SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-31013-A
ISLANDS BANCORP
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
SOUTH CAROLINA 57-1082388
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
211 Charles St., Suite 100, Beaufort, SC 29902
- --------------------------------------------------------------
(Address of Principal Executive Offices)
(843) 470-9962
- -----------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the
latest practicable date.
Common stock, no par value per share, 550 shares outstanding as of
May 12, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS March 31, December 31,
- ------ 2000 1999
---- ----
Cash $ 7,094 $ 24,061
Property and equipment, net 33,117 28,830
Deferred registration costs 72,603 45,890
Other assets 16,968 1,453
--------- ---------
Total Assets $ 129,782 $ 100,234
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Current liabilities
Accounts payable and accrued expenses $ 7,455 $ 21,607
Advances from organizers 100,000 100,000
Notes payable 232,972 130,524
--------- ---------
Total current liabilities $ 340,427 $ 252,131
--------- ---------
Long term liabilities
Notes payable $ 14,212 $ 16,858
--------- ---------
Total long term liabilities $ 14,212 $ 16,858
--------- ---------
Commitments and contingencies (Note 3)
Stockholders' Equity (Note 1):
Common stock, zero par value,
10,000,000 shares authorized,
550 shares issued and outstanding $ 5,500 $ 5,500
(Deficit) accumulated during
the development stage (230,357) (174,255)
--------- ---------
Total Stockholders' Equity $ (224,857) $ (168,755)
--------- ---------
Total Liabilities and
Stockholders' Equity $ 129,782 $ 100,234
========= =========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the three-month
period ended March 31,
----------------------
2000 1999
Revenues: ---- ----
Interest income $ - - $ - -
-------- --------
Total revenues - - - -
-------- --------
Expenses:
Organizational expenses $ 100 $ 17,618
Salaries and benefits 37,083 - -
Depreciation expense 2,645 - -
Interest expense 4,204 - -
Rent expense 3,548 - -
Utilities and telephone 1,296 - -
Legal & professional 610 - -
Other expenses 6,616 - -
-------- --------
Total expenses $ 56,102 $ 17,618
-------- --------
Net (loss) $ (56,102) $ (17,618)
======== ========
Refer to notes to the financial statements.
ISLANDS BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
For the three-month
period ended March 31,
----------------------
2000 1999
Cash flows from pre-operating ---- ----
activities of the development stage:
Net (loss) $ (56,102) $ (17,618)
Adjustments to reconcile net
(loss) to net cash used by
pre-operating activities
of the development stage:
Increase in registration costs (26,713) - -
Decrease in payables and accruals (14,152) - -
(Increase) in other assets (15,515) - -
Depreciation expense 2,645 - -
--------- ---------
Net cash used by pre-operating
activities of the development stage $ (109,837) $ (17,618)
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets $ (6,932) $ - -
--------- ---------
Net cash used in investing activities (6,932) $ - -
--------- ---------
Cash flows from financing activities:
Issuance of common stock $ - - $ - -
Advances from organizers - - 40,000
Increase in notes payable 99,802 - -
--------- ---------
Net cash provided
from financing activities $ 99,802 $ 40,000
--------- ---------
Net increase (decrease) in cash $ (16,967) $ 22,382
Cash, beginning of period 24,061 4,750
--------- ---------
Cash, end of period $ 7,094 $ 27,132
========= =========
Refer to notes to the financial statements.
Islands Bancorp
(A Development Stage Enterprise)
Notes to Financial Statements
March 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310
of Regulation S-B promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of those of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the three-month
period ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-
1 provides guidance for capitalizing and expensing the costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998.
The adoption of SOP 98-1 did not have a material impact on the accompanying
financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998 and is effective for all calendar-year
entities beginning in January, 2000. This Statement applies to all
entities and requires that all derivatives be recognized as assets or
liabilities in the balance sheet, at fair values. Gains and losses of
derivative instruments not designated as hedges will be recognized in the
income statement. Since the Company does not invest in derivative
instruments, the adoption of SFAS No. 133 does not have a material impact
on the financial statements.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise" amends prior accounting standards, primarily SFAS 65,
with respect to the classification of retained interests, such as mortgage-
backed securities, following a securitization of mortgage loans held for
sale. This statement became effective in the first quarter of 1999. Since
the Company does not securitize mortgage loans, no financial statement
impact has resulted from adopting this statement.
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ----------------------------------------------------------------------
RESULTS OF OPERATION.
- ---------------------
The following discussion and analysis provides information which the
Company believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and
accompanying notes appearing in this report.
OVERVIEW
Islands Bancorp (the "Company") was incorporated on July 23, 1999 to
serve as a holding company for a proposed de novo bank, Islands Community
Bank, N.A. (in organization), Beaufort, South Carolina (the "Bank"). On
August 25, 1999, the Company succeeded to all the assets and liabilities of
a partnership that had been established by the organizers of the Bank in
December of 1998 and through which the organizers' activities had been
conducted. The Company is still in a development stage and will remain in
that stage until the Bank opens for business. Since its inception, the
Company's main focus has been centered on activities relating to the
organization of the Company and the Bank, conducting the Company's initial
public offering, applying to the Office of the Comptroller of the Currency
(the "OCC") for a national bank charter, applying to the Federal Deposit
Insurance Corporation (the "FDIC") for deposit insurance, applying to the
Federal Reserve Board (the "FRB") for the Company to become a bank holding
company with respect to the Bank, and identifying and acquiring the
Company's permanent principal office and banking site. On February 1,
2000, the Company received preliminary approval from the OCC to charter the
Bank. On March 10, 2000, the Company received preliminary approval from
the FDIC for insurance of the Bank's deposits and, on May 11, 2000, the FRB
granted the Company prior approval to become a bank holding company with
respect to the Bank.
The Company has filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission (the "SEC") which Registration Statement
became effective March 13, 2000. Pursuant to the Registration Statement, a
minimum of 630,000 shares of the Company's common stock, no par value per
share (the "Common Stock"), and a maximum of 1,000,000 shares of Common
Stock were registered for sale at an offering price of $10.00 per share.
As of the date of this report, the Company had not yet received
subscriptions for the minimum number of shares of Common Stock being
offered in the offering. The Company continues to solicit subscriptions
for shares of Common Stock in order to complete the offering and commence
banking operations by the end of the third quarter of 2000. The Company
anticipates the Bank to begin operations out of a temporary facility to be
located at 131 Sea Island Parkway (Federal Highway 21) in Lady's Island,
South Carolina. This site is currently under contract for purchase by the
Company. The Company expects construction of the Bank's permanent facility
at that site to be completed in the third quarter of 2001.
FINANCIAL RESULTS
The Company had a net loss of $56,102 for the three-month period
ended March 31, 2000, and $230,357 in cumulative losses from inception
through March 31, 2000. These losses resulted from expenses incurred in
connection with activities related to the organization of the Company and
the Bank. These activities included preparing and filing applications with
the OCC and the FDIC to charter the Bank and to obtain deposit insurance,
preparing an application with the FRB for approval of the Company to become
a bank holding company with respect to the Bank, responding to questions
and providing additional information to the OCC, FDIC, and the FRB in
connection with the application process, meetings and discussions among
various organizers regarding various pre-opening issues, hiring qualified
personnel to work for the Company and the Bank, conducting public relations
activities on behalf of the Bank, developing prospective business contacts
for the Company and the Bank, and taking other actions necessary for a
successful Bank opening. In addition to the above losses, the Company
capitalized $72,603 in deferred registration costs which include costs and
expenses associated with preparing a prospectus, filing a Registration
Statement with the SEC, and selling the Company's Common Stock. In a
successful offering, deferred registration costs are immediately deducted
from the Company's equity accounts. Registration costs associated with an
unsuccessful offering are charged to operations in the period during which
the offering is deemed unsuccessful.
Because the Company is in the organizational stage, it has no
operations from which to generate revenues, with the exception of interest
earned from Common Stock subscribers' deposits. Initially, the Bank
anticipates deriving its revenues principally from interest charged on
loans and, to a lesser extent, from interest earned on investments, fees
received in connection with the origination of loans and miscellaneous fees
and service charges. Its principal expenses are anticipated to be interest
expense on deposits and operating expenses. The funds for these activities
are anticipated to be provided principally by operating revenues, deposit
growth, purchases of federal funds from other banks, repayment of
outstanding loans and sale of loans and investment securities.
The Bank's operations will depend substantially on its net interest
income, which is the difference between the interest income earned on its
loans and other asset and the interest expense paid on its deposits and
other borrowings. This difference is largely affected by changes in market
interest rates, credit policies of monetary authorities, and other local,
national or international economic factors which are beyond the Bank's
ability to predict or control. Large moves in interest rates may decrease
or eliminate the Bank's profitability.
FUNDING OF OPERATIONS AND LIQUIDITY
The Company's operations from inception through the closing of its
initial public offering have been funded through advances from and
purchases of Common Stock by the Company's organizers and the aggregate
amount of lines of credit from unrelated financial institutions. As of
March 31, 2000, the Company has a line of credit ("LOC") up to $500,000
with an unrelated financial institution. The LOC is guaranteed by several
of the Company's organizers and carries an interest rate of prime less one-
half percent. As of March 31, 2000, approximately $222,424 had been drawn
on the LOC. The Company intends to use proceeds from its initial public
offering to repay the advances of its organizers and the balance owed on
the LOC.
The Company believes the minimum net proceeds expected from the
initial public offering will provide sufficient capital to support the
growth of both the Company and the Bank for their initial years of
operations. The Company does not anticipate that it will need to raise
additional funds to meet expenditures required to operate its business or
that of the Bank over the next 12 months. All anticipated material
expenditures during that period are expected to be provided for out of the
proceeds of the Company's initial public offering.
CAPITAL EXPENDITURES
The Company has entered into an agreement for the purchase of
approximately 2.3 acres of land at 131 Sea Island Parkway (Federal Highway
21) in Lady's Island, South Carolina, to be used as the site for the main
office of the Bank. The purchase price under the agreement is $520,000.
The purchase agreement is expected to be assigned at cost from the Company
to the Bank upon the commencement of Bank operations. Promptly following
that assignment, the Bank is expected to close the purchase. The Company
is entitled to extend the closing date of the land purchase up to six
months beyond the scheduled closing date of May 15, 2000 in return for the
non-refundable payment to the current landowner of $3,000 for each 30-day
extension.
Construction of the Bank's main office building at this site is
expected to commence shortly following the closing of the Bank's purchase
of the real estate. The estimated cost of the building is approximately
$1,050,000. The Bank will fund the purchase of the real estate acquisition
and the construction of its main building with a portion of the net
proceeds received from the issuance of its common stock to the Company.
Construction of the Bank's permanent facility at this site is expected to
be completed in the third quarter of 2001. Pending the completion of the
permanent facility, the Company expects to commence the Bank's operations
from temporary modular facilities located at this site.
ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report on Form 10-QSB
that are not historical facts are forward looking statements relating to,
without limitation, future economic performance, plans and objectives of
management for future operations, and projections of revenues and other
financial items that are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management.
The Company cautions readers of this report that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Company to be materially different from those expressed or implied by such
forward-looking statements. Although the Company's management believes
that their expectations of future performance are based on reasonable
assumptions within the bounds of their knowledge of their business and
operations, there can be no assurance that actual results will not differ
materially from their expectations.
The Company's operating performance each quarter is subject to
various risks and uncertainties that are discussed in detail in the
Company's filings with the SEC, including the "Risk Factors" section of the
Company's Registration Statement (Registration No. 333-92653) as filed with
the SEC and declared effective on March 13, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
The Company is not a party to any pending litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- ---------------------------------------------------
During the three-months ended March 31, 2000, the Company did not
issue any securities without registration under the Securities
Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- -----------------------------------------
This item is not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
No matters were submitted to a vote of the shareholders of the
Company during the three-months ended March 31, 2000.
ITEM 5. OTHER INFORMATION.
- ---------------------------
This item is not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) Exhibits:
27.1 - Financial data schedule (for SEC use only).
(b) Reports on Form 8-K. Registrant filed no reports on Form 8-K
during the three-month period ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ISLANDS BANCORP
---------------------------
(Registrant)
Date: May 15, 2000 BY: /s/ William B. Gossett
---------------- ---------------------------
William B. Gossett
President and Chief Executive Officer
(Principal Executive, Financial and Accounting
Officer)
Financial Data Schedule Submitted Under Item 601(a)(27) of Regulation S-B
This schedule contains summary financial information extracted from
Islands Bancorp's unaudited financial statements for the period ended March 31,
2000 and is qualified in its entirety by reference to such financial statements.
Item Number Item Description Amount
March 31,
2000
----
9-03(1) Cash and due from banks $ 7,094
9-03(2) Interest bearing deposits 0
9-03(3) Federal funds sold - purchased
securities for sale 0
9-03(4) Trading account assets 0
9-03(6) Investment and mortgage backed
securities held for sale 0
9-03(6) Investment and mortgage backed
securities held to maturity -
carrying value 0
9-03(6) Investment and mortgage backed
securities held to maturity -
market value 0
9-03(7) Loans 0
9-03(7)(2) Allowance for losses 0
9-03(11) Total assets 129,782
9-03(12) Deposits 0
9-03(13) Short-term borrowings 332,792
9-03(15) Other liabilities 7,455
9-03(16) Long-term debt 14,212
9-03(19) Preferred stock -
mandatory redemption 0
9-03(20) Preferred stock -
no mandatory redemption 0
9-03(21) Common stocks 5,500
9-03(22) Other stockholders' equity (230,357)
9-03(23) Total liabilities and
stockholders' equity 129,782
9-04(1) Interest and fees on loans 0
9-04(2) Interest and dividends
on investments 0
9-04(4) Other interest income 0
9-04(5) Total interest income 0
9-04(6) Interest on deposits $ 0
9-04(9) Total interest expense 4,204
9-04(10) Net interest income (4,204)
9-04(11) Provision for loan losses 0
9-04(13)(h) Investment securities gains/losses 0
9-04(14) Other expenses 56,102
9-04(15) Income/loss before income tax (56,102)
9-04(17) Income/loss before
extraordinary items (56,102)
9-04(18) Extraordinary items, less tax 0
9-04(19) Cumulative change in
accounting principles 0
9-04(20) Net income or loss (56,102)
9-04(21) Earnings per share - basic (102.00)
9-04(21) Earnings per share - diluted - -
I.B.5. Net yield - interest earning
assets - actual 0.00%
III.C.1(a) Loans on non-accrual 0
III.C.1(b) Accruing loans past due
90 days or more 0
III.C.1(c) Troubled debt restructuring 0
III.C.2. Potential problem loans 0
IV.A.1 Allowance for loan losses -
beginning of period 0
IV.A.2 Total chargeoffs 0
IV.A.3 Total recoveries 0
IV.A.4 Allowance for loan losses -
end of period 0
IV.B.1 Loan loss allowance allocated to
domestic loans 0
IV.B.2 Loan loss allowance allocated to
foreign loans 0
IV.B.3 Loan loss allowance - unallocated 0
