector(s), acting in good faith, has reasonable
basis for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder. Neither the Corporation nor
the voting inspector(s) who accepts or rejects a vote, consent, waiver, or proxy
appointment in good faith and in accordance with the standards of this section
shall be liable in damages to any shareholder for the consequences of the
acceptance or rejection. Corporate action based on the acceptance or rejection
of a vote, consent, waiver, or proxy appointment under this Section 2.08 is
------------
valid unless a court of competent jurisdiction determines otherwise.

Section 2.09. Adjournments. A majority of the voting shares held by
shareholders of record present in person or by proxy at a meeting of
shareholders may (whether or not constituting a quorum) adjourn a meeting from
time to time to a date, time, and place fixed by notice as provided for above
or, if such date is less than thirty days from the date of adjournment, to a
date, time, and place fixed by the majority vote and announced at the original
meeting prior to adjournment.

Section 2.10. Action Without Meeting. Holders of record of voting shares
may take action without meeting by written consent as to such matters and in
accordance with such requirements and procedures as may be permitted by the Act.

Bylaws of Islands Bancorp
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<PAGE>

Section 2.11. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. A proxy must be filed (a) in
writing executed by the shareholder or by his duly authorized attorney in fact,
or (b) by a telegram or cablegram appearing to have been transmitted by the
shareholder; provided, however that the Board of Directors may also establish
procedures by which shareholders can file proxies with the Secretary by
telecopier facsimile transmission. No proxy shall be valid after eleven months
from the date of its execution unless it qualifies as an irrevocable proxy under
the Act.

Section 2.12. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted, either in person or by proxy, by the
officer, agent, or proxy as the bylaws of that corporation may prescribe, or in
the absence of such provision, as the board of directors of that corporation may
determine.

Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by such
trustee, either in person or by proxy, but no trustee shall be entitled to vote
shares held by such trustee without a transfer of the shares into such trustee's
name as trustee.

Shares standing in the name of a receiver may be voted, either in person or
by proxy, by the receiver, and shares held by or under the control of a receiver
may be voted, either in person or by proxy, by the receiver without the transfer
thereof into such receiver's name if authority to do so is contained in an
appropriate order of the court by which such receiver was appointed.

A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote, either in person or by proxy,
the shares so transferred.

Section 2.13. Action. Approval of actions by shareholders shall be in
accordance with the requirements of the Act, except to the extent otherwise
provided by the Articles of Incorporation.

Section 2.14. Inspection Rights. The shareholders shall have only such
rights to inspect records of this Corporation to the extent, and according to
the procedures and limitations, prescribed by the Act.

Section 2.15. Shareholder Proposals. To the extent required by applicable
law, a shareholder may bring a proposal before an annual meeting of shareholders
as set forth in this Section. To be properly brought before an annual meeting of
shareholders, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors; (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors; or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be given, either by
personal delivery or by United States mail, postage prepaid, return receipt
requested, to the Secretary of the Corporation not later than ninety days in
advance of the annual meeting. A shareholder's notice to the Secretary of the
Corporation shall set forth for each matter the shareholder proposes to bring
before the annual meeting (i) a description of the business desired to be
brought before the annual meeting (including the specific proposal(s) to be
presented) and the reasons for conducting such business at the annual meeting;
(ii) the name and record address of the shareholder proposing such business;
(iii) the class and number of shares of the Corporation that are owned of
record, and the class and number of shares of the

Bylaws of Islands Bancorp
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<PAGE>

Corporation that are held beneficially, but not held of record, by the
shareholder as of the record date for the meeting, if such date has been made
publicly available, or as of a date within ten days of the effective date of the
notice by the shareholder if the record date has not been made publicly
available; and (iv) any interest of the shareholder in such business. In the
event that a shareholder attempts to bring business before an annual meeting
without complying with the provisions of this Section, the chairman of the
meeting shall declare to the meeting that the business was not properly brought
before the meeting in accordance with the foregoing procedures, and such
business shall not be transacted. The chairman of any annual meeting, for good
cause shown and with proper regard for the orderly conduct of business at the
meeting, may waive in whole or in part the operation of this Section.

Section 2.16. Conduct of Meetings. The Chairman of the Board of Directors
shall preside at each meeting of shareholders. In the absence of the Chairman,
the meeting shall be chaired by an officer of the Corporation in accordance with
the following order: Chief Executive Officer, President and Vice President. In
the absence of all such officers, the meeting shall be chaired by an officer of
the Corporation chosen by the vote of a majority in interest of the shareholders
present in person or represented by proxy and entitled to vote thereat. The
Secretary or in his or her absence an Assistant Secretary or in the absence of
the Secretary and all Assistant Secretaries a person whom the chairman of the
meeting shall appoint shall act as secretary of the meeting and keep a record of
the proceedings thereof.

The Board of Directors of the Corporation shall be entitled to make such
rules or regulations for the conduct of meetings of shareholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to shareholders of
record of the Corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comment by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless, and to the extent, determined by the Board of Directors
or the chairman of the meeting, meetings of shareholders shall not be required
to be held in accordance with rules of parliamentary procedure.

ARTICLE III

DIRECTORS

Section 3.01. Authority. The Board of Directors shall have ultimate
authority over the conduct and management of the business and affairs of the
Corporation.

Section 3.02. Number and Tenure. Unless otherwise provided in the
Articles of Incorporation, the number of directors of the Corporation shall be
that number as may be fixed from time to time by resolution of the Board of
Directors, but in no event shall the number be less than five or greater than
twenty. The initial number of directors shall be nine. The number of members of
the Board of Directors can be increased or decreased within the foregoing range
in accordance with the Act at any time by the Board of Directors, provided that
no decrease in the established number of Directors shall have the effect of
shortening the term of any incumbent director. In addition, unless provided
otherwise by resolution of the Board of Directors, if, in any case after proxy
materials for an annual meeting of shareholders have been mailed to
shareholders, any person named therein to be nominated at the direction of the
Board of Directors becomes

Bylaws of Islands Bancorp
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<PAGE>

unable or unwilling to serve, the number of authorized directors shall be
automatically reduced by a number equal to the number of such persons. At any
time that the Board of Directors consists of six or more directorships, unless
provided otherwise by the Articles of Incorporation, the terms of office of
directors will be staggered by dividing the total number of directors into three
classes, with each class accounting for one-third, as near as may be, of the
total number of directorships. The terms of directors in the first class will
expire at the first annual shareholders' meeting after their election, the terms
of the second class will expire at the second annual shareholders' meeting after
their election, and the terms of the third class will expire at the third annual
shareholders' meeting after their election. At each annual shareholders' meeting
held thereafter, directors shall be chosen for a term of three years to succeed
those whose terms expire. If the number of directorships is changed, any
increase or decrease shall be so apportioned among the classes as to make all
classes as nearly equal in number as possible, and when the number of
directorships is increased and any newly created directorships are filled by the
board, the terms of the additional directors shall expire at the next election
of directors by the shareholders. Each director, except in the case of his or
her earlier death, written resignation, retirement, disqualification or removal,
shall serve for the duration of his or her term, as staggered, and thereafter
until his successor shall have been elected and qualified. In case of any
increase in the number of Directors, the additional directorships so created may
be filled in the first instance in the same manner as a vacancy in the Board of
Directors.

Section 3.03. Qualification. A Director need not be a shareholder. No
individual who is seventy-two years of age or older shall be eligible to be
nominated for election as a Director, regardless of whether such election is by
the Board of Directors or by the Shareholders and regardless of whether such
individual is serving as a Director at the time of such proposed nomination or
election.

Section 3.04. Removal. Any Director may be removed from office, with or
without cause, by a vote of the holders of a majority of the shares of the
Corporation's voting stock. Any Director may be removed from office with cause
by a majority vote of the Board of Directors at a meeting at which only the
removal and replacement of the Director or Directors in question shall be
considered.

Section 3.05. Vacancies. The Board of Directors may by majority vote of
the Directors then in office, regardless of whether such Directors constitute a
quorum, elect a new Director to fill a vacancy on the Board of Directors;
provided, however, that no person removed from office pursuant to these Bylaws
may be elected to fill the vacancy created by such person's removal.

Section 3.06. Annual and Regular Meetings. An annual meeting of the Board
of Directors shall be called and held for the purpose of appointing Officers and
committees and transacting any other business. If such meeting is held promptly
after and at the place specified for the annual meeting of shareholders, no
notice of the annual meeting of the Board of Directors need be given.
Otherwise, such annual meeting of the Board of Directors shall be held at such
time (at any time prior to and not more than thirty days after the annual
meeting of shareholders) and place as may be specified in the notice of the
meeting. The Board of Directors may by resolution provide for the holding of
additional regular meetings without notice other than such resolution; provided,
however, the resolution shall fix the dates, times, and places (which may be
anywhere within or without the State of the Corporation's Principal Office) for
these regular meetings. Except as otherwise provided by law, any business may
be transacted at any annual or regular meeting of the Board of Directors.

Section 3.07. Special Meetings; Notice of Special Meeting. Special
meetings of the Board of Directors may be called for any lawful purpose or
purposes by any Director or the Chairman of the Board. The person calling a
special meeting shall give, or cause to be given, to each Director at his
business address, notice of the date, time and place of the meeting by any
normal means of communication not less

Bylaws of Islands Bancorp
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<PAGE>

than thirty-six hours nor more than sixty days prior thereto. The notices may,
but need not, describe the purpose of the meeting. If mailed, the notice shall
be deemed to be delivered when deposited in the United States mail addressed to
the Director's business address, with postage thereon prepaid. If notice is
given by telegram, the notice shall be deemed delivered when the telegram is
delivered to the telegraph company and the transmission fee therefor is paid. If
notice is given by telecopier facsimile transmission, the notice shall be deemed
delivered when the facsimile of the notice is transmitted to a telecopier
facsimile receipt number designated by the receiving Director, if any, so long
as such director transmits to the sender an acknowledgment of receipt. Any time
or place fixed for a special meeting must permit participation in the meeting by
means of telecommunications as authorized below.

Section 3.08. Waiver of Notice of Special Meetings. Notice of a special
meeting need not be given to any Director who signs a waiver of notice either
before or after the meeting. To be effective the waiver shall contain recitals
sufficient to identify beyond reasonable doubt the meeting to which it applies.
The recitals may, but need not necessarily, include reference to the date and
purpose of the meeting and the business transacted thereat. Recital of the
proper date of a meeting shall be conclusive identification of the meeting to
which a waiver of notice applies unless the waiver contains additional recitals
creating a patent ambiguity as to its proper application. The attendance of a
Director at a special Directors meeting shall constitute a waiver of notice of
that meeting, except where the Director attends the meeting for the sole and
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.

Section 3.9. Participation by Telecommunications. Any Director may
participate in, and be regarded as present at, any meeting of the Board of
Directors by means of conference telephone or any other means of communication
by which all persons participating in the meeting can hear each other at the
same time.

Section 3.10. Quorum. A majority of Directors in office shall constitute
a quorum for the transaction of business at any meeting of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.

Section 3.11. Action. The Board of Directors shall take action pursuant
to resolutions adopted by the affirmative vote of a majority of the Directors
participating in a meeting at which a quorum is present, or the affirmative vote
of a greater number of Directors where required by the Corporation's Articles of
Incorporation or otherwise by law.

Section 3.12. Action Without Meeting. Any action permitted by the Act and
required or permitted to be taken by the Board of Directors at an annual,
regular, or special meeting may be taken without a meeting if one or more
consents in writing, setting forth the action taken, shall be signed by all of
the Directors in accordance with the procedures authorized by the Act.

Section 3.13. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
such Director's dissent shall be entered in the minutes of the meeting, or
unless such Director shall file such Director's written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such Director's dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
The right to dissent shall not apply to a Director who voted in favor of such
action.

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<PAGE>

Section 3.14. Executive Committee. The Board of Directors may by
resolution, adopted in accordance with the Act, designate and delegate authority
to an Executive Committee with any or all such authority as may be permitted by
the Act. The Executive Committee may be a standing committee appointed
annually. The Executive Committee, if appointed, shall be composed of two or
more members, who shall serve at the pleasure of the Board of Directors. All
voting members of the Executive Committee must be Directors of the Corporation
appointed by the Board of Directors in accordance with Section 33-8-250 of the
Act. The Chairman of the Executive Committee shall be elected by the Board of
Directors from the Directors appointed to the Executive Committee. The Chairman
of the Executive Committee shall have such duties and authority as set forth in
these Bylaws. The duties, constitution, and procedures of the Executive
Committee shall be prescribed by the Board of Directors. In the absence,
incapacity, inability, or refusal of the President to act, the Executive
Committee may designate an Officer or Director temporarily or indefinitely to
assume the authority and perform the duties of the President, which designee
shall serve in such capacity at the pleasure of the Executive Committee.

Section 3.15. Other Committees. The Board of Directors may from time to
time by resolution, adopted in accordance with the Act, designate and delegate
authority to an Audit Committee, a Compensation Committee, and other committees,
with any or all such authority as may be permitted by the Act. Any such
committee may be designated as a standing committee appointed annually or as a
special committee for specific circumstances or transactions with a limited
duration. Each committee shall be composed of two or more members, who shall
serve at the pleasure of the Board of Directors. All voting committee members
must be Directors of the Corporation appointed by the Board of Directors in
accordance with Section 33-8-250 of the Act. The Chairman of the Board shall be
given notice of all committee meetings and may in the Chairman's discretion
attend meetings of any committee to which he is not appointed as a member. The
duties, constitution, and procedures of any committee shall be prescribed by the
Board of Directors. The Board of Directors shall designate one member of each
committee as its chairman.

Section 3.16. Committee Meetings. A majority of each committee's voting
members shall constitute a quorum for the transaction of business by the
committee, and each committee shall take action pursuant to resolutions adopted
by a majority of the committee's voting members participating in a meeting at
which a quorum of the committee is present. Each committee may also take action
without a meeting if a consent in writing, setting forth the action taken, shall
be signed by all of the committee's voting members in accordance with the
procedures authorized by the Act. Special meetings of any committee may be
called at any time by any Director who is a member of the committee or by any
person entitled to call a special meeting of the full Board of Directors.
Except as otherwise provided in this section, the conduct of all meetings of any
committee, including notice thereof, and the taking of any action by such
committee, shall be governed by Sections 3.06 through 3.13 of this Article.

Section 3.17. Compensation. The Board of Directors may by resolution
authorize payment to all Directors of a uniform fixed sum or other benefit,
including options to purchase capital stock of the Corporation, for attendance
at each meeting or a stated salary (which need not be uniform) as a Director, or
a combination thereof, in such amounts as the Board may determine from time to
time. The Board of Directors may, in its discretion, authorize payments of
greater amounts or different forms to the Chairman of the Board or particular
Directors or committee members than are paid to other Directors. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefore. The Board of Directors may also
by resolution authorize the payment or reimbursement of all expenses of each
Director related to the Director's attendance at meetings or other service to
the Corporation.

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Section 3.18. Notification of Nominations. Nominations for the election
of Directors may be made by the Board of Directors or by any shareholder
entitled to vote for the election of directors. Any shareholder entitled to
vote for the election of directors at a meeting may nominate persons for
election as Directors only if written notice of such shareholder's intent to
make such nomination is given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of shareholders,
ninety days in advance of such meeting, and (ii) with respect to any election to
be held at a special meeting of shareholders for the election of directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to shareholders. Each such notice shall set forth: (a)
the name, business address and residence address of the shareholder who intends
to make the nomination and of the person or persons to be nominated, (b) the
class and number of shares of the Corporation beneficially owned by the
shareholder and whether the shareholder intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice, (c) a
description of all arrangements or understandings between such shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
shareholder, (d) such other information regarding each nominee proposed by such
shareholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors, and (e) the consent of each nominee to serve as a Director of the
Corporation if elected. The chairman of a shareholder meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure. The chairman of any such meeting, for good cause shown and
with proper regard for the orderly conduct of business at the meeting, may waive
in whole or in part the operation of this Section.

Section 3.19. Order of Business. Unless otherwise determined by the Board
of Directors, the order of business at the annual meeting, and so far as
practicable at all other meetings, of the Board of Directors, shall be as
follows:

1. Determination of a quorum
2. Reading and disposal of all unapproved minutes
3. Reports of Officers and committees, if applicable
4. Change in established number of Directors, if applicable
5. Appointment of Officers and committees, if applicable
6. Unfinished business, if applicable
7. New business
8. Adjournment

Unless, and to the extent, determined by the Board of Directors or the
chairman of the meeting, or unless required by a specific rule to the contrary
in these Bylaws, the Articles of Incorporation, or the Act, meetings of the
Board of Directors shall not be required to be held in accordance with rules of
parliamentary procedure.

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ARTICLE IV

OFFICERS

Section 4.01. In General. The Officers of the Corporation shall consist
of a Chairman of the Board, a Chief Executive Officer, a President, one or more
Vice Presidents, a Secretary, a Treasurer, and such additional vice presidents,
assistant secretaries, assistant treasurers and such other officers and agents
as the Board of Directors deems advisable from time to time. All Officers shall
be appointed by the Board of Directors to serve at the pleasure of the Board.
Except as may otherwise be provided by Act or in the Articles of Incorporation,
any Officer may be removed by the Board of Directors at any time, with or
without cause. Any vacancy, however occurring, in any office may be filled by
the Board of Directors for the unexpired term. One person may hold two or more
offices. Each Officer shall exercise the authority and perform the duties as
may be set forth in these Bylaws and any additional authority and duties as the
Board of Directors shall determine from time to time.

Section 4.02. Chairman of the Board. The Board of Directors shall elect
from the Directors a Chairman of the Board to serve at the pleasure of the Board
of Directors. The Chairman of the Board shall whenever possible preside at all
meetings of shareholders and all meetings of the Board of Directors. Except as
otherwise provided herein and as may be specifically limited by resolution of
the Board of Directors or Executive Committee, the Chairman of the Board may
execute on the Corporation's behalf any and all contracts, agreements, notes,
bonds, deeds, mortgages, certificates, instruments, and other documents. The
Chairman of the Board shall exercise such additional authority and duties as set
forth in these Bylaws and as the Board of Directors shall determine from time to
time.

Section 4.03. Chief Executive Officer. The Chief Executive Officer,
subject to the authority of the Board of Directors shall manage the business and
affairs of the Corporation. The Chief Executive Officer shall see that the
resolutions of the Shareholders and of the Board of Directors are put into
effect. Except as otherwise provided herein and as may be specifically limited
by resolution of the Shareholders or the Board of Directors or an authorized
committee thereof, the Chief Executive Officer shall have full authority to
execute on the Corporation's behalf any and all contracts, agreements, notes,
bonds, deeds, mortgages, certificates, instruments, and other documents. The
Chief Executive Officer shall also perform such other duties and may exercise
such other powers as are incident to the office of Chief Executive Officer and
as are from time to time assigned to him by the Act, these Bylaws, the Board of
Directors, or an authorized committee thereof.

Section 4.04. President. The President, subject to the authority of the
Board of Directors and the Chief Executive Officer, shall manage the business
and affairs of the Corporation. The President shall serve under the direction
of the Chief Executive Officer. In the absence, incapacity, inability, or
refusal of the Chief Executive Officer to act, the President shall assume the
authority and perform the duties of the Chief Executive Officer. Except as
otherwise provided herein and as may be specifically limited by resolution of
the Shareholders or the Board of Directors or an authorized committee thereof,
the President shall have full authority to execute on the Corporation's behalf
any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates,
instruments, and other documents. The President shall also perform such other
duties and may exercise such other powers as are incident to the office of
President and as are from time to time assigned to him by the Act, these Bylaws,
the Board of Directors, or an authorized committee thereof.

Section 4.05. Vice Presidents. Except as otherwise determined by the
Board of Directors, each Vice President shall serve under the direction of the
President. Except as otherwise provided herein, each Vice President shall
perform such duties and may exercise such powers as are incident to the office
of vice

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president and as are from time to time assigned to him by the Act, these Bylaws,
the Board of Directors, the Chairman of the Board or the President.

Section 4.06. Secretary. Except as otherwise provided by these Bylaws or
determined by the Board of Directors, the Secretary shall serve under the
direction of the President. The Secretary shall whenever possible attend all
meetings of the shareholders and the Board of Directors, and whenever the
Secretary cannot attend such meetings, such duty shall be delegated by the
presiding officer for such meeting to a duly authorized assistant secretary.
The Secretary shall record or cause to be recorded under the Secretary's general
supervision the proceedings of all such meetings and any other actions taken by
the shareholders or the Board of Directors (or by any committee of the Board in
place of the Board) in a book or books (or similar collection) to be kept for
such purpose. The Secretary shall give, or cause to be given, all notices in
connection with such meetings. The Secretary shall be the custodian of the
Corporate seal and affix the seal to any document requiring it, and to attest
thereto by signature. The Secretary may delegate the Secretary's authority to
affix the Corporation's seal and attest thereto by signature to any Assistant
Secretary. The Board of Directors may give general authority to any other
officer or specified agent to affix the Corporation's seal and to attest thereto
by signature. Unless otherwise required by law, the affixing of the
Corporation's seal shall not be required to bind the Corporation under any
documents duly executed by the Corporation and the use of the seal shall be
precatory in the discretion of the Corporation's duly authorized signing
officers. The Secretary shall properly keep and file, or cause to be properly
kept and filed under the Secretary's supervision, all books, reports,
statements, notices, waivers, proxies, tabulations, minutes, certificates,
documents, records, lists, and instruments required by the Act or these Bylaws
to be kept or filed, as the case may be. The Secretary may when requested, and
shall when required, authenticate any records of the Corporation. Except to the
extent otherwise required by the Act, the Secretary may maintain, or cause to be
maintained, such items within or without the State of South Carolina at any
reasonable place. In the event the Board of Directors designates and engages a
Transfer Agent, as permitted by these Bylaws, such duties of keeping such
shareholder records and the like accepted by such Transfer Agent shall be deemed
delegated from the Secretary to such Transfer Agent, but such Transfer Agent
shall be subject to supervision of the Secretary. The Secretary shall perform
such other duties and may exercise such other powers as are incident to the
office of secretary and as are from time to time assigned to such office by the
Act, these Bylaws, the Board of Directors, the Chairman of the Board, or the
President.

Section 4.07. Treasurer. Except as otherwise provided by these Bylaws or
determined by the Board of Directors, the Treasurer shall serve under the
direction of the President. The Treasurer shall, under the direction of the
President, keep safe custody of the Corporation's funds and securities, maintain
and give complete and accurate books, records, and statements of account, give
and receive receipts for moneys, and make deposits of the Corporation's funds,
or cause the same to be done under the Treasurer's supervision. The Treasurer
shall upon request report to the Board of Directors on the financial condition
of the Corporation. The Treasurer may be required by the Board of Directors at
any time and from time to time to give such bond as the Board may determine.
The Treasurer shall perform such other duties and may exercise such other powers
as are incident to the office of treasurer and as are from time to time assigned
to such office by the Act, these Bylaws, the Board of Directors, the Chairman of
the Board, or the President.

Section 4.08. Assistant Officers. Except as otherwise provided by these
Bylaws or determined by the Board of Directors, the Assistant Secretaries and
Assistant Treasurers, if any, shall serve under the immediate direction of the
Secretary and the Treasurer, respectively, and under the ultimate direction of
the President. The Assistant Officers shall assume the authority and perform
the duties of their respective immediate superior officer as may be necessary at
the direction of such immediately superior officer, or in the absence,
incapacity, inability, or refusal of such immediate superior officer to act.
The seniority of

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Assistant Officers shall be determined from their dates of appointment unless
the Board of Directors shall otherwise specify.

Section 4.09. Salaries. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that such officer is also a Director of the Corporation.

ARTICLE V

INDEMNIFICATION

Section 5.01. Scope. Every person who was or is a party to, or is
threatened to be made a party to, or is otherwise involved in, any action, suit,
or proceeding, whether civil, criminal, administrative, or investigative, by
reason of the fact that such person or a person of whom such person is the legal
representative is or was a Director or Officer of the Corporation or is or was
serving at the request of the Corporation or for its benefit as a director or
officer of another corporation, or as its representative in a partnership, joint
venture, trust, or other enterprise, shall be indemnified and held harmless to
the fullest extent legally permissible under and pursuant to the Act (and
regardless of whether such proceeding is by or in the right of the Corporation),
against all expenses, liabilities, and losses (including without limitation
attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement)
suffered, or reasonably incurred by such person in connection therewith. Such
right of indemnification shall be a contract right that may be enforced in any
manner desired by such person. Such right of indemnification shall not be
exclusive of any other right which such Directors, Officers, or representatives
may have or hereafter acquire and, without limiting the generality of such
statement, they shall be entitled to their respective rights of indemnification
under any bylaw, agreement, vote of Shareholders, insurance, provision of law,
or otherwise, as well as their rights under this Article V. The Corporation may
contract in advance to provide indemnification.

Section 5.02. Advances and Reimbursements. The determination that
indemnification under this Article V is permissible and the evaluation as to the
reasonableness of expenses in a specific case shall be made, in the case of a
Director, as provided by the Act, and in the case of an Officer or other person
indemnified under Section 5.03, if any, as provided in Section 5.03 of this
Article; provided, however, that if a majority of the Directors of the
Corporation has changed after the date of the alleged conduct giving rise to a
claim for indemnification, such determination and evaluation shall, at the
option of the person claiming indemnification, be made by special legal counsel
agreed upon by the Board of Directors and such person. Unless a determination
has been made that indemnification is not permissible, and upon receipt of such
written affirmation as required by the Act from the person to be indemnified,
the Corporation shall make advances and reimbursements for expenses incurred by
a Director or Officer or other person indemnified under Section 5.03, if any, in
a proceeding upon receipt of an undertaking from such person to repay the same
if it is ultimately determined that such person is not entitled to
indemnification. Such undertaking shall be an unlimited, unsecured general
obligation of the Director or Officer and shall be accepted without reference to
such person's ability to make repayment. The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that a Director or
Officer acted in such a manner as to make such person ineligible for
indemnification.

Section 5.03. Indemnification of Other Persons. The Corporation may, to a
lesser extent or to the same extent that the Corporation is required to provide
indemnification to its Directors and Officers,

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provide indemnification and make advances and reimbursements for expenses to (a)
its employees, agents, and advisors, (b) the directors, officers, employees,
agents, and advisors of its subsidiaries and predecessor entities, and (c) any
person serving any other legal entity in any capacity at the request of the
Corporation; and, if authorized by general or specific action of the Board of
Directors, may contract in advance to do so. The determination that
indemnification under this Section is permissible, the authorization of such
indemnification, and the advance or reimbursement, if any, and the evaluation as
to the reasonableness of expenses in a specific case, shall be made as
authorized from time to time by general or specific action of the Board of
Directors, which action may be taken before or after a claim for indemnification
is made, or as otherwise provided by the Act. No person's rights under Sections
5.01 or 5.02 of this Article shall be limited by the provisions of this Section
5.03.

Section 5.04. Indemnification Plan. The Board of Directors may from time
to time adopt an Indemnification Plan implementing the rights granted in Section
5.01. This Indemnification Plan shall set forth in detail any other mechanics
for exercise of the indemnification rights granted in this Article V, and shall
be binding upon all parties except to the extent it is proven to be inconsistent
with these Bylaws or the Act. The absence of the adoption of such plan,
however, shall not vitiate the effectiveness of the rights conferred by this
Article V.

Section 5.05. Insurance. The Board of Directors may cause the Corporation
to purchase and maintain insurance on behalf of any person who is or was a
Director or Officer of the Corporation, or is or was serving at the request of
the Corporation as a Director or Officer of another corporation, or as its
representative in a partnership, joint venture, trust, or other enterprise, or
any other person indemnified or described as the subject of potential
indemnification in this Article V, against any liability asserted against such
person and incurred in any such capacity or arising out of such status, whether
or not the Corporation would have the power to indemnify such person.

Section 5.06. Miscellaneous. Every reference in this Article V to persons
who are or may be entitled to indemnification shall include all persons who
formerly occupied any of the positions referred to and their respective heirs,
executors, and administrators. Special legal counsel selected to make
determinations under this Article V may be counsel for the Corporation.
Indemnification pursuant to this Article V shall not be exclusive of any other
right of indemnification to which any person may be entitled, including
indemnification pursuant to valid contract, indemnification by legal entities
other than the Corporation and indemnification under policies of insurance
purchased and maintained by the Corporation or others. However, no person shall
be entitled to indemnification by the Corporation to the extent prohibited by
the Act or to the extent such person is indemnified by another, including an
insurer; provided, however, that the Corporation may make advances and
reimbursements, subject to appropriate repayment obligations, under Section 5.02
if the effectiveness of such other indemnification will be delayed. The
provisions of this Article shall not be deemed to prohibit the Corporation from
entering into contracts otherwise permitted by law with any individuals or legal
entities, including those named above, for the purpose of conducting the
business of the Corporation. Indemnification of any person under this Article V
shall be implemented only in accordance with procedures and requirements
mandated by the Act and by plans, if any, adopted pursuant to Section 5.04. If
any provision of this Article V or its application to any person or circumstance
is held invalid by a court of competent jurisdiction, the invalidity shall not
affect other provisions or applications of this Article V, and to this end the
provisions of this Article V are severable.

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ARTICLE VI

TRANSACTIONS

Section 6.01. Contracts. The Board of Directors may authorize any Officer
or Officers, or agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.

Section 6.02. Loans. The Board of Directors may authorize any Officer or
Officers, or agent or agents, to contract any indebtedness and grant evidence of
indebtedness and collateral therefor in the name of an on behalf of the
Corporation, and such authority may be general or confined to specific
instances.

Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by the Officer or Officers, or agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.

Section 6.04. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.

Section 6.05. Voting of Shares in Other Corporations Owned By The
Corporation. Subject always to the specific directions of the Board of
Directors, any share or shares of stock issued by any other corporation and
owned or controlled by the Corporation may be voted at any shareholders' meeting
of the other corporation by the Chairman of the Board, the Chief Executive
Officer, or the President of the Corporation if any of them is present, or in
their absence by any Vice-President of the Corporation who may be present.
Whenever, in the judgment of the Chairman of the Board, the Chief Executive
Officer, or the President, or in their absence, of any Vice-President, it is
desirable for the Corporation to execute a proxy or give a shareholders' consent
in respect to any share or shares of stock issued by any other corporation and
owned or controlled by the Corporation, the proxy or consent shall be executed
in the name of the Corporation by the Chairman of the Board, the Chief Executive
Officer, the President, or one of the Vice-Presidents of the Corporation without
necessity of any authorization by the Board of Directors. Any person or persons
designated in the manner above stated as the proxy or proxies of the Corporation
shall have full right, power and authority to vote such share or shares of stock
issued by the other corporation.

ARTICLE VII

STOCK

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Section 7.01. Certificates for Shares. Certificates representing shares
of capital stock of the Corporation shall state upon the face thereof the name
of the person to whom issued, the number of shares, the fact that the
Corporation is organized under the laws of the State of South Carolina, and such
other matters as the Board of Directors may approve or as may be required by the
Act. Each certificate shall be signed by (a) any one of the Chairman of the
Board, the Chief Executive Officer, the President, or a Vice President, and (b)
by any one of the Secretary or an Assistant Secretary. Where a certificate is
countersigned by (i) a Transfer Agent other than the Corporation or its
employee, or (ii) a registrar other than the Corporation or its employee, any
other signature on the certificate may be a facsimile. In case any Officer
whose facsimile signature has been placed upon a certificate shall have ceased
to be such Officer before such certificate is issued it may be issued by the
Corporation with the same effect as if he were such Officer at the date of
issue. All certificates for shares shall be consecutively numbered.
Certificates for shares of different classes, and different series within a
class, to the extent authorized, if any, shall bear appropriate designations to
identify the class or series as required by the Act.

Section 7.02. Stock Transfer Books. The name and address of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issuance, shall be entered on the stock transfer books of the
Corporation. Such stock transfer books shall be maintained by the Secretary or
Transfer Agent as a record of the Corporation's shareholders, in a form that
permits preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each shareholder.

Section 7.03. Transfer of Shares. Subject to the provisions of the Act
and to any transfer restrictions binding on the Corporation, transfer of shares
of the Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by such holder's agent, attorney-
in-fact or other legal representative, who shall furnish proper evidence of
authority to transfer, upon surrender for cancellation of the certificate for
such shares. Unless the Board of Directors in its discretion has by resolution
established procedures, if any, by which a beneficial owner of shares held by a
nominee may be recognized by the Corporation as the owner thereof, the person in
whose name shares stand on the stock transfer books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes. The
Corporation's stock transfer books maintained by the Secretary or the Transfer
Agent shall be conclusive in all such regards absent a determination by the
Board of Directors of manifest error. All certificates surrendered to the
Corporation for transfer shall be canceled.

Section 7.04. New or Replacement Certificates. No new stock certificate
shall be issued until the former certificate for a like number of shares shall
have been surrendered and canceled, except that in case of a lost, destroyed, or
mutilated certificate a substitute certificate may be issued therefor upon: (a)
the making of an affidavit by the holder of record of the shares represented by
such certificate setting forth the facts concerning the loss, theft, or
mutilation thereof; (b) delivery of such bond and/or indemnity to the
Corporation as the Secretary or Board of Directors may prescribe or as may be
required by law; and (c) satisfaction of such other reasonable requirements
(which may include without limitation advertisement of the same) as the
Secretary or Board of Directors may prescribe. To the extent permitted by
applicable law (including Section 36-8-405 of the South Carolina Uniform
Commercial Code), a new certificate may be issued without requiring any bond
when, in the judgment of the Board of Directors, it is not imprudent to do so;
and without limiting the generality of the foregoing, the Secretary or the Board
of Directors may in their discretion waive (except as prohibited by law) any
bond requirement otherwise applicable where the aggregate fair market value of
the shares represented by such lost, stolen, or mutilated certificate is less
than five hundred dollars based upon indicia deemed reasonable by the waiving
party.

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Section 7.05. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its stock transfer books
as the owner of shares to receive dividends or other distributions, and to vote
as such owner, and to hold liable for calls and assessments, if any, a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have express or other
notice thereof, except as otherwise provided by the Act or by procedures, if
any, established by resolution of the Board of Directors in its discretion by
which a beneficial owner of shares held by a nominee may be recognized as the
owner thereof. Such procedures, if any, shall also set forth the extent of such
recognition.

Section 7.06 Transfer Agent. The Board of Directors may, in its
discretion, appoint an independent institutional Transfer Agent to serve as
transfer agent and registrar for the Corporation's stock at the pleasure of the
Board. Such Transfer Agent shall assist the Corporation's Secretary and voting
inspectors in performance of their duties respecting shares of the Corporation's
stock. Such Transfer Agent shall maintain the Corporation's stock transfer
books and stock certificates in accordance with the Act, these Bylaws,
instructions of the Board of Directors, and customary procedures consistently
applied. Such Transfer Agent shall perform such other duties and shall be
entitled to exercise such other powers, as may be assigned to the Transfer Agent
from time to time by the Secretary or the Board of Directors.

Section 7.07 Transfer Restrictions. The Secretary shall have full power
and authority to place or cause to be placed on any and all stock certificates
restrictive legends to the extent reasonably believed necessary or appropriate
to ensure the Corporation's compliance with federal or any state's securities
laws, and to issue to any Transfer Agent stop transfer orders to effect
compliance with such legends.

ARTICLE VIII

MISCELLANEOUS

Section 8.01. Fiscal Year. The fiscal year of the Corporation shall be
established, and may be altered, by resolution of the Board of Directors from
time to time as the Board deems advisable.

Section 8.02. Dividends. The Board of Directors may from time to time at
any regular or special meeting (or by any other manner of action permitted by
these Bylaws and the Act) declare, and the Corporation may pay, dividends or
other distributions on its outstanding shares of stock in the manner and upon
the terms and conditions as the Board of Directors deems advisable and as may be
permitted by the Articles of Incorporation, the Act, and any other lawful
restrictions imposed upon the Corporation. Such dividends or other
distributions, when declared and permitted, may be paid in cash, stock,
property, or any other permitted means lawfully declared by the Board of
Directors.

Section 8.03. Seal. The seal of the Corporation shall be circular in form
and shall have inscribed thereon the name of the Corporation, the year of its
organization, and the words "Corporate Seal, State of South Carolina."

Section 8.04. Forms of Records. When consistent with good business
practices, any records of the Corporation may be maintained in other than
written form if such other form is capable of reasonable preservation and
conversion into written form within a reasonable time.

Section 8.05. Amendments. Any or all of these Bylaws may be altered,
amended, or repealed and new Bylaws may be adopted by the Board of Directors,
subject to the following: (a) the right of the

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shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act;
and (b) action of the shareholders in adopting, amending, or repealing a
particular Bylaw wherein the Board of Directors is expressly prohibited by such
shareholder action from amending or repealing the particular Bylaw acted upon by
the shareholders. The shareholders may amend or repeal any or all of these
Bylaws even though these Bylaws may also be amended or repealed by the Board of
Directors. Any notice of a meeting of shareholders at which Bylaws are to be
adopted, amended, or repealed shall state that the purpose, or one of the
purposes, of the meeting is to consider the adoption, amendment, or repeal of
Bylaws and contain or be accompanied by a copy or summary of the proposal.

Section 8.06. Severability. If any provision of these Bylaws or the
application thereof to any person or circumstances shall be held invalid or
unenforceable to any extent by a court of competent jurisdiction, such provision
shall be complied with or enforced to the greatest extent permitted by law as
determined by such court, and the remainder of these Bylaws and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall continue to be complied with and enforced to the greatest
extent permitted by law.

Section 8.07 Usage. In construing these Bylaws, feminine or neuter
pronouns shall be substituted for masculine forms and vice versa, and plural
terms shall be substituted for singular forms and vice versa, in any place in
which the context so requires. The section and paragraph headings contained in
these Bylaws are for reference purposes only and shall not affect in any way the
meaning or interpretation of these Bylaws. Terms such as "hereof", "hereunder",
"hereto", and words of similar import shall refer to these Bylaws in the
entirety and all references to "Articles", "Paragraphs", "Sections", and similar
cross references shall refer to specified portions of these Bylaws, unless the
context clearly requires otherwise. Terms used herein which are not otherwise
defined shall have the meanings ascribed to them in the Act. All references to
statutory provisions shall be deemed to include corresponding sections of
succeeding law.

Bylaws of Islands Bancorp
Page 17

<PAGE>

Exhibit 4.1

COMMON STOCK

NUMBER SHARES

ISLANDS BANCORP

INCORPORATED UNDER THE LAWS OF THE STATE OF SOUTH CAROLINA

CUSIP 464583 10 3

SEE REVERSE FOR CERTAIN DEFINITIONS

This Certifies that

is the owner of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
ISLANDS BANCORP transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

/s/ EDWARD J. MCNEIL (ISLANDS BANCORP /s/ WILLIAM B. GOSSETT
CORPORATE SEAL)

SECRETARY PRESIDENT
<PAGE>

ISLANDS BANCORP

This corporation is authorized to issue more than one class of stock each of
which has certain preferences, powers, qualifications and rights. Upon written
request and without charge, the corporation will provide to a holder of its
stock, a copy of such preferences, powers, qualifications and rights.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
------------------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors

JT TEN - as joint tenants with right Act
---------------------
of survivorship and not as (State)
tenants in common

Additional abbreviations may also be used though not in the above list.

For value received, hereby sells, assigns and transfers unto
--------------------

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares represented by the within Certificate, and does hereby irrevocably
constitute and appoint
----------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.

Dated:
-----------------------------

Signature:
-----------------------------

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alternation or enlargement or any change whatever.

<PAGE>

Exhibit 5.1

[Letterhead of Nexsen Pruet Jacobs & Pollard, LLP]

December 10, 1999

Islands Bancorp
500 Carteret Street, Suite A
Beaufort, SC 29902

RE: Form SB-2 Registration Statement

Gentlemen:

We have acted as counsel to Islands Bancorp, a South Carolina
corporation (the "Company"), in connection with the registration of 1,210,115
shares of common stock, no par value per share, of the Company (the "Common
Stock"), on Form SB-2 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission").

We have examined and are familiar with the Articles of Incorporation
and the Bylaws of the Company, and have examined the originals, or copies
certified or otherwise identified to our satisfaction, of corporate records,
including minute books, of the Company. We have also examined the Registration
Statement and such statutes and other records, instruments and documents
pertaining thereto that we have deemed necessary to examine for the purposes of
this opinion. In our examination, we have assumed the completeness and
authenticity of any document submitted to us as an original, the completeness
and conformity to the originals of any document submitted to us as a copy, the
authenticity of the originals of such copies, the genuineness of all signatures
and the legal capacity and mental competence of natural persons.

On the basis of and in reliance upon the foregoing, we are of the
opinion that the Common Stock registered under the Registration Statement when
duly issued and delivered as described in the Registration Statement (in the
form declared effective by the Commission) and duly purchased and paid for, will
be legally issued, fully paid and nonassessable.

This opinion is being rendered to be effective as of the effective date
of the Registration Statement. We hereby consent to the filing of this opinion,
or copies thereof, as an exhibit to the Registration Statement and to the
statement made regarding our firm under the caption "Legal Matters" in the
prospectus included in the Registration Statement, but we do not thereby admit
that we are within the category of persons whose consent is required under the
provisions of the Securities Act of 1933, as amended, or the rules and
regulations promulgated by the Securities and Exchange Commission thereunder.

Very truly yours,

NEXSEN PRUET JACOBS & POLLARD, LLP

By: /s/ WILLIAM S. MCMASTER
---------------------------------
William S. McMaster

<PAGE>

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment and Option Agreement (this "Agreement") is made to be
effective as of the 27th day of July, 1999, by and between Islands Bancorp., a
South Carolina corporation (the "Employer" or the "Company"), which is the
proposed bank holding company for Islands Community Bank, a proposed national
bank or a South Carolina state bank (the "Bank"), and William B. Gossett (the
"Employee").

The Employer is in the process of organizing the Bank, and the Employee
has agreed to serve as President and Chief Executive Officer of the Bank and the
Company. Upon organization of the Bank, the Employer and the Employee
contemplate that this Agreement will be assigned by the Employer to the Bank and
that the Bank will assume the duties of the Company hereunder. Following any
such assignment, the term "Employer" as used herein from time to time shall
refer to the Bank.

The Employer desires to provide for the employment of the Employee in a
manner which will reinforce and encourage the dedication of the Employee to the
Bank and the Company and promote the best interests of the Bank, the Company,
and the Company's shareholders. The Employee is willing to serve the Employer on
the terms and conditions herein provided.

In consideration of the foregoing, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:

1. Employment.
----------

(a) The Employer shall employ the Employee, and the Employee shall
serve the Employer, as President and Chief Executive Officer of the Bank and the
Company upon the terms and conditions set forth herein. The Employee shall have
such authority and responsibilities consistent with his position as are set
forth in the Company's or the Bank's Bylaws or assigned by the Company's or the
Bank's Board of Directors (the "Board") from time to time, including but not
limited to duties of assisting Employer with the formation of the Bank to be
wholly owned by Employer and located in Beaufort, South Carolina.
Notwithstanding the forgoing, except with Employee's written consent, Employee
shall not be permanently assigned to any position of lower professional status.

(b) The Employee shall also serve on the Board of Directors of the
Company and the Bank and shall be entitled to receive such fees, stock rights
and benefits as are actually made available or awarded to individuals serving on
those two boards, and on the same basis as such are actually made available or
awarded, excluding any fees or benefits relating to service on any committee(s)
of either board.

(c) The Employee shall devote his full business time, attention, skill
and efforts to the performance of his duties hereunder, except during periods of
illness or periods of vacation and leaves of absence consistent with Bank and
Company policies. Employee shall perform all of Employee's duties hereunder to
the best of Employee's ability and shall not, directly or indirectly, engage or
participate in any activities in conflict with the best interests of Employer,
and will conduct all of Employee's activities in strict loyalty to Employer.
Without limiting the generality of the foregoing, Employee shall not engage in
any activity for compensation or pecuniary gain other than Employee's employment
hereunder and passive investing for the account of Employee or members of
Employee's household.

2. Term. Unless earlier terminated as provided herein, the initial term of
----
Employee's employment under this Agreement shall be for a term ("Term") of five
(5) consecutive years commencing on the date hereof. This Agreement shall be
automatically renewed for additional Terms of two (2) years each, unless
Employer notifies Employee in writing or Employee notifies Employer in writing
of the intention not to renew this Agreement no less than one hundred eighty
(180) days prior to the expiration of the then current Term, subject to earlier
termination as provided herein. Notwithstanding the foregoing, the Term of
<PAGE>

employment hereunder will end on the date that the Employee attains the
retirement age, if any, specified in the Bylaws of the Bank for directors of the
Bank.

3. Compensation and Benefits. As compensation for the services to be
-------------------------
rendered by Employee for Employer under this Agreement, Employee shall be
compensated as follows:

(a) Base Salary.
-----------

(i) Until August 1, 2000, Employee shall be compensated by
Employer on the basis of an annual base salary of One Hundred Thirty-five
Thousand and No/100 ($135,000.00) Dollars. Such salary shall be payable in pay
periods as determined by Employer, but in no event less frequently than monthly.

(ii) Effective August 1, 2000, Employer's obligations under
Section 3(a)(i) above shall cease, and Employee shall be compensated by Employer
on the basis of an annual base salary of One Hundred Thirty Thousand and No/100
($130,000.00) Dollars. Such salary shall be payable in pay periods as determined
by Employer, but in no event less frequently than monthly. The Board (or an
appropriate committee of the Board) shall review the Employee's salary at least
annually and may increase (but not decrease) the Employee's base salary if it
determines in its sole discretion that an increase is appropriate.

(iii) The amount of base salary payable by Employer pursuant
to Section 3(a)(i) is hereby guaranteed by Employer until the later to occur of
the first anniversary of the date hereof and the date 120 days following the
termination of this Agreement pursuant to Section 5(c) hereof; provided,
however, that such guarantee shall cease upon the earlier to occur of (A)
Employee's failure to satisfy eligibility or other applicable qualifications set
forth by any regulator in connection with the regulatory approval process for
the Company's operation as a bank holding company or the Bank's operation as a
commercial bank, and (B) the termination of Employee's employment hereunder
pursuant to Section 5(a) or Section 5(d).

(b) Bonus Plan.
----------

(i) Opening Date. The Employee shall receive a cash bonus
------------
ranging from a minimum of $10,000 to a maximum of $27,500 on the date the Bank
lawfully commences business (the "Opening Date") in Beaufort, South Carolina.
The amount, if any, by which such bonus shall exceed the minimum amount shall be
determined by the Board of Directors upon its consideration of factors it deems
appropriate, including Employee's activities in organizing the Company and the
Bank; development of policies and procedures for the Company and the Bank;
assistance in the design, upfit and construction of physical facilities;
staffing arrangements; regulatory coordination and compliance; and the
progression of the application and approval process necessary for the
commencement of the Bank's operations.

(ii) Annual. For each calendar year following the first full
------
calendar year of the Bank's operations, the Employee shall be awarded a cash
bonus to Employee of five percent (5%) of the Bank's net income, after reduction
for such cash bonus, following the Board's analysis of criteria it deems
appropriate, including the Bank's achievement of certain performance levels for
return on assets and non-performing loans or other specified goals and criteria
agreed to by the Employer and the Employee (the "Bonus Plan"). Notwithstanding
the foregoing, such bonus shall not exceed 50% of the Employee's base salary in
effect hereunder for the applicable calendar year unless the Board shall
determine otherwise based upon its analysis of factors it deems appropriate.
Such bonus shall be paid no later than March 31st of the following calendar
year.

(c) Dues. Employer shall pay all dues of Employee as a member of one
----
social or country club and one service club, both of which shall be approved by
the parties hereto.

(d) Vacation. Employer shall provide fifteen (15) business days of paid
--------
vacation time for the twelve-month period commencing on the date hereof, and
shall provide twenty (20) business days of paid vacation time for each
consecutive twelve-month period thereafter during the term of this Agreement.
Such vacation days are to be taken at such time or times as Employee may
reasonably request, subject to the
<PAGE>

Employer's convenience and prior approval, which approval shall not be
unreasonably withheld. Vacation time shall not cumulate year to year.

(e) Automobile. At Employer's election, Employer shall provide Employee
----------
with either a premium model automobile (4-door sedan of a United States-based
manufacturer) owned or leased by Employer, or a comparable monthly automobile
allowance. If Employer provides Employee with an automobile, Employer shall also
provide for reasonable expenses associated with the automobile, including, but
not limited to, insurance and taxes.

(f) Life Insurance. The Employer shall provide the Employee with a term
--------------
life insurance policy providing for death benefits totaling $300,000 payable to
the Employee's spouse and heirs (and may provide for additional death benefits
of up to $300,000 payable to the Employer), and the Employee shall cooperate
with the Employer in the securing and maintenance of such policy.

(g) Other Benefits. The Employer shall provide Employee with standard
--------------
family health insurance coverage, and Employee shall be eligible to participate
in all retirement, 401(k), welfare and other benefit plans or programs of the
Employer now or hereafter applicable generally to employees of the Employer or
to a class of employees that includes senior executives of the Employer.

(h) Reimbursement For Expenses.
--------------------------

(i) Relocation Expenses. Employer shall provide reimbursement
-------------------
to Employee of the following properly documented expenses: (A) the standard real
estate brokerage commission payable by Employee on the sale of Employee's
existing residence; (B) the reasonable direct costs associated with the moving
of Employee's personal property to Beaufort, South Carolina; (C) the temporary
living expenses of Employee and Employee's family for a period not to exceed six
months (including provision of a temporary residence during such period); and
(D) the payment of Employee's mortgage points, if any, (up to one point maximum)
for the purchase of Employee's residence.

(ii) Other Expenses. Employer shall provide reimbursement to
--------------
Employee of all reasonable expenses incurred by Employee for the benefit of
Employer in the performance of Employee's duties hereunder which are incurred
and accounted for in accordance with the normal practices of the Employer.

4. Stock Options. The Employee shall participate in any long-term equity
-------------
incentive program of the Company or the Bank and shall be eligible for the grant
of stock options, restricted stock, and other awards thereunder or under any
similar plan adopted by the Company. On the date of the closing of the stock
offering for the initial capitalization of the Bank, or as soon thereafter as an
appropriate stock option plan is adopted by the Board, the Company shall grant
to Employee an option to purchase a number of shares of Common Stock equal to
three percent (3%) of the number of shares sold in the offering. The award
agreement for the stock option shall provide for an exercise price per share
equal to the price per share of stock sold in the stock offering for the initial
capitalization of the Bank, and shall also provide that one-third of the total
number of shares under the option award shall vest and become exercisable on
each of the first, second and third anniversaries of the Opening Date, subject
to accelerated vesting of all options upon a "Change in Control" as defined
below. In addition, the award agreement will provide that the Employee's option
shall be qualified as an incentive stock option under the Internal Revenue Code
of 1986, as amended (the "Code") to the extent the option otherwise qualifies
for such treatment under the Code. For purposes of such option vesting, the term
"Change in Control" shall mean that any of the following events shall have
occurred: (i) a person, partnership, joint venture, corporation or other entity,
or two or more of any of the foregoing acting as a group (or a "person" within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), other than the Company, a majority-owned subsidiary of
the Company, an employee benefit plan (or related trust) of the Company or such
subsidiary, become(s) after the effective date of the stock option plan the
"beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act) of 35% or
more of the then outstanding voting stock of the Company; (ii) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (together with any new director
whose election by the Board or whose nomination for election by the Company's
shareholders, was approved by the vote of at least two-thirds of the directors
then still in
<PAGE>

office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors then in office; (iii) the
shareholders of the Company approve (A) a plan of complete liquidation of the
Company; or (B) an agreement for the sale or disposition of all or substantially
all of the Company's assets (other than to a subsidiary of the Company); or (C)
a merger, consolidation, or reorganization of the Company with or involving any
other corporation, other than a merger, consolidation, or reorganization that
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least sixty
percent (60%) of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such merger,
consolidation or reorganization; or (iv) a notice of an application is filed
with the Office of Comptroller of the Currency (the "OCC") or the Federal
Reserve Board or any other bank or thrift regulatory approval (or notice of no
disapproval) is granted by the Federal Reserve, the OCC, the Federal Deposit
Insurance Corporation, or any other regulatory authority for permission to
acquire control of the Company or any of its banking subsidiaries.

5. Termination.
-----------

(a) For Cause By Employer. Notwithstanding any other provision hereof,
---------------------
Employer may terminate Employee's employment under this Agreement immediately at
any time for Cause upon delivery to Employee of written notice specifying the
basis for such termination hereunder. The term Cause shall include of any of (i)
the commission by Employee of a willful act (including, without limitation, a
dishonest, fraudulent or unethical act, or willful or recurring insubordination)
or a grossly negligent act, or the willful or grossly negligent omission to act
by Employee, which is intended to cause, causes or is reasonably likely to cause
material harm to Employer (including harm to its business reputation), (ii) the
indictment of Employee for the commission or perpetration by Employee of any
felony or any crime involving dishonesty, moral turpitude or fraud, (iii) the
material breach by Employee of this Agreement, (iv) the material violation by
Employee of any federal or state banking law, rule or regulation; causing or
permitting, whether intentionally or negligently, Employer to materially violate
any federal or state banking law, rule or regulation, (v) the suspension or
temporary prohibition of Employee's participation in the conduct of the affairs
of Employer or any subsidiary of Employer by notice served under Section 8(e) of
the Federal Deposit Insurance Act (12 U.S.C., Section 1818 (e)), (vi) the
receipt of any form of notice, written or otherwise, that any regulatory agency
having jurisdiction over Employer intends to institute any form of formal or
informal (e.g., a memorandum of understanding which relates to Employee's
performance) regulatory action against Employee or Employer (provided that the
Board of Directors determines in good faith, with Employee abstaining from
participating in the consideration of and vote on the matter, that the subject
matter of such action involves acts or omissions by or under the supervision of
Employee or that termination of Employee would materially advance Employer's
compliance with the purpose of the action or would materially assist Employer in
avoiding or reducing the restrictions or adverse effects to Employer related to
the regulatory action); (vii) the exhibition by Employee of a standard of
behavior within the scope of his employment that is materially disruptive to the
orderly conduct of Employer's business operations (including, without
limitation, substance abuse or sexual misconduct) to a level which, in the Board
of Directors' good faith and reasonable judgment, with Employee abstaining from
participating in the consideration of and vote on the matter, is materially
detrimental to Employer's best interest; (viii) the failure of Employee to
devote his full business time and attention to his employment as provided under
this Agreement that, if susceptible of cure, remains uncured 60 days following
written notice to Employee of such failure; or (ix) the failure by the Employee
to achieve or maintain the reasonable performance goals established by
Employer's management and approved by the Board of Directors from time to time
for Employee and Employer that, if susceptible of cure, remains uncured 60 days
following written notice to Employee of such failure. All compensation
(including without limitation the base salary, and all perquisites and fringe
benefits) to which Employee would otherwise be entitled (for periods after the
effective date of such termination) shall be discontinued and forfeited as of
the effective date of such termination.

(b) Without Cause By Employer. Employer may terminate this Agreement
-------------------------
without cause upon thirty (30) days prior written notice to Employee. In the
event of such termination, all compensation (including without limitation the
base salary and any perquisites and fringe benefits, if any) to which Employee
would otherwise be entitled (for periods after the effective date of the
termination) shall be
<PAGE>

discontinued and forfeited as of the effective date of such termination.
Notwithstanding the foregoing, in the event of such termination by Employer
without cause, the following shall occur:

(i) Employee shall be paid a cash lump sum severance payment
equal to two times the amount of the base salary (as set forth in Section 3(a)
hereof) in effect at the time of the termination, plus the amount of any unpaid
bonus earned in the preceding twelve months; and

(ii) Employee shall receive from Employer, at Employer's
expense, all benefits set forth in Section 3(g) until the expiration of the then
------------
current term of this Agreement; provided however, during such period should a
third party provide any such benefit to Employee, Employer's obligation pursuant
to this paragraph to provide the fringe benefit provide by the third party shall
be reduced by the amount and to the extent such fringe benefit is provided to
Employee by such third party.

(c) Failure to Organize Bank. Employer may terminate this Agreement if
------------------------
its effort to organize the Bank is abandoned. In the event of such termination,
Employee shall be paid any earned but unpaid portion of his base salary and a
cash lump sum severance payment equal to the amount of his base salary in effect
at the time of the termination that would have been payable to him for the
period from the date of such termination to the later to occur of the first
anniversary of the date hereof and the date 120 days following the date of such
termination. Any compensation (including without limitation the base salary and
any perquisites and fringe benefits, if any) to which Employee would otherwise
be entitled (for periods after the effective date of the termination) shall be
discontinued and forfeited as of the effective date of such termination.

(d) Termination By Employee. Employee may with or without cause
-----------------------
terminate this Agreement upon thirty (30) days prior written notice to Employer.
In the event of such termination, all compensation (including without limitation
the base salary, and all perquisites and fringe benefits) to which Employee
would otherwise be entitled (for periods after the effective date of such
termination) shall be discontinued and forfeited as of the effective date of
such termination. Employee's death shall be deemed termination of this Agreement
pursuant to this Section 5(d).

(e) Disability. In the event of the Employee's disability during
----------
employment under this Agreement, then employment under this Agreement shall
terminate. For purposes of this Agreement, except as provided herein below,
"disability" shall mean the inability of Employee, due to sickness or other
incapacity, to perform Employee's duties under this Agreement for a period in
excess of ninety (90) substantially consecutive days. Such termination shall
become effective at Employer's election upon the expiration of such ninety (90)
day period of disability. Upon termination of employment under this Agreement
due to Employee's disability, all compensation (including without limitation the
base salary, and all perquisites and fringe benefits) to which Employee would
otherwise be entitled (for periods after the effective date of such termination)
shall be discontinued and forfeited as of the effective date of such
termination. During the period of any incapacity leading up to and ending on the
termination of the Employee's employment as a result of disability, the Employer
shall continue to pay the Employee his full base salary at the rate then in
effect and all perquisites and other benefits (other than any bonus).
Furthermore, the Employee shall receive any bonus earned or accrued under the
Bonus Plan through the date of incapacity (including any amounts awarded for
previous years but which were not yet vested) and a pro rata share of any bonus
with respect to the current fiscal year which had been earned as of the date of
the Employee's incapacity.

(f) Board Membership. In the event that the Employee's employment is
----------------
terminated for any reason, the Employee shall (and does hereby) tender his
resignation as a director of the Company and the Bank and effective as of the
date of termination.

(g) Return of Materials. The Employee shall surrender to the Employer,
-------------------
promptly upon its request and in any event upon termination of the Employee's
employment, all media, documents, notebooks, computer programs, handbooks, data
files, models, samples, price lists, drawings, customer lists, prospect data, or
other material of any nature whatsoever (in tangible or electronic form) in the
Employee's possession or control, including all copies thereof, relating to the
Employer, its business, or its customers. Upon the request of the Employer,
Employee shall certify in writing compliance with the foregoing requirement.
<PAGE>

(h) Change in Control. Notwithstanding the operation of the other
-----------------
provisions of this Section 5, in the event of any termination of this Agreement
---------
by Employer following the occurrence of a "Change in Control" as that term is
defined in Section 4 hereof (provided that such Change in Control has occurred
---------
following, and not as a result of, the final closing of the stock offering for
the initial capitalization of the Bank), Employer shall be obligated to pay the
amounts and provide the benefits set forth in paragraphs (i) and (ii) of Section
-------
5(b) hereof.
- ----

6. Confidentiality and Secrecy. Employee acknowledges that in and as a
---------------------------
result of Employee's employment hereunder, Employee will be making use of,
acquiring, and/or adding to confidential information of a special and unique
nature and value relating to Employer's business, including without limitation
technological knowhow, copyrights, proprietary information, trade secrets,
systems, procedures, manuals, confidential reports, records, operational
expertise, lists of customers and projects, the nature and type of services
rendered by Employer, the equipment and methods used and preferred by Employer's
customers, and the fees paid by them (all of which are deemed for all purposes
confidential and proprietary). As a material inducement to Employer to enter
into this Agreement and to pay to Employee the compensation stated in Section 3
---------
and Section 4, Employee covenants and agrees that during the term of Employee's
---------
employment hereunder, and for one (1) year after the expiration or earlier
termination of Employee's employment by Employer or an affiliate of Employer,
Employee shall not, directly or indirectly, make use of, or disclose to any
person, any confidential information of Employer or its affiliates.

7. Covenants Against Competition. In view of the unique value to Employer
-----------------------------
of the services of Employee for which Employer has contracted hereunder, because
of the confidential information to be obtained by or disclosed to Employee, as
hereinabove set forth, and because Employee's employment hereunder will result
in Employee's development of a unique relationship with customers, suppliers and
employees, as a material inducement to Employer to enter into this Agreement and
to pay to Employee the compensation stated in Section 3 and Section 4, Employee
--------- ---------
covenants and agrees as follows:

(a) During Employee's employment by Employer, and for a period expiring
on the earlier to occur of the date one (1) year after the expiration of this
Agreement or the date one (1) year after the earlier termination for any reason
of Employee's employment hereunder, Employee shall not directly or indirectly
solicit or divert employment of any employee of the business of Employer or an
affiliate of Employer, or employ any person previously employed by Employer or
an affiliate of Employer.

(b) During Employee's employment by Employer, and for a period expiring
on the earlier to occur of the date one (1) year after the expiration of this
Agreement or the date one (1) year after the earlier termination for any reason
of Employee's employment hereunder, Employee shall not directly or indirectly
solicit, divert or convert, or assist another person or entity to solicit,
divert or convert, customers of Employer or any affiliate of Employer to any
other financial institution.

(c) During Employee's employment by Employer, and for a period expiring
on the earlier to occur of (i) the date one (1) year after the termination of
Employee's employment hereunder for any reason other than Employer's termination
of Employee "without cause" pursuant to Section 5(b) hereof, (ii) the date six
(6) months after the expiration of this Agreement where such expiration results
from Employee's proper notification to Employer of Employee's intention not to
renew this Agreement pursuant to Section 2, and (iii) the date of the expiration
of this Agreement where such expiration results from Employer's proper
notification to Employee of Employer's intention not to renew this Agreement
pursuant to Section 2, Employee shall not within the geographic area specified
below engage in any business or perform any services, directly or indirectly, in
competition with the business of Employer or any subsidiary or parent company of
Employer, or have any interest, whether as a proprietor, partner, employee,
stockholder (directly or beneficially), principal, agent, consultant, director,
officer, or in any other capacity or manner whatsoever, in any financial
institution that shall so engage; except that Employee shall be permitted to own
for investment purposes only, directly or beneficially, up to (but not more
than) 2% in the aggregate of the stock of a competing corporation which is
publicly-traded on a national stock exchange or the Nasdaq National Market
System, so long as Employee is not a controlling person of, or a member of a
group that controls, such corporation and Employee is not otherwise affiliated
in any capacity with such corporation. The restrictions of this Section 7(c)
------------
shall apply everywhere within a 25 mile radius of each location where
<PAGE>

Employer (or any subsidiary or parent company of Employer) maintains an office
or branch at any time during the term of this Agreement.

8. Reasonableness, Enforceability and Remedies.
-------------------------------------------

(a) Employee has carefully read and considered the provisions of
Sections 6, 7 and 8, and, having done so, agrees that the restrictions set forth
- -------------------
in these Sections, including, but not limited to, the time period of restriction
--------
and geographic limitations set forth in Section 7, are fair and reasonable and
---------
are reasonably required for the protection of the interests of Employer, any of
its subsidiaries, and its and their respective officers, directors,
shareholders, employees, and affiliates.

(b) In the event that, notwithstanding the foregoing, any of the
provisions of Sections 6, 7 or 8 or any parts thereof shall be held to be
------------------
invalid or unenforceable, the remaining provisions or parts thereof shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable portions or parts had not been included therein. In the event that
any provision of Sections 6 or 7 relating to the time period and/or geographic
---------------
restrictions and/or related aspects shall be declared by a court of competent
jurisdiction to exceed the maximum restrictiveness such court deems reasonable
and enforceable, the time period and/or geographic restrictions and/or related
aspects deemed reasonable and enforceable by the court shall become and
thereafter be the maximum restriction in such regard, and the restriction shall
remain enforceable to the fullest extent deemed reasonable by such court.

(c) Employee acknowledges that the services Employee is to render are
of a special and unusual character with a unique value to Employer, the loss of
which cannot adequately be compensated by damages in an action at law. In the
event of a breach or threatened breach by Employee of any of the provisions of
Sections 6 or 7, Employer, in addition to and not in limitation of, any other
- ---------------
rights, remedies, or damages available to Employer under this Agreement, shall
be entitled to a permanent injunction in order to prevent or restrain any such
breach by Employee or by Employee's partners, agents, representatives, servants,
employers, employees, consulting clients, and/or any and all persons directly or
indirectly acting for or with Employee.

(d) Employee covenants and agrees that if Employee shall violate any of
Employee's covenants or agreements under Sections 6 or 7, Employer shall be
---------------
entitled to: (i) an accounting and repayment of all profits, compensation,
commissions, remuneration, or other benefits that Employee directly or
indirectly has realized and/or may realize as a result of, growing out of, or in
connection with, any such violation; (ii) recover actual damages incurred by
Employer and by any parent company or subsidiary of Employer, as a result of any
such violation; (iii) any injunctive relief to which Employer and any parent
company or subsidiary of Employer is or may be entitled at law, in equity, or
under this Agreement; and (iv) exercise its other rights respecting a breach of
this Agreement as set forth herein. The remedies set forth herein shall not be
the sole and exclusive remedies to which Employer is entitled for violation of
Sections 6 or 7.
- ---------------

9. Burden and Benefit. This Agreement shall be binding upon, and shall
------------------
inure to the benefit of, Employer and Employee, and their respective heirs,
personal and legal representatives, successors, and permitted assigns.

10. Assignment. This Agreement and any rights hereunder are personal to
----------
Employee and shall not be assigned or otherwise transferred by Employee.
Employer shall be entitled to assign this Agreement to any corporation
controlled by Employer.

11. Governing Law/Jurisdiction. The construction and interpretation of
--------------------------
this Agreement shall at all times and in all respects be governed by the laws of
the State of South Carolina. The parties hereby (i) agree that any litigation,
action or proceeding arising out of or relating to this Agreement may be
instituted in a state or federal court in the State of South Carolina, (ii)
waives any objection which it might have now or hereafter to any such
litigation, action or proceeding based upon improper venue or inconvenient
forum, and (iii) irrevocably submits to the jurisdiction of such courts in any
such litigation, action or proceeding. For all purposes of this Agreement, the
parties hereby further agree that service of process upon any party may be
effected pursuant to United States mail.
<PAGE>

12. Usage. The section and paragraph headings contained in this Agreement
-----
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Term such as "hereof", "hereunder", "hereto",
"herein", and words of similar import shall refer to this Agreement in its
entirety and all references shall refer to specified portions of this Agreement,
unless the context clearly requires otherwise.

13. Severability. The provisions of this Agreement shall be deemed
------------
severable, and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity and enforceability of
the other provisions. Without limiting the generality of the foregoing or of
Section 8, each provision, sub-provision, part, and sub-part of Sections 7 or 8
shall be deemed severable.

14. Survival. Employee's obligations pursuant to Sections 6 and 7 hereof
--------
shall survive the termination of this Agreement.

15. Modifications. This Agreement can only be modified by a written
-------------
agreement duly signed by authorized representatives of the parties hereto.
Moreover, in order to avoid uncertainty, ambiguity and misunderstandings in
their relationships, the parties hereto covenant and agree not to enter into any
oral agreement or understanding inconsistent or in conflict with this Agreement;
and the parties hereto further covenant and agree that any oral communication
allegedly or purportedly constituting such an agreement or understanding shall
be absolutely null, void and without effect.

16. Waiver. Any waiver by either party of any breach or any term or
------
condition hereof shall be effective only if in writing and such writing shall
not be deemed to be a waiver of any subsequent or other breach, term or
condition of this Agreement.

17. No Inference Against Author. No provision of this Agreement shall be
---------------------------
interpreted against any party because such party or its legal representative
drafted such provision.

18. Notice. Any notice, request, approval, consent, demand or other
------
communication hereunder shall be effective if in writing and upon the first to
occur of the following: (i) upon receipt by the party to whom such notice,
request, approval, consent, demand or other communication is being given; or
(ii) three (3) business days after being duly deposited in the U.S. Mail,
certified, return receipt requested, and addressed to the respective addresses
last given by each party to the other; provided, however, that all notices to
Employer shall be directed to the attention of Employer with a copy to the
Secretary of Employer.

19. Prevailing Party. The party against which any final judgment is
----------------
obtained in any litigation resulting from the termination of Employee's
employment hereunder or Employee seeking to obtain or enforce any right or
benefit provided by this Agreement shall pay or reimburse the successful party
for all legal fees and related expenses incurred by such successful party in
such litigation.

20. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding by and between Employer and Employee with respect to the subject
matter hereof and supersedes all prior and contemporaneous written or oral
agreements and representations between the parties with respect thereto.
<PAGE>

IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement under seal to be effective as of the day and year first above written.

IN THE PRESENCE OF: EMPLOYEE:

(SEAL)
/s/ WILLIAM B. GOSSETT
- ----------------------- ---------------------------
Witness William B. Gossett

EMPLOYER:
- -----------------------
Witness ISLANDS BANCORP.

(SEAL)
By: /s/ D. MARTIN GOODMAN
- ----------------------- ----------------------------
Witness Its: CHAIRMAN
----------------------------

- -----------------------
Witness

<PAGE>

EXHIBIT 10.2

FORM OF WARRANT AGREEMENT

THIS AGREEMENT is made and entered into as of this ___ day of ________,
1999, by and between ISLANDS BANCORP, a South Carolina corporation (the
"Corporation"), and ___________________________ (the "Warrant Holder").

W I T N E S S E T H

WHEREAS, the Warrant Holder has served as an organizer in the formation
of the Corporation and the formation and establishment of Islands Community
Bank, N.A. (the "Bank"), the wholly-owned subsidiary of the Corporation; and

WHEREAS, the Warrant Holder will provide services to the Corporation as
a director of the Corporation; and

WHEREAS, the Warrant Holder has purchased _____ shares of the
Corporation's common stock, no par value per share (the "Common Stock"), at a
price per share of $10.00 per share; and

WHEREAS, the Corporation, in recognition of the financial risk
undertaken by the Warrant Holder in organizing the Bank and the Corporation,
desires to provide the Warrant Holder with the right to acquire the same number
of shares as the Warrant Holder purchased in the initial stock offering of the
Corporation's Common Stock, including any additional shares purchased
specifically to attain the minimum subscription requirements of the initial
offering.

NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Grant of Warrant. Subject to the terms, restrictions,
----------------
limitations and conditions stated herein, the Corporation
hereby grants to the Warrant Holder the right (the "Warrant")
to purchase all or any part of an aggregate of _____ shares of
the Common Stock, subject to adjustment in accordance with
Sections 6 and 7 hereof.

2. Term.
----

(a) Maximum Term. The term for the exercise of said Warrant begins
------------
at 9:00 a.m., Eastern Time, on the first anniversary of the
date that the Bank first opens for business (the "Issue Date")
and ends at 5:00 p.m., Eastern Time, on the earlier of the
tenth anniversary of the issuance date or 90 days after the
Warrant Holder ceases to serve as a director of the
Corporation (the "Expiration Time").

(b) Standard Vesting. The Warrant will vest at the rate of 33 1/3%
----------------
per year beginning on the first anniversary of the Issue Date.
On each of the two successive anniversaries of the Issue Date,
an additional 33 1/3% of the Warrant shall vest. The vested
portion of the Warrant may be exercised in whole, or from time
to time in part, at any time prior to the Expiration Time.

(c) Accelerated Vesting. Notwithstanding the provisions of Section
-------------------
2(b), upon the occurrence of a Change In Control, as defined
below, unless otherwise specifically prohibited under
applicable laws or by the rules and regulations of any
governmental agencies or national securities exchanges, this
Warrant shall become immediately and fully exercisable as to
all shares of Common Stock set forth in Section 1 as to which
this Warrant has not at such time been previously exercised,
and this Warrant shall remain fully exercisable with respect
to
<PAGE>

such shares for the remainder of its term. For purposes of
this Section 2(c), a Change In Control shall mean that any of
the following events shall have occurred:

(i) A person, partnership, joint venture, corporation or other entity,
or two or more of any of the foregoing acting as a group (or a "person"
within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934), other than the Corporation, a majority-owned subsidiary of
the Corporation, an employee benefit plan (or related trust) of the
Corporation or such subsidiary, become(s) after the date of this
Warrant the "beneficial owner" (as defined in Rule 13(d)(3) under the
Securities Exchange Act of 1934) of 25% or more of the then outstanding
voting stock of the Corporation;

(ii) During any period of two consecutive years, individuals who at the
beginning of such period constitute the Corporation's Board of
Directors (together with any new director whose election by the
Corporation's Board of Directors or whose nomination for election by
the Corporation's shareholders, was approved by the vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors then in office;

(iii) The Corporation's Board of Directors determines that a tender
offer for the Corporation's shares indicates a serious intention by the
offeror to acquire control of the Corporation; or

(iv) The shareholders of the Corporation approve (a) a plan of complete
liquidation of the Corporation; or (b) an agreement for the sale or
disposition of all or substantially all of the Corporation's assets; or
(c) a merger, consolidation, or reorganization of the Corporation with
or involving any other corporation, other than a merger, consolidation,
or reorganization that would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least seventy-five
percent (75%) of the combined voting power of the voting securities of
the Corporation (or such surviving entity) outstanding immediately
after such merger, consolidation or reorganization.

(d) Mandatory Exercise or Forfeiture. Notwithstanding any other
--------------------------------
provision of this Agreement, if the Bank's capital falls below
the minimum requirements contained in 12 CFR 3 or below a
higher requirement as determined by the Office of the
Comptroller of the Currency (the "Regulator"), the Regulator
may direct the Corporation to require the Warrant Holder to
exercise or forfeit his or her Warrant. The Corporation will
notify the Warrant Holder within 45 days from the date the
Regulator notifies the Corporation in writing that the Warrant
Holder must exercise or forfeit this Warrant. The Corporation
will cancel the Warrant if not exercised within 21 days of the
Corporation's notification to the Warrant Holder. The
Corporation agrees to comply with any request of the Regulator
that the Corporation invoke its right to require the Warrant
Holder to exercise or forfeit his or her Warrant under the
circumstances stated above.

(e) Termination. Warrant Holder shall exercise all of Warrant
-----------
Holder's then exercisable Warrants within 120 days of the date that Warrant
Holder ceases to serve the Corporation as an executive officer, employee, or
director. Warrant Holder agrees to exercise any Warrants that are not
exercisable on the date on which Warrant Holder ceases to serve the Corporation
within 120 days of the date that those Warrants become exercisable.

3. Purchase Price. The price per share to be paid by the Warrant
--------------
Holder for the shares of Common Stock subject to this Warrant
shall be $10.00, subject to adjustment as set forth in
Sections 6 and 7 hereof (such price, as adjusted, hereinafter
called the "Purchase Price").

4. Exercise of Warrant. The Warrant may be exercised by the
-------------------
Warrant Holder by delivery to the Corporation, at the address
of the Corporation set forth under Section 10(a) hereof or
<PAGE>

such other address as to which the Corporation advises the
Warrant Holder pursuant to Section 10(a) hereof, of the
following:

(a) Written notice of exercise specifying the number of shares of
Common Stock with respect to which the Warrant is being exercised; and

(b) A cashier's or certified check payable to the Corporation for
the full amount of the aggregate Purchase Price for the number of shares as to
which the Warrant is being exercised.

5. Issuance of Shares. Upon receipt of the items set forth in
------------------
Section 4, and subject to the terms hereof, the Corporation
shall cause to be delivered to the Warrant Holder stock
certificates for the number of shares specified in the notice
to exercise, such share or shares to be registered under the
name of the Warrant Holder. Notwithstanding the foregoing, the
Corporation shall not be required to issue or deliver any
certificate for shares of the Common Stock purchased upon
exercise of the Warrant or any portion thereof prior to the
fulfillment of the following conditions:

(a) The admission of such shares for listing on all stock
exchanges, if any, on which the Common Stock is then listed or
for inclusion on any stock trading market on which the Common
Stock is then admitted for trading.

(b) The completion of any registration or other qualification of
such shares which the Corporation shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;

(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body, which the
Corporation shall determine to be necessary or advisable; and

(d) The lapse of such reasonable period of time following the
exercise of the Warrant as the Corporation from time to time may establish for
reasons of administrative convenience.

The Corporation shall have no obligation to obtain the fulfillment of
these conditions.

6. Subdivisions, Combinations or Dividends.
---------------------------------------

(a) If, prior to the Expiration Time, the Corporation shall
subdivide its outstanding shares of Common Stock into a
greater number of shares, or declare and pay a dividend of its
Common Stock payable in additional shares of its Common Stock,
the Purchase Price as then in effect shall be proportionately
reduced, and the number of shares of Common Stock then subject
to exercise under the Warrant (and not previously exercised)
shall be proportionately increased.

(b) If, prior to the Expiration Time, the Corporation shall
combine its outstanding shares of the Common Stock into a
smaller number of shares, the Purchase Price, as then in
effect, shall be
proportionately increased, and the number of shares of Common Stock then subject
to exercise under the Warrant (and not previously exercised) shall be
proportionately reduced.

7. Reorganization, Reclassification, Consolidation or Merger. If,
---------------------------------------------------------
prior to the Expiration Time, there shall be any
reorganization or reclassification of the Common Stock (other
than a subdivision or combination of shares provided for in
Section 6 hereof), or any consolidation or merger of the
Corporation with another entity, the Warrant Holder shall
thereafter be entitled to receive, during the term hereof and
upon payment of the Purchase Price, the number of shares of
stock or other securities or property of the Corporation or of
the successor entity (or its parent company) resulting from
such consolidation or merger, as the case may be, to which a
holder of the Common Stock, deliverable upon the exercise of
this
<PAGE>

Warrant, would have been entitled upon such reorganization,
reclassification, consolidation or merger; and in any case,
appropriate adjustment (as determined by the Board of
Directors of the Corporation in its sole discretion) shall be
made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the
Warrant Holder to the end that the provisions set forth herein
(including the adjustment of the Purchase Price and the number
of shares issuable upon the exercise of this Warrant) shall
thereafter be applicable, as near as may reasonably be
practicable, in relation to any shares or other property
thereafter deliverable upon the exercise hereof.

8. Notice of Adjustments. Upon any adjustment provided for in
---------------------
Section 6 or Section 7 hereof, the Corporation, within thirty
(30) days thereafter, shall give written notice thereof to the
Warrant Holder at the address set forth under Section 10(a)
hereof or such other address as the Warrant Holder may advise
the Corporation pursuant to Section 10(a) hereof, which notice
shall state the Warrant Price as adjusted and the increased or
decreased number of shares purchasable upon the exercise of
this Warrant, setting forth in reasonable detail the method of
calculation of each.

9. Transfer and Assignment.
-----------------------

(a) This Warrant may not be assigned, transferred (except as
aforesaid), pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted assignment, transfer, pledge, hypothecation or other disposition
of this Warrant shall be null and void and without legal effect.

(b) Shares of Common Stock acquired by exercise of the Warrant
granted hereby may not be transferred or sold unless the
transfer is exempt from further regulatory approval or
otherwise
permissible under applicable law, including state and federal securities laws,
and will bear a legend to this effect.

10. Miscellaneous.
-------------

(a) All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, telegram or facsimile transmission, or
if mailed, by postage prepaid first class mail, on the third business day after
mailing, to the following address (or at such other address as a party may
notify the other hereunder):

To the Corporation:

Islands Bancorp
US Highway 21 and SC Highway 802
Beaufort, South Carolina 29902
Attention: William B. Gossett, President and Chief Executive
Officer

To the Warrant Holder:

-------------------------------------

(b) The Corporation covenants that it has reserved and will keep
available, solely for the
<PAGE>

purpose of issue upon the exercise hereof, a sufficient number of shares of
Common Stock to permit the exercise hereof in full.

(c) No holder of this Warrant, as such, shall be entitled to vote
or receive dividends with respect to the shares of Common Stock subject hereto
or be deemed to be a shareholder of the Corporation for any purpose until such
Common Stock has been issued.

(d) This Warrant may be amended only by an instrument in writing
executed by the party against whom enforcement of amendment is
sought.

(e) This Warrant may be executed in counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.

(f) This Warrant shall be governed by and construed and enforced
in accordance with the laws of the State of South Carolina.

IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
signed by its duly authorized officers and its corporate seal to be affixed
hereto, and the Warrant Holder has executed this Warrant under seal, all as of
the day and year first above written.

ISLANDS BANCORP

By:
----------------------------------------
William B. Gossett
President and Chief Executive Officer

WARRANT HOLDER

----------------------------------------
(SEAL)

<PAGE>

Exhibit 10.3

ASSIGNMENT, BILL OF SALE AND ASSUMPTION AGREEMENT

This Assignment, Bill of Sale and Assumption Agreement (this
"Agreement") is entered into effective this 25th day of August, 1999 by and
between Islands Bancorp, a South Carolina corporation (the "Bancorp") and NBB
General Partnership, a South Carolina general partnership (the "Partnership").

WHEREAS, each of the Partnership and the Bancorp, desire that the
Partnership transfer, assign, exchange, convey and deliver to the Bancorp all of
the Partnership's right, title and interest in and to the assets of the
Partnership and the parties' desire that the Bancorp assume from the Partnership
the liabilities of the Partnership.

NOW, THEREFORE, for and in consideration of the premises and covenants
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1. The Partnership does hereby grant, bargain, sell, distribute,
transfer, convey, assign, exchange, release and deliver unto the Bancorp all of
the Partnership's right, title and interest in and to all of the Partnership's
tangible and intangible assets as of the date hereof, to have and to hold all
and singular the said assets unto the Bancorp, its successors and assigns, to
its own use and enjoyment forever, and the Bancorp hereby accepts said assets.

2. The Bancorp hereby assumes from the Partnership and agrees timely to
pay or otherwise satisfy all liabilities, obligations and debts of the
Partnership as of the date hereof.

3. The Partnership and the Bancorp hereby agree to take all such
further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful in carrying out the purposes of this
Agreement.

4. This Agreement shall bind and inure to the benefit of the parties
hereto and each of their respective successors and assigns.

[SIGNATURE PAGE ATTACHED]
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto, individually or acting
through their duly authorized officers, has executed this Agreement to be
effective as of the day and year first set forth above.

<TABLE>
<S> <C>
NBB GENERAL PARTNERSHIP:(SEAL) ISLANDS BANCORP:

/s/ VERONICA C. CLARDY /s/ WILLIAM B. GOSSETT
- ------------------------------------------ ------------------------------------------
By: Veronica C. Clardy, General Partner By: William B. Gossett
Its: President and Chief Executive Officer

/s/ AVERY E. CLELAND
- ------------------------------------------
By: Avery E. Cleland, General Partner

/s/ LOUIS O. DORE
- ------------------------------------------
By: Louis O. Dore, General Partner

/s/ PAUL M. DUNNAVANT III
- ------------------------------------------
By: Paul M. Dunnavant III, General Partner

/s/ MARTHA B. FENDER
- ------------------------------------------
By: Martha B. Fender, General Partner

/s/ D. MARTIN GOODMAN
- ------------------------------------------
By: D. Martin Goodman, General Partner

/s/ EDWARD J. MCNEIL, JR.
- ------------------------------------------
By: Edward J. McNeil, Jr., General Partner

/s/ FRANCES K. NICHOLSON
- ------------------------------------------
By: Frances K. Nicholson, General Partner

/s/ J. FRANK WARD
- ------------------------------------------
By: J. Frank Ward, General Partner

/s/ BRUCE K. WYLES
- ------------------------------------------
By: Bruce K. Wyles, General Partner
</TABLE>

<PAGE>

Exhibit 10.4

CONTRACT OF SALE
----------------

THIS CONTRACT OF SALE is made by and between ISLANDS BANCORP, a South
Carolina corporation hereinafter referred to as "Buyer", and HIRD ISLAND
INVESTMENTS, INC., hereinafter referred to as "Seller". The term "Buyer" shall
include any permitted assignee of Islands Bancorp hereunder. In good
consideration of the agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:

ARTICLE I

The Property
------------

1.1 Subject to the terms and provisions of this Contract, Seller
agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller,
the following property :

All that certain piece, parcel or lot of land situate, lying
and being on Lady's Island, Beaufort County, State of South
Carolina, containing 1.5+/- acres, and is more particularly
shown and described on that certain plat as Parcel 2, which is
attached hereto as Exhibit "A".

ARTICLE II

Purchase Price
--------------

2.1 Purchase Price: The purchase price for the property is ONE
--------------
MILLION ($1,000,000.00) DOLLARS.

2.2 Method of Payment: The purchase price shall be paid by Buyer
-----------------
in the following manner:

(a) Escrow Deposit: Buyer shall simultaneously with the execution
--------------
hereof pay to the Seller the sum of TWENTY-FIVE THOUSAND AND
NO /100 ($25,000.00) Dollars (the "Initial Payment") as a
deposit to be applied toward the purchase price of the
property. The Initial Payment shall be held in an interest
bearing account by Joab M. Dowling, Jr., attorney at law,
Beaufort, South Carolina.

(b) Balance of Purchase Price: The balance of the purchase price
-------------------------
(after credit for the Initial Payment) shall be paid at
closing (as hereinafter defined) by Buyer.

ARTICLE III

Title and Survey
----------------

3.1 Survey: If Buyer desires to do so, within thirty (30) days
------
from the date hereof, Buyer may obtain a current boundary survey of the
Property, prepared by a South Carolina Registered Land Surveyor.

3.2 Review of Title Abstract and Survey: Buyer shall have a review
-----------------------------------
period (the "Review Period") to start no later than December 5, 1999, and ending
twenty (20) days after the later to occur of (a) the date on which Buyer
receives its title abstract, and/or title binder, and (b) the date on which
Buyer receives its survey, in which to notify Seller of any objections Buyer has
to any matters shown or referred to in the title abstract and/or the title
insurance binder, or the survey, respectively. Such title abstract and/or the
title insurance binder shall be obtained by Buyer within twenty (20) days after
the date hereof. Any title encumbrances or exceptions which are set forth in the
title abstract and/ or the title insurance binder, or on the survey,
respectively, and to which Buyer does not object within the Review
<PAGE>

Period shall be deemed to be permitted exceptions to the status of Seller's
title (the Permitted Exceptions"). With regard to any title or survey items to
which a Buyer objects within the Review Period, Seller shall have a period of
fifteen (15) business days from the date of Buyer's notice of such objections,
in which to elect to cure or otherwise satisfy Buyer's objections. For example,
Seller may satisfy Buyer's objections title by providing a title insurance
binder issued by an ALTA title insurance company at standard rates subject only
to standard exceptions for Beaufort County, and to no other exceptions or
conditions reasonably unsatisfactory to Buyer. If Seller elects not to cure said
title objections, or the same are not satisfied to Buyer's satisfaction within
Seller's 15 day cure period, then Buyer may elect to terminate this Contract by
providing written notice thereof to Seller within three (3) business days after
the end of such cure period, and receive the return of the Initial Payment. If
the Contract is not so terminated, Buyer will have been deemed to have fully and
completely waived any said objections and accept the status of title and the
survey "as is". Buyer shall also have the right to notify Seller of any
objectionable title matters that appear of record subsequent to the date of
Buyer's title abstract and/or title insurance binder and on or prior or date of
Closing. In such event, Seller shall have the same 15 business day cure period
as set forth above, and Buyer shall have the same rights to terminate this
Contract as set forth above.

ARTICLE IV

Inspection, Termination and Waiver
----------------------------------

4.1 Due Diligence Period: For a period of sixty (60) days after
--------------------
the earlier of the date hereof and December 5, 1999(the "Due Diligence Period"),
Buyer shall have the right to conduct investigations, inspections and studies of
the Property and to satisfy the following contingencies, unless otherwise waived
by Buyer:

(a) Buyer has applied for all necessary preliminary permits and
approvals from Beaufort County, DHEC /OCRM, Lady's Island Fire
Department, all utility providers in connection with the
development of the property.

(b) Buyer has satisfied itself that public water and sewer is
available for service to the property.

(c) Buyer has satisfied itself that the property meets all local,
state and federal environmental regulations as evidenced by a
Phase I or Phase II Environmental Assessment, which Buyer may
obtain at its expense. If Buyer elects to obtain such
Environmental Assessment*, Buyer agrees to have such study or
studies prepared within eighty (30) days after the Execution
Date hereof, and Buyer agrees to provide Seller with a copy of
such studies, and Buyer's written confirmation of the
acceptability or unacceptability of such studies within eighty
(30) days after the receipt by Buyer of such studies.

* Note: This will be update only as Environmental Assessment was
recently completed for whole tract

(d) Buyer has obtained two or more (MAI) appraisals which indicate
a fair market value of the property at or above the Purchase
Price and said appraisals shall in all regards be acceptable
to any and all regulatory agencies involved in the chartering
process for Islands Community Bank, NA (Proposed).

(e) Buyer has applied for and obtained preliminary approval from
Beaufort County and the South Carolina Department of
Transportation, or any other governmental entity or agency
providing a curb cut for ingress and egress off of South
Carolina Highway 802 to the property.

4.2 Permitted Termination and Waiver: Should one or more of the
--------------------------------
above contingencies not be satisfied, Buyer may give written notice to Seller on
or before the expiration of the Due Diligence Period that this Contract will be
terminated fifteen (15) business days after such notice (unless Seller can
<PAGE>

persuade Buyer within such time period to rescind such notice), and the Initial
Payment shall be refunded to buyer upon such termination. If such notice is
given and not rescinded, neither party shall have any further rights or
obligations hereunder upon such termination, except Seller's obligation to
refund to Buyer the Initial Payment. Seller may however, be granted an extension
of time to satisfy any one or more of the above contingencies as may be agreed
upon by the parties to this agreement.

4.3 Inspection: Buyer and its employees and designated agents and
----------
consultants may, before closing or termination of this Contract, have access as
Seller's invitees to enter upon the Property to inspect, examine, and survey it
and to make test borings and soil borings tests, however, no trees or vegetation
shall be cut or removed other than brush necessary to clear for surveying or
testing on the property. Buyer shall at its expense, restore property to its
former condition in the event Buyer does not acquire the property. Buyer agrees
to indemnify, save and hold harmless Seller from and against all liens and for
any damages, or any death or injury to any person, occurring on the property and
from and against any other liability, cost of expense including attorneys fees
and court costs as a result of the activities or presence of Buyer or persons
acting on its behalf in the exercise of such inspection rights.

4.4 Cooperation: While this Contract is in effect, Seller and Buyer
-----------
agree to cooperate in good faith to achieve a closing of the sale and purchase
of the Property. Buyer agrees to keep the Seller fully informed of its efforts
to investigate the property and to otherwise perform this agreement. Seller
agrees to cooperate with Buyer in connection with obtaining any title insurance
binders and the preparation of any development plan applications submitted to
the County, State of Federal Government, and Seller agrees to provide the
necessary "consent" forms required by any governmental body or agency in
connection with such applications.

4.5 Wetland and Environmental Protection Matters: Seller warrants to
--------------------------------------------
Buyer that during all periods prior to and including the date of the closing
hereunder (a) no ponds or other wetlands on the Property have been altered,
filled or otherwise disturbed, and (b) no matter or materials have been stored
or buried on the Property that would be in contravention of any public health
law, whether by the U.S. Environmental Protection Agency or by the South
Carolina Department of Health and Environmental Control, and (c) no other
prohibited materials have been placed or stored on the Property. With respect to
such matters, Seller agrees at Seller's expense to remove them and to bring the
property into compliance with all appropriate laws and regulations prior to the
time of closing. In the event that Seller fails to do or accomplish such, then
Buyer may elect to rescind this Contract and to receive a refund of the Initial
Payment and any incremental payments made to Seller under Section 7.1 hereof.

ARTICLE V

Condition of the Property
-------------------------

5.1 Buyer hereby acknowledges its familiarity with the Property and
agrees that during the Due Diligence Period it will conduct and complete any and
all investigations, inspections, and studies considered necessary and prudent to
determine the condition of the Property, and to determine any approvals needed
from the appropriate governmental authorities for the development of the
Property. At closing Seller will convey good, marketable and insurable Fee
Simple title to the Property to Buyer "as is" without express or implied
warranties of any nature, except as contained in the Deed conveying the Property
to Buyer

5.2 Seller shall not remove any timber, dirt materials, or otherwise
affect the condition of the Property after the signing of this Contract. All
timber, dirt, minerals, etc./shall remain with the Property and be a part of the
Property, and be transferred to the Buyer unless agreed to in writing by both
Parties. Seller shall not bring any trash, refuse, debris, medical or other
hazardous waste, or other improper materials upon the Property. In the event any
condemnation proceedings is brought by any governmental authority, agency,
utility, etc. prior to the closing, then Buyer may elect to rescind this
Contract and receive a refund of the Initial Payment and any incremental
payments made to Seller under Section 7.1 hereof.
<PAGE>

ARTICLE VI

Conditions to Closing
---------------------

6.1 In addition to any other conditions set forth in this
Contract, Buyer's obligation to purchase the Property at the closing shall be
subject to the fulfillment of each of the following conditions, it being
understood that Buyer may, at its election, waive in whole or in part, any or
all of said conditions:

(a) Seller shall have (i) cured or otherwise addressed to Buyer's
satisfaction any and all title and survey objections as to
which Buyer has provided proper notification to Seller
pursuant to section 3.2 hereof; (ii) satisfied any contingency
as to which Seller is obligated to satisfy under Article IV
hereunder; and (iii) compiled with all its other covenants and
obligations under this Contract and not be in default
hereunder.

(b) Buyer shall have satisfied any objections to the purchase of
the Property which have been raised by the Office of the
Comptroller of the Currency, or any other governmental agency
which may be involved with the chartering and operation of a
bank.

(c) The minimum offering conditions for the release of offering
proceeds to Islands Bancorp from the escrow agent in the
initial public offering by Islands Bancorp of its common stock
shall have been satisfied and such proceeds shall have been
delivered to Islands Bancorp.

(d) No suit, action or other proceeding shall have been instituted
before any court or administrative agency which could result
in an order or decree enjoining the consummation of the
transaction contemplated by this Contract or the divestment of
any portion of the Property, other than any such suit, action
or other proceeding instituted as a result of the sole act of
Buyer.

6.2 The Parties hereto agree that in the event Islands Bancorp
shall determine at any time prior to the end of the Due Diligence Period to
terminate its initial public offering of common stock, Buyer may terminate this
Contract by providing written notice thereof to Seller, whereupon the Initial
Payment shall be promptly refunded to Buyer.

ARTICLE VII

Closing
-------

7.1 Time and Place of Closing: If all pre-closing contingencies
--------------------------
and conditions have been satisfied or waived by Buyer, the Closing of this
transaction shall take place at the office of the Buyer's attorney on February
5, 2000. If such contingencies or conditions have not been satisfied within such
time period, Buyer shall have the right to extend the Due Diligence Period and
to extend the time for Closing for thirty (30) day increments up to six (6)
months for a consideration of Ten Thousand ($10,000.00) Dollars for each
incremental thirty (30) day extension. The consideration paid for any
incremental extension hereunder shall be advanced directly to Seller and shall
not be applied toward the purchase price of the Property. Notwithstanding the
foregoing, no incremental payment shall be due from Buyer with respect to any
extension of the Due Diligence Period or extension of the time for Closing
resulting from the failure of Seller to satisfy its obligations with respect to
any pre-closing contingency or condition. If it is necessary to extend the
Closing for any reason other than the failure of Seller to satisfy its
obligations with respect to any pre-closing contingency or condition, then the
Initial Payment shall be advanced from the escrow account to Seller whereupon
such amount shall become non-refundable to Buyer but shall continue to be
applied to the purchase price for the Property.

7.2 Events of Closing: At the Closing:
-----------------

(a) Seller shall deliver to Buyer the following:
<PAGE>

(i) A General Warranty Deed (in form and substance
customarily used in Beaufort County, South Carolina)
duly executed and acknowledged by Seller conveying to
Buyer fee simple title to the land which is the
subject of this agreement free and clear of any lien,
encumbrances or exception other than the Permitted
Exceptions

(ii) A Seller's Affidavit attesting to the absence unless
otherwise provided for herein or for settlement at
Closing, of any financing statements, claims of liens
or potential lienors known to Seller and further
attesting that (A) there have been no improvements to
the Property for ninety (90) days immediately
preceding the Closing Date for which payment in full
has not been made; (B) that to the knowledge of
Seller the Property has never been used for the
storage or disposal of hazardous wastes; and (C) that
since the date of this Contract, Seller has not
caused to be placed against the Property and has no
knowledge of the placement against the Property since
such date of any easements, (except those to
accommodate cross-easements for improved traffic
flow), restrictions, leases, tenancies, encumbrances
or rights affecting the Property, and has not taken
any other action, either directly or indirectly,
which would otherwise adversely affect title to the
Property;

(iii) a non-foreign affidavit, and

(iv) possession of the Property.

(b) Buyer shall deliver to Seller the consideration required pursuant
to this agreement.

7.3 Expenses: Buyer shall pay the cost of the title abstract, the
---------
cost of any title insurance, Buyer's share of the prorations, the fee to record
the Deed, and the Buyer's own attorney's fees. Except as otherwise provided in
this Section, all other expenses hereunder shall be paid by the party incurring
such expenses. Seller shall pay the cost of the statutory recording fee
(formerly called deed stamps), and Seller's own attorney's fees. Seller shall
pay Seller's proportionate share of the prorations as set forth below.

7.4 Prorations: Real estate taxes shall be prorated to the day of
-----------
Closing based upon the number of actual days involved. Seller shall be
responsible for all such taxes for any period prior to the Closing. In
connection with the proration of the real estate taxes, if actual tax figures
for the year of Closing are not available on the Closing Date, an estimated
proration of taxes shall be made using tax figures from the preceding year;
provided, however that when actual taxes for the year of Closing become
available, a corrected proration required hereunder, if such taxes for the year
of Closing increase over those for the preceding year, Seller shall pay to Buyer
a pro rata portion of such increase, computed to the Closing Date, and
conversely, if such taxes for the year of Closing decrease from those of the
preceding year, Buyer shall have to pay to Seller a pro rata portion of such
decrease, computed to the Closing Date, any such payment to be made within (15)
days after notification by either party that such adjustment is necessary.

ARTICLE VIII

Default and Remedies
--------------------

8.1 Default by Seller: Seller shall be in default hereunder if
------------------
Seller shall fail to meet, comply with or perform any covenant, agreement, or
obligation required, within the time limits and in the manner required in this
Contract, for any reason other than a Permitted Termination or a default by
Buyer. Upon the failure of Seller to comply with the terms hereof within the
stipulated time, and after receipt of notice of said default with a ten (10) day
right to cure, it is understood and agreed by and between the parties hereto
that Buyer pursue any and all rights and remedies available at law or in equity
against Seller.
<PAGE>

8.2 Default by Buyer: Buyer shall be in default hereunder if Buyer
-----------------
shall fail to deliver at the Closing the consideration required by Section 2.1
(b) hereof, for any reason other than a default by Seller hereunder or a
Permitted Termination. Upon the failure of Buyer to comply with the terms herein
within the stipulated time, and after receipt of notice of said default with a
ten (10) day right to cure, it is understood and agreed by and between the
parties hereto that Seller may pursue any and all rights and remedies available
at law or in equity against Buyer.

8.3 Attorneys' Fees: If it is necessary for either the Buyer or
----------------
Seller to employ an attorney to enforce its rights pursuant to this Contract
because of the default of the other party, the defaulting party shall reimburse
the non-defaulting party for reasonable attorneys' fees incurred at trial or on
appeal.

ARTICLE IX

Brokerage Commission
--------------------

Both Seller and Buyer represent to one another that neither has engaged
the services of a broker, nor is any commission or fee due from Buyer or Seller
on account of the sale of the Property. Each party agrees to indemnify the other
party and to hold the other party harmless from any loss, liability, damage,
cost or expense (including, without limitation reasonable attorneys' fees
incurred in negotiation, at trial or on appeal) paid or incurred by reason of
any said breach of the representation made in this Article.

ARTICLE X

Miscellaneous
-------------

10.1 Notices: All notices, demands, requests and other
communications required or permitted hereunder shall be in writing, and shall be
deemed to be delivered and received upon the earlier or occur of actual receipt,
or regardless of whether actually received (except where receipt is specified in
this Contract), deposited in a regularly maintained receptacle for the United
States mail, registered or certified, return receipt requested, postage fully
prepaid, addressed to the address as such party may have specified theretofore
by notice delivered in accordance with this Article and actually received by the
addressee:

As to SELLER: Veronica Clardy
c/o Renaissance Marketing Group, LLC
500 Carteret Street, Suite B
Beaufort, South Carolina 29902

As to BUYER Martin Goodman, Chairman
Islands Bancorp
500-A Carteret Street
Beaufort, South Carolina 29902

10.2 Survival: The warranties, representations and agreements
---------
contained herein or arising out of the sale of the Property by Seller to Buyer
shall survive the Closing hereof and shall not be merged into the documents of
conveyance.

10.3 Integration; Modification; Waiver: This Contract constitutes
----------------------------------
the complete and final expression of the agreement of the parties relating to
the Property, and supersedes all previous contracts, agreements, and
understandings of the parties, either oral or written, relating to the Property.
This Contract cannot be modified except by an instrument in writing (referring
specifically to this Contract) executed by the party against whom enforcement of
the modification is sought.

10.4 Counterpart; Execution: This Contract may be executed in
-----------------------
several counterparts, each of which shall be fully effective as an original and
all of which together shall constitute one and the same instrument.
<PAGE>

10.5 Headings; Construction: The headings which have been used
-----------------------
throughout this contract have been inserted for convenience of reference only
and do not constitute matter to be construed in interpreting this Contract.
Words of any gender used in this Contract shall be construed to include any
other gender and words in the singular number shall be held to include the
plural, and vice versa, unless the context requires otherwise. The words
"herein", "hereunder", and other similar compounds of the word "here" when used
in this Contract refer to the entire Contract and not to any particular
provision or section. If the last day of any time period stated herein shall
fall on a Saturday, Sunday, legal or banking holiday, then the duration of such
time period shall be extended so that it shall end on the next succeeding day
which is not a Saturday, Sunday, legal or banking holiday. The term "business
day" shall mean any day other than a Saturday, Sunday, legal or banking holiday.

10.6 Invalid Provision: If any one or more of the provisions of
------------------
this Contract, or the applicability of any such provision to a specified
situation, shall be held invalid or unenforceable, such provision shall be
modified to the minimum extent necessary to make it or its application valid and
enforceable, and the validity and enforceability of all other provisions of this
Contract and all other applications of any such provision shall not be affected
thereby.

10.7 Further Acts: In Addition to the acts recited in this Contract
-------------
to be performed by Seller and Buyer, Seller and Buyer agree to perform at the
Closing or after the Closing any and all such further acts as may be reasonably
necessary to consummate the transactions contemplated hereby.

10.8 Date of Contract: The date of this Contract shall for all
-----------------
purposes be the date of the signature of the last of the parties to sign this
Contract (the "Execution Date"), or on December 5, 1999, whichever is earlier.

10.9 Assignment of Contract: This Contract may not be assigned by
-----------------------
either party hereto without the prior written consent of the other party;
provided, however, that the parties hereto agree that this Contract may be
assigned at any time by Islands Bancorp to Islands Community Bank, N.A.
(Proposed).

EXECUTED BY BUYER ON: EXECUTED BY SELLER ON:

December 5, 1999 December 5, 1999

ISLANDS BANCORP HIRD ISLAND INVESTMENTS, INC

By: /s/ D. MARTIN GOODMAN By: /s/ VERONICA C. CLARDY, PRES.
--------------------- -----------------------------

<PAGE>

Exhibit No. 10.5

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this "Agreement") is entered into and effective
as of the 23RD Day of November, 1999, by and between Islands Bancorp, a South
Carolina corporation (the "Company"), and The Bankers Bank (the "Escrow Agent").

WITNESSETH:
----------

WHEREAS, the Company proposes to offer and sell (the "Offering") up to
1,000,000 shares of Common Stock, no par value per share (the "Shares"), to
investors at $10.00 per Share pursuant to a registered public offering; and

WHEREAS, the Company desires to establish an escrow for funds forwarded
by subscribers for Shares, and the Escrow Agent is willing to serve as Escrow
Agent upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

1. Deposit with Escrow Agent.
-------------------------

(a) The Escrow Agent agrees that, in its capacity as escrow agent,
it will from time to time accept from the Company and from any selling agent
engaged by the Company to assist in the sale of the Shares and so identified in
writing by the Company to the Escrow Agent, subscription funds for the Shares
(the "Escrowed Funds") in the form of checks received by the Company or the
Selling Agent from subscribers. All checks shall be made payable to the Escrow
Agent. If any check delivered by the Company or the Selling Agent does not clear
normal banking channels in due course, the Escrow Agent will promptly notify the
Company. Any check which does not clear normal banking channels and is returned
by the drawer's bank to Escrow Agent will be promptly turned over to the Company
along with all other subscription documents relating to such check. Any check
received that is made payable to a party other than the Escrow Agent shall be
returned to the Company for return to the proper party. The Company in its sole
and absolute discretion may reject any subscription for shares for any reason
and upon such rejection it shall notify and instruct the Escrow Agent in writing
to return the Escrowed Funds by check made payable to the subscriber. If the
Company rejects or cancels any subscription for any reason the Company will
retain any interest earned on the Escrowed Funds to help defray organizational
costs.

(b) Subscription agreements for the Shares shall be reviewed for
accuracy by the Company or the Selling Agent, as applicable, and, immediately
thereafter, the Company or the Selling Agent, as applicable, shall deliver to
the Escrow Agent the following information: (i) the name and address of the
subscriber; (ii) the number of Shares subscribed for by such subscriber; (iii)
the subscription price paid by such subscriber; (iv) the subscriber's tax
identification number certified by such subscriber; and (v) a copy of the
subscription agreement.

2. Investment of Escrowed Funds. Upon collection of each check by
----------------------------
the Escrow Agent, the Escrow Agent shall invest the funds in deposit accounts or
certificates of deposit which are fully insured by the Federal Deposit Insurance
Corporation or another agency of the United States government, short-term
securities issued or fully guaranteed by the United States government, federal
funds, or such other investments as the Escrow Agent and the Company shall
agree. The Company shall provide the Escrow Agent with instructions from time to
time concerning in which of the specific investment instruments described above
the Escrowed Funds shall be invested, and the Escrow Agent shall adhere to such
instructions. Unless and until otherwise instructed by the Company, the Escrow
Agent shall by means of a "Sweep" or other automatic investment program invest
the Escrowed Funds

<PAGE>

in blocks of $10,000 in federal funds. Interest and other earnings shall start
accruing on such funds as soon as such funds would be deemed to be available for
access under applicable banking laws and pursuant to the Escrow Agent's own
banking policies.

3. Distribution of Escrowed Funds. The Escrow Agent shall
-------------------------------
distribute the Escrowed Funds in the amounts, at the times, and upon the
conditions hereinafter set forth in this Agreement.

(a) If at any time on or prior to the expiration date of the
offering as described in the prospectus relating to the offering, (the "Closing
Date"), (i) the Escrow Agent has certified to the Company in writing that the
Escrow Agent has received at least $6,300,000 in Escrowed Funds, and (ii) the
Escrow Agent has received a certificate from the President or the Chairman of
the Board of the Company that all other conditions to the release of funds as
described in the Company's Registration Statement filed with the Securities and
Exchange Commission pertaining to the public offering have been met, then the
Escrow Agent shall deliver the Escrowed Funds to the Company to the extent such
Escrowed Funds are collected funds. If any portion of the Escrowed Funds are not
collected funds, then the Escrow Agent shall notify the Company of such facts
and shall distribute such funds to the Company only after such funds become
collected funds. For purposes of this Agreement, "collected funds" shall mean
all funds received by the Escrow Agent which have cleared normal banking
channels.

(b) If the Escrowed Funds do not, on or prior to the Closing Date,
become deliverable to the Company based on failure to meet the conditions
described in Paragraph 3(a), or if the Company terminates the offering at any
time prior to the Closing Date and delivers written notice to the Escrow Agent
of such termination (the "Termination Notice"), the Escrow Agent shall return
the Escrowed Funds which are collected funds as directed in writing by the
Company to the respective subscribers in amounts equal to the subscription
amount theretofore paid by each of them. All uncleared checks representing
Escrowed Funds which are not collected funds as of the Initial Closing Date
shall be collected by the Escrow Agent, and together with all related
subscription documents thereof shall be delivered to the Company by the Escrow
Agent, unless the Escrow Agent is otherwise specifically directed in writing by
the Company.

4. Distribution of Interest. Any interest earned on the Escrowed
------------------------
Funds shall be retained by the Company.

5. Fee of Escrow Agent. The escrow account will accrue a service
charge of $15.00 per month. In addition, a $20.00 per check fee will be charged
if the escrow account has to be refunded due to a failure to complete the
subscription. All of these fees are payable upon the release of the Escrowed
Funds, and the Escrow Agent is hereby authorized to deduct such fees from the
Escrowed Funds prior to any release thereof pursuant to Section 3 hereof.

6. Liability of Escrow Agent.
-------------------------

(a) In performing any of its duties under the Agreement, or upon the
claimed failure to perform its duties hereunder, the Escrow Agent shall not be
liable to anyone for any damages, losses or expenses which it may incur as a
result of the Escrow Agent so acting, or failing to act; provided, however, the
Escrow Agent shall be liable for damages arising out of its willful default or
misconduct or its gross negligence under this Agreement. Accordingly, the Escrow
Agent shall not incur any such liability with respect to (i) any action taken or
omitted to be taken in good faith upon advice of its counsel or counsel for the
Company which is given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder ; or (ii) any action taken or
omitted to be taken in reliance upon any document, including any written notice
or instructions provided for in this Escrow Agreement, not only as to its due
execution and to the validity and effectiveness of its provisions but also as to
the truth and accuracy of any information contained therein, if the Escrow Agent
shall in good faith believe such document to be genuine, to have been signed or
presented by a proper person or persons, and to conform with the provisions of
this Agreement.

2
<PAGE>

(b) The Company agrees to indemnify and hold harmless the Escrow
Agent against any and all losses, claims, damages, liabilities and expenses,
including, without limitation, reasonable costs of investigation and counsel
fees and disbursements which may be imposed by the Escrow Agent or incurred by
it in connection with its acceptance of this appointment as Escrow Agent
hereunder or the performance of its duties hereunder, including, without
limitation, any litigation arising from this Escrow Agreement or involving the
subject matter thereof; except, that if the Escrow Agent shall be found guilty
of willful misconduct or gross negligence under this Agreement, then, in that
event, the Escrow agent shall bear all such losses, claims, damages and
expenses.

(c) If a dispute ensues between any of the parties hereto which,
in the opinion of the Escrow Agent, is sufficient to justify its doing so, the
Escrow Agent shall retain legal counsel of its choice as it reasonably may deem
necessary to advise it concerning its obligations hereunder and to represent it
in any litigation to which it may be a part by reason of this Agreement. The
Escrow Agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction all money or property in its hands under the
terms of this Agreement, and to file such legal proceedings as it deems
appropriate, and shall thereupon by discharged from all further duties under
this Agreement. Any such legal action may be brought in any such court as the
Escrow Agent shall determine to have jurisdiction thereof. In connection with
such dispute, the Company shall indemnify the Escrow Agent against its court
costs and reasonable attorney's fees incurred.

(d) The Escrow Agent may resign at any time upon giving thirty
(30) days written notice to the Company. If a successor escrow agent is not
appointed by Company within thirty (30) days after notice of resignation, the
Escrow Agent may petition any court of competent jurisdiction to name a
successor escrow agent and the Escrow Agent herein shall be fully relieved of
all liability under this Agreement to any and all parties upon the transfer of
the Escrowed Funds and all related documentation thereto, including appropriate
information to assist the successor escrow agent with the reporting of earnings
of the Escrowed Funds to the appropriate state and federal agencies in
accordance with the applicable state and federal income tax laws, to the
successor escrow agent designated by the Company appointed by the court.

7. Appointment of Successor. The Company may, upon the delivery
------------------------
of thirty (30) days written notice appointing a successor escrow agent to the
Escrow Agent, terminate the services of the Escrow Agent hereunder. In the event
of such termination, the Escrow Agent shall immediately deliver to the successor
escrow agent selected by the Company, all documentation and Escrowed Funds
including interest earnings thereon in its possession, less any fees and
expenses due to the Escrow Agent or required to be paid by the Escrow Agent to a
third party pursuant to this Agreement.

8. Notice. All notices, requests, demands and other
------
communications or deliveries required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given three days after
having been deposited for mailing if sent by registered mail, or certified mail
return receipt requested, or delivery by courier, to the respective addresses
set forth below:

If to the subscribers for Shares: To their respective addresses as specified
in their Subscription Agreements.

The Company: Islands Bancorp
500 Carteret Street
Suite A
Beaufort, SC 29902
Attention: William B. Gossett
President and Chief Executive
Officer

With a copy to: William S. McMaster
Nexsen Pruet Jacobs & Pollard, LLP
1441 Main Street, Suite 1500

3
<PAGE>

Columbia, SC 29201

The Escrow Agent: The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, GA 30339-4098
Attention: Mr. William R. Burkett
Senior Vice President

9. Representations of the Company. The Company hereby
------------------------------
acknowledges that the status of the Escrow Agent with respect to the offering of
the Shares is that of agent only for the limited purposes herein set forth, and
hereby agrees it will not represent or imply that the Escrow Agent, by serving
as the Escrow Agent hereunder or otherwise, has investigated the desirability or
advisability in an investment in the Shares, or has approved, endorsed or passed
upon the merits of the Shares, nor shall the Company use the name of the Escrow
Agent in any manner whatsoever in connection with the offer or sale of the
Shares, other than by acknowledgment that it has agreed to serve as Escrow Agent
for the limited purposes herein set forth.

10. General.
-------

(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.

(b) The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

(c) This Agreement sets forth the entire agreement and understanding of
the parties with regard to this escrow transaction and supersedes all prior
agreements, arrangements and understandings relating to the subject matter
hereof.

(d) This Agreement may be amended, modified, superseded or canceled,
and any of the terms or conditions hereof may be waived, only by a written
instrument executed by each party hereto or, in the case of a waiver, by the
party waiving compliance. The failure of any part at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. No waiver in any one or more instances by
any part of any condition, or of the breach of any term contained in this
Agreement, whether by conduct or otherwise, shall be deemed to be, or construed
as, a further or continuing waiver of any such condition or breach, or a waiver
of any other condition or of the breach of any other terms of this Agreement.

(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

(f) This Agreement shall inure to the benefit of the parties hereto and
their respective administrators, successors and assigns. The Escrow Agent shall
be bound only by the terms of this Escrow Agreement and shall not be bound by or
incur any liability with respect to any other agreement or understanding between
the parties except as herein expressly provided. The Escrow Agent shall not have
any duties hereunder except those specifically set forth herein.

(g) No interest in any part to this Agreement shall be assignable in
the absence of a written agreement by and between all the parties to this
Agreement, executed with the same formalities as this original Agreement.

4
<PAGE>

IN WITNESS WHEREOF, the parties have duly executed this Agreement as
the date first written above.

COMPANY: ESCROW AGENT:

ISLANDS BANCORP THE BANKERS BANK

By: /s/ WILLIAM B. GOSSETT By: /s/ WILLIAM R. BURKETT
--------------------------------------- -----------------------
William B. Gossett William R. Burkett
President and Chief Executive Officer Senior Vice President

<PAGE>

Exhibit 10.6

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ISLAND BANCORP GrandSouth Bank TAX ID NO.57-1082388
P. O. Box 1239 Loan Number 409889300
500 CARTERET ST. SUITE A Simpsonville, SC 29681 ------------
Date 09/07/99
BEAUFORT, SC 29902-0000 --------------------
Maturity Date 12/07/99
----------
Loan Amount $ 90,000.00
------------
Renewal Of
--------------

BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
"I" includes each borrower above, "You" means the lender, its
joint and severally. successors and assigns.
- --------------------------------------------------------------------------------
</TABLE>

For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of Ninety Thousand and 00/100 Dollars $ 90,000.00
-------------------------- -----------
[ ] Single Advance: I will receive all of this principal sum on_______________
No additional advances are contemplated under this note.

[x] Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On ___________ I will receive the
amount of $ 0.00 and future principal advances are contemplated.
-----
Conditions: The conditions for future advances are_________________________
___________________________________________________________________________
___________________________________________________________________________

[X] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on 12/7/99.
-------

[ ] Closed End Credit: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).

INTEREST: I agree to pay interest on the outstanding principal balance from
9/7/99 at the rate of 8.250 % per year until PAID IN FULL.
------ ------- ------------
[X] Variable Rate: This rate may then change as stated below.

[X] Index Rate: The future rate will be FLOATING AT the following index
-----------
rate: GRANDSOUTH BANK PRIME RATE AS ESTABLISHED FROM TIME TO TIME. THE
----------------------------------------------------------------
PRIME RATE IS NOT NECESSARILY THE LOWEST RATE OFFERED TO COMMERCIAL
----------------------------------------------------------------------
BORROWERS.
---------
----------------------------------------------------------------------

[ ] No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.

[X] Frequency and Timing: The rate on this note may change as often as
DAILY .
---------------------------------------------------------------------
A change in the interest rate will take effect SAME DAY AS
----------------------
INDEX RATE CHANGES .
---------------------------------------------------------------------

[ ] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than ______________% or less than
_____________%. The rate may not change more than ________% each____.

Effect of Variable Rate: A change in the interest rate will have the
following effect

[ ] The amount of each scheduled payment will change.

[X] The amount of the final payment will change.

[ ] ______________________________________________________________________

ACCCRUAL METHOD: Interest will be calculated on a Actual/365 basis.
----------
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:

[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).

[X] at a rate equal to 16% .
--------------------------------------------------
[X] LATE CHARGE: If a payment is not made within 10 days after it is due, I
--
agree to pay a late charge of 5% of the payment amount or $50.00 whichever
--------------------------------------------
is greater.
----------

[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [] are [] are not included in the principal amount above:
_____________________________________________________________________

PAYMENTS: I agree to pay this note as follows:

[ ] Interest: I agree to pay accrued interest at maturity (12/7/99)
---------------------
_______________________________________________________________________

[X] Principal: I agree to pay the principal at maturity (12/7/99)
-------------------------------
_______________________________________________________________________

[ ] Installments: I agree to pay this note in _________ payments. The first
payment will be in the amount if $ _________ and will be due _____________.
A payment
of $ _______ will be due __________________ thereafter. The final payment
of the entire unpaid balance of principal and interest will be due _______.

ADDITIONAL TERMS:

- --------------------------------------------------------------------------------
[X] SECURITY: This note is separately secured by (describe separate document by
type and date):
UNSECURED

(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Larry D. Bailey

Senior Vice President
- --------------------------------------------------------------------------------

SOUTH CAROLINA - UNIVERSAL NOTE
(C)1984, 1991 Bankers Systems, Inc., St. Cloud, MN (1-800-397-2341) Form UN-SC
1/22/96

PURPOSE: The purpose of this loan is SHORT TERM STARTUP FUNDING
-----------------------------------
.
- -----------------------------------------------------------------------
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I
have received a copy on today's date.

ISLANDS BANCORP 57-1082388

Signature for Lender
/s/ D. Martin Goodman 09/07/1999
- --------------------------------------------------------------------------------
BY: D. Martin Goodman - Chairman

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
(page 1 of 2)
<PAGE>

DEFINITIONS: As used on page 1, "[X]"means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note together referred to as "us"). "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of South Carolina will govern this note.
Any term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any provision
of this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan you and I expect that
you will make more than one advance of principal. If this is closed end credit,
repaying a part of the principal will not entitle me to additional credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums) then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off. REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by
real estate or a residence that is personal property, the existence of a default
and your remedies for such a default will be determined by applicable law, by
the terms of any separate instrument creating the security interest and, to the
extent not prohibited by law and not contrary to the terms of the separate
security instrument, by the "Default" and "Remedies" paragraphs herein.

DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you, (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authomy; (9) I change my name or assume an additional name without first
notifying you before making such a change; (10) I fail to plant cultivate and
harvest crops in due season if I am a producer of crops, (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "SET-OFF" paragraph
herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
iater use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
even or any other or similar type of cost if I am in default. In addition, if
you hire an attorney to collect this note, I also agree to pay any fee you incur
with such attorney plus court costs (except where prohibited by law). To the
extent permitted by the United States Bankruptcy Code, I also agree to pay the
reasonable attorney's fees and costs you incur to collect this debt as awarded
by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval. You may, without notice, fail to perfect your security
interest in, impair, or release any security and I will still be obligated to
pay this loan.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). l
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.

- --------------------------------------------------------------------------------
WAIVER OF HEARING PRIOR TO IMMEDIATE POSSESSION: If this loan is for a business
purpose I agree to waive the right to five days' notice and a preseizure hearing
prior to seizure of any personal property which may secure this loan.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH:
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
/ / $ $ $ % $ / /
- -------------- ---------------- -------------- ---------------- ---------------- --------- ---------------- -----------
(Page 2 of 2)
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
ISLANDS BANCORP GrandSouth Bank TAX ID No. 57-1082388
P.O. Box 1239
500 CARTERET ST. SUITE A Simpsonville, SC 29681 Loan Number 409889300
---------
BEAUFORT, SC 29902 Date 12/07/1999
----------
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Maturity Date 03/07/2000
----------
"I" includes each borrower above, "You" means the lender, its Loan Amount $90,000.00
----------
joint and severally successors and assigns. Renewal of 409889300
---------
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of Ninety Thousand and 00/100 Dollars $90,000.00
---------------------------------------------
[ ] Single Advance: I will receive all of this principal sum on __________ .
No additional advances are contemplated under this note.

[X] Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On __________ I will receive the
amount of $0.00 and future principal advances are contemplated.
-----
Conditions: The conditions for future advances are _______________________
___________________________________________________________________________
______________________________________________
[X] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time.

This feature is subject to all other conditions and expires on 03/07/2000.
----------
[ ] Closed End Credit: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).

INTEREST: I agree to pay interest on the outstanding principal balance from
12/07/99 at the rate of 8.500% per year until PAID IN FULL.
-------- ------ -------------

[X] Variable Rate: This rate may then change as stated below.

[X] Index Rate: The future rate will be FLOATING AT the following index
-------- --
rate. GrandSouth Bank prime rate. A base rate established from time to
----------------------------------------------------------------
time by GrandSouth Bank. The prime rate may not be lowest rate offered
----------------------------------------------------------------------
to commercial customers.
------------------------

[ ] No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.

[X] Frequency and Timing: The rate on this note may change as often as
DAILY.
A change in the interest rate will take effect SAME DAY AS
-----------
INDEX RATE CHANGES.
-------------------

[ ] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than _________% each _________________.

Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:

[ ] The amount of each scheduled payment will change.

[X] The amount of the final payment will change.

[ ] ____________________________________________________________________.

ACCRUAL METHOD: Interest will be calculated on a Actual/365 basis.
----------
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid, as stated below:

[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).

[X] at a rate equal to 16% .
---------------------
LATE CHARGE: If a payment is not made within 10 days after it is due, I agree to
--
pay a late charge of 5% of the payment amount or $50.00 whichever is
-----------------------------------------------
greater.
--------
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount
above:______________________________________________________________________.

PAYMENTS: I agree to pay this note as follows:

[X] Interest: I agree to pay accrued interest at maturity (03/07/2000)
------------------------- .
--------------------------------------------------------------------------
[X] Principal: I agree to pay the principal at maturity (03/07/2000)
------------------------- .
--------------------------------------------------------------------------
[ ] Installments: I agree to pay this note in _______ payments. The first
payment will be in the amount of $ ___________ and will be due __________.
A payment of $ ___________ will be due ____________ thereafter. The final
payment of the entire unpaid balance of principal and interest will be
due _____________________.

ADDITIONAL TERMS:

- --------------------------------------------------------------------------------
[X] SECURITY: This note is separately secured by (describe separate document by
type and date):
UNSECURED

(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note).
- --------------------------------------------------------------------------------

- ---------------------------------------------------------
Larry D. Bailey

SENIOR VICE PRESIDENT
- ---------------------------------------------------------

SOUTH CAROLINA - UNIVERSAL NOTE

PURPOSE: The purpose of this loan is RENEWAL OF SHORT TERM START UP FUNDING.
---------------------------------------
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I
have received a copy on today's date.

ISLANDS BANCORP 57-1082388

12/07/99 Signature for Lender
- -------------------------------------------------------
BY: D. Martin Goodman -Chairman

- --------------------------------------------------------------------------------

8
<PAGE>

- --------------------------------------------------------------------------------
Exhibit 10.6
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
MARTHA B. FENDER GrandSouth Bank ISLANDS BANCORP
- ---------------- ------------------------
- ---------------- P. O. Box 1239 ------------------------
Simpsonville, SC 29681 500 CARTERET ST. SUITE A
- ---------------- ------------------------
BEAUFORT, SC 29902-0000
- ----------------- ------------------------

GUARANTOR'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS BORROWER'S NAME AND ADDRESS
"I" includes each guarantor above, "You" means the lender, its "Borrower" means each person
joint and severally. successors and assigns. listed above.
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

GUARANTY
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce you, at your option, to make loans or engage
in any other transactions with borrower from time to time, I absolutely and
unconditionally guarantee the full payment of the following debts (as herein
defined) when due (whether at maturity or upon acceleration):

PRESENT DEBT GUARANTY
[X] I absolutely and unconditionally guarantee to you the payment and
performance of the following described debt (including all renewals,
extensions, refinancing and modifications) of the borrower: PARTIAL FUNDING
---------------
FOR BANK STARTUP COSTS .
---------------------------------------------------------------------------

PRESENT AND FUTURE DEBT GUARANTY
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description, that the
borrower may now or at any time in the future owe you, including, but not
limited to, the following described debt(s):______________________________
__________________________________________________________________________
__________________________________________________________________________.

[X] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description, that the
borrower may now or at any time in the future owe you, up to the principal
amount of $ 90,000.00 plus accrued interest, attorneys' fees and collection
costs referable thereto (when permitted by law), and all other amounts
agreed to be paid under all agreements evidencing the debt and securing the
payment of the debt. You may, without notice, apply this guaranty to such
debts of the borrower as you may select from time to time.

DEFINITIONS - As used in this agreement, the terms "I," "we" and "my" mean all
persons signing this guaranty agreement, individually and jointly, and their
heirs, executors, administrators and assigns.
The term "debt" means all debts, liabilities, and obligations of the
borrower (including, but not limited to, all amounts agreed to be paid under the
terms of any notes or agreements securing the payment of any debt, liability or
obligation, overdrafts, letters of credit, guaranties, advances for taxes,
insurance, repairs and storage, and all extensions, renewals, refinancings and
modifications of these debts) whether now existing or created or incurred in the
future, due or to become due, or absolute or contingent, except for any
obligations incurred by borrower after the date of this guaranty for which the
borrower meets your standard of creditworthiness based on the borrower's own
assets and income without the addition of a guaranty or for which, although you
require a guaranty, the borrower chooses someone other than me to guaranty the
obligation.
APPLICABLE LAW - This agreement is governed by the law of the state in which you
are located. Any term of this agreement that does not comply with applicable law
will not be effective if that law does not expressly or impliedly permit
variations by agreement. If any part of this agreement cannot be enforced
according to its terms, this fact will not affect the balance of this agreement.
REVOCATION - I agree that this is an absolute and continuing guaranty. If this
guaranty is limited to the payment of a specific debt of the borrower described
above, this agreement cannot be revoked and will remain in effect until the debt
is paid in full. If this guaranty covers both the borrower's present and future
debts, I agree that this guaranty will remain binding on me, whether or not
there are any debts outstanding, until you have actually received written notice
of my revocation or written notice of my death or incompetence.
Notice of revocation or notice of my death or incompetence will not affect
my obligations under this guaranty with respect to any debts incurred by or for
which you have made a commitment to borrower before you actually receive such
notice, and all renewals, extensions, refinancings, and modifications of such
debts. I agree that if any other person signing this agreement provides a notice
of revocation to you, I will still be obligated under this agreement until I
provide a notice of revocation to you. If any other person signing this
agreement dies or is declared incompetent, such fact will not affect my
obligations under this agreement.
OBLIGATIONS INDEPENDENT - I agree that I am obligated to pay according to the
terms of this guaranty even if any other person has agreed to pay the borrower's
debt. My obligation to pay according to the terms of this guaranty shall not be
affected by the illegality, invalidity or unenforceability of any notes or
agreements evidencing the debt, the violation of any applicable usury laws,
forgery, or any other circumstances which make the indebtedness unenforceable
against the borrower.
I will remain obligated to pay on this guaranty even if any other person
who is obligated to pay the borrower's debt, including the borrower, has such
obligation discharged in bankruptcy, foreclosure, or otherwise discharged by
law. In such situations, my obligation shall include post-bankruptcy petition
interest and attorney's fees and any other amounts which borrower is discharged
from paying or which do not otherwise accrue to borrower's indebtedness due to
borrower's discharge. I will also be obligated to pay you, to the fullest extent
permitted by law, any deficiency remaining after foreclosure of any mortgage or
security interest securing borrower's debt, whether or not the liability of
borrower or any other obligor for such deficiency is discharged by statute or
judicial decision. If any payments by borrower to you are thereafter set aside,
recovered, rescinded, in whole or in part, are settled by you at your
discretion, or are in any way recouped or recovered from you for any reason
(including, without limitation, the bankruptcy, insolvency, or reorganization of
borrower or any other obligor), then I am obligated to reimburse or indemnify
you for the full amount you so pay together with costs, interest, attorneys'
fees and all other expenses which you incur in connection therewith. I also
agree that if my liability is limited to a stated principal amount (plus other
agreed charges), you may allow the borrower to incur debt in excess of the
specified amount and apply to the payment of such excess any amounts you receive
for payment of the debt from the borrower or any other person, any amounts
resulting from any collateral, or amounts received from any other source,
without affecting my obligations under this agreement.
No modification of this agreement is effective unless in writing and signed
by you and me, except that you may, without notice to me and without the
addition of a signed writing or my approval: (1) release any borrower or other
person who may be liable for borrower's debt, (2) release or substitute any
collateral, (3) fail to perfect any security interest or otherwise impair any
collateral, (4) waive or impair any right you may have against any borrower or
other person who may be liable for borrower's debt, (5) settle or compromise any
claim against the borrower or any person who may be liable for the borrower's
debt, (6) procure any additional security or persons who agree to be liable for
borrower's debt, (7) delay or fail to pursue enforcement of the debt, (8) apply
amounts you receive from the borrower or other persons to payment of the debt in
any order you select, (9) make any election with respect to the debt provided by
law or any agreement with any person liable for the debt, (10) exercise or fail
to exercise any rights you have with respect to the debt (11) extend new credit
to the borrower or (12) renew, extend, refinance or modify the borrower's debt
on any terms agreed to by you and the borrower (including, but not limited to
changes in the interest rate or in the method, time, place or amount of payment)
without affecting my obligation to pay under this guaranty.
WAIVER - I waive presentment, demand, protest, notice of dishonor, and notice of
acceptance of this guaranty. I also waive, to the extent permitted by law, all
notices, all defenses and claims that the borrower could assert, any right to
require you to pursue any remedy or seek payment from any other person before
seeking payment under this agreement and all other defenses to the debt, except
payment in full. You may without notice to me and without my consent, enter into
agreements with the borrower from time to time for purposes of creating or
continuing the borrower's debt as allowed by this guaranty. I agree that I will
be liable, to the fullest extent permitted by applicable law, for any deficiency
remaining after foreclosure (or repossession) and sale of any collateral without
regard to whether borrower's obligation to pay such deficiency is discharged by
law. If any payments to you on the debt are set aside, recovered, or required to
be returned in the event of the insolvency, bankruptcy, or reorganization of the
borrower, my obligations under this agreement will continue as if such payments
had never been made.
I also waive and relinquish all present and future claims, rights, and
remedies against borrower or any other obligated party arising out of the
creation or my performance of this guaranty. My waiver includes, but is not
limited to, the right of contribution, reimbursement, indemnification,
subrogation, exoneration, and any right to participate in any claim or remedy
you may have against the borrower, collateral, or other obligated party for
borrower's debts, whether or not such claim, remedy, or right arises in equity,
or under contract, statute or common law.
REMEDIES - If I fail to keep any promise contained in this agreement or any
agreement securing this agreement, you may, make this agreement and the
borrower's debt immediately due and payable, you may set-off this obligation
against any right I have to receive money from you (however, you may not set-off
against any accounts in which my rights are only as a fiduciary or my IRA or
other tax-deferred retirement account), you may use any remedy you have under
state or federal law, and you may use any remedy given to you by any agreement
securing this agreement. If I die, am declared incompetent, or become insolvent
(either because my liabilities exceed my assets or because I am unable to pay my
debts as they become due), you may make the debt immediately due and payable.
COLLECTION COSTS - Except when prohibited by law, I agree to pay the reasonable
costs and expenses you incur to enforce and collect this agreement, including
attorneys' fees and court costs.

SECURITY - This guaranty is [ ] unsecured [X] secured by UNSECURED
---------
In witness whereof, I have signed my name and affixed my seal on this 7th day of
---
September 1999, and, by doing so, agree to the terms of this guaranty and
- --------------
acknowledge having read the Notice to Cosigner.

- --------------------------------------------------------------------------------
NOTICE TO COSIGNER
You are being asked to guarantee the debts described above. If you are making a
"Present and Future Debt Guaranty" as identified above, you are bing asked to
guarantee present as well as future debts of the borrower entered into with this
lender. Think carefully before you do. If the borrower doesn't pay these debts,
you will have to. Be sure you can afford to pay if you have to, and that you
want to accept responsibility.

You may have to pay up to the full amount of these debts if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
this amount.

The lender can collect these debts from you without first trying to collect from
the borrower. The lender can use the same collection methods against you that
can be used against the borrower, such as suing you, etc. If these debts are
ever in default, that fact may become part of your credit record.
- --------------------------------------------------------------------------------

/s/ MARTHA B. FENDER (SEAL)
- --------------------------------------------------------------------------------
MARTHA B. FENDER

(SEAL)
- --------------------------------------------------------------------------------

<PAGE>

EXHIBIT 23.2

ACCOUNTANTS' CONSENT

We consent to the inclusion in Form SB-2 of our report dated October 10, 1999 on
our audit of the financial statements of Islands Bancorp as of September 30,
1999, and for the period from inception, December 10, 1998, to September 30,
1999.

Atlanta, Georgia
December 13, 1999 FRANCIS & CO., CPAs

<PAGE>

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ISLANDS
BANCORP'S AUDITED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER
10, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 28,266
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 81,029
<DEPOSITS> 0
<SHORT-TERM> 140,484
<LIABILITIES-OTHER> 12,363
<LONG-TERM> 19,514
0
0
<COMMON> 5,500
<OTHER-SE> (96,832)
<TOTAL-LIABILITIES-AND-EQUITY> 81,029
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 93
<INTEREST-INCOME-NET> (93)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 91,489
<INCOME-PRETAX> (91,582)
<INCOME-PRE-EXTRAORDINARY> (91,582)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,582)
<EPS-BASIC> (166.51)
<EPS-DILUTED> (166.51)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>