U.S. SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

For fiscal year ended DECEMBER 31, 2003
                      -----------------

[ ]  Transition report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934

     For the transition period from ______________to _______________

     Commission file number 000-29267
                            ---------

                                 ISLANDS BANCORP
                                 ---------------
                 (Name of small business issuer in its charter)

                SOUTH CAROLINA                               57-1082388
-----------------------------------------------  -------------------------------
        (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                  Identification No.)

2348 BOUNDARY STREET, BEAUFORT, SOUTH CAROLINA                 29902
-----------------------------------------------  -------------------------------
   (Address of Principal Executive Offices)                  (Zip Code)

Securities registered pursuant to Section 12(b) of the Act:  NONE.

Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK, NO
                                                             PAR VALUE PER SHARE

Check whether the issuer:  (1) filed all reports required to be filed by Section
13  or  15(d) of the Exchange Act during the past 12 months (or for such shorter
period that Islands Bancorp was required to file such reports), and (2) has been
subject  to  such  filing  requirements  for past 90 days.  Yes  X  No
                                                                ---    ---

Check  if there is no disclosure of delinquent filers in response to Item 405 of
Regulation  S-B  is  not  contained  in  this  form,  and  no disclosure will be
contained,  to  the  best  of  registrant's  knowledge, in definitive proxy or a
information statements incorporated by reference in Part III of this Form 10-KSB
or  any  amendment  to  this  Form  10-KSB.  [ ]

State  issuer's  revenues  for  its  most  recent  fiscal  year:  $1,958,000
                                                                  ----------

State the aggregate market value of the voting and non-voting common equity held
by  non-affiliates  computed  by  reference  to the price at which the stock was
sold,  or  the  average  bid  and  asked  prices  of such common equity, as of a
specified  date  within the past 60 days:  THE AGGREGATE NUMBER OF SHARES OF THE
                                           -------------------------------------
COMPANY'S  COMMON STOCK HELD BY NON-AFFILIATES AS OF MARCH 23, 2004 WAS 652,705.
 -------------------------------------------------------------------------------
THERE  IS NO PUBLIC TRADING MARKET FOR THE COMPANY'S COMMON STOCK.  BASED ON THE
--------------------------------------------------------------------------------
LAST  SALE  OF THE COMPANY'S COMMON STOCK KNOWN TO MANAGEMENT, WHICH OCCURRED ON
--------------------------------------------------------------------------------
MARCH  4,  2004 AT $10.00 PER SHARE, THE AGGREGATE MARKET VALUE OF THE COMPANY'S
--------------------------------------------------------------------------------
COMMON  STOCK  HELD  BY  NON-AFFILIATES  IS  $6,527,050.
-------------------------------------------------------

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.  652,705 SHARES OF COMMON
                                                   ------------------------
STOCK WERE OUTSTANDING AS OF MARCH 23, 2004.
-------------------------------------------

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 2003 are incorporated by reference into Part I and II.  Portions of
the Proxy Statement for the Annual Meeting of Shareholders, scheduled to be held
on April 27, 2004, are incorporated by reference into Part III.

     Transitional Small Business Disclosure format (check one):  Yes     No  X
                                                                     ---    ---


<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                                                                         PAGE
                                                                        NUMBER
<S>         <C>                                                         <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3
  ITEM 1.   DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . .     3
  ITEM 2.   DESCRIPTION OF PROPERTIES. . . . . . . . . . . . . . . . . .    17
  ITEM 3.   LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . .    17
  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . .    17
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    17
            MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
  ITEM 5.   STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . .    17
  ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . .    18
  ITEM 7.   FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . .    18
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ITEM 8.   ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . .    18
  ITEM 8A.  CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . .    18
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    19
            DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
  ITEM 9.   PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT .    19
  ITEM 10.  EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . .    19
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
  ITEM 11.  MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . .    19
  ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . .    20
  ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB . . . . . . . . .    20
  ITEM 14   PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . .    22
</TABLE>


                                        2
<PAGE>
                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

             CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

     Various matters discussed in this Annual Report on Form 10-KSB may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act.  Forward-looking statements may involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Islands Bancorp (the "Company") or
Islands Community Bank, N.A. ("Islands Community" or the "Bank") to be
materially different from the results described in such forward-looking
statements.

     Actual results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without
limitation:

     -    Lack of sustained growth in the economy of Beaufort County;

     -    The inability of the Bank to achieve and maintain regulatory capital
          standards;

     -    Changes in the legislative and regulatory environment;

     -    The effects of changes in interest rates on the level and composition
          of deposits, loan demand, the value of loan collateral, and interest
          rate risks; and

     -    The effects of competition from commercial banks, thrifts, consumer
          finance companies, and other financial institutions operating in our
          market area and elsewhere.

     All forward-looking statements attributable to the Company or the Bank are
expressly qualified in their entirety by these cautionary statements.  Both the
Company and the Bank disclaim any intent or obligation to update these
forward-looking statements, whether as a result of new information, future
events or otherwise.

                                 ISLANDS BANCORP

     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, a national bank.  The bank began operations as a community bank on
July 9, 2001.  The Bank emphasizes 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.

     The Company was organized because we believe it provides flexibility that
would otherwise not be available to the Bank.  For example, the holding company
structure makes it easier to raise capital for the Bank because the Company is
able to issue securities without the need for prior banking regulatory approval,
and the proceeds of debt securities issued by the Company can be invested in the
Bank as primary capital.


                                        3
<PAGE>
                                ISLANDS COMMUNITY

GENERAL

     Islands Community operates as a full-service commercial bank.  The Bank
offers personal and business checking accounts, money market accounts, savings
accounts and various certificates of deposit and individual retirement accounts.
The Bank also offers commercial, real estate, installment and other consumer
loans.  The Bank's real estate loans include commercial real estate,
construction and development and residential real estate loans.  In addition,
the Bank provides such services as cashier's checks, safe-deposit boxes,
traveler's checks, banking by mail, direct deposit and U.S. Savings Bonds.  The
Bank also offers MasterCard(R) and Visa(R) credit card services through a
correspondent bank as an agent.

PHILOSOPHY

     Through our localized management and ownership we believe we are uniquely
situated to provide responsive service and quality financial products that are
tailored to meet the needs of the individuals and small- to medium-sized
businesses located throughout our market area.  We believe that local ownership
and control allows the Bank to serve its customers more efficiently, helping us
to grow both our deposit base and loan portfolio.  We have adopted this
philosophy in order to attract customers and acquire market share now controlled
by other financial institutions operating in our market area.

MARKET AREA AND COMPETITION

     Our primary market area consists of a large portion of Beaufort County,
which 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 in our market area are
Lady's Island, Fripp Island, Parris Island, St. Helena Island, Hunting Island,
Port Royal Island, Dataw Island and Harbor Island.  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.

     We believe an attractive opportunity exists in our primary market area for
a locally headquartered  community bank that focuses on personalized service to
individuals and businesses.  The banking industry in our primary market area has
experienced significant consolidation in recent years principally as the result
of the liberalization of interstate banking and branching laws.  Consequently,
many of our area's former community banks have been acquired by large regional
financial institutions headquartered outside our market area.

     The Bank competes with other commercial banks, savings and loan
associations, credit unions, money market mutual funds and other financial
institutions conducting business in the Beaufort County market and elsewhere.
Many of the Bank's competitors have equal or greater financial or banking
related resources than the Company and the Bank.  According to information
provided by the FDIC, as of June 30, 2003, the Beaufort County area was served
by 17 banking and savings institutions with 56 offices.  These competitors offer
the same or similar products and services as the Bank.  Currently, the Bank's
three largest competitors in terms of market share are SunTrust Bank, Bank of
America, N.A., and Wachovia Bank, N.A.

     During October 2003 the Bank opened a loan production office near the
Citadel Mall in Charleston, South Carolina.  The limited service office does not
accept deposits and offers small business loans guaranteed by the U.S. Small
Business Administration.  The Charleston market was selected because of the size
of the market and the close proximity to our home office.  The Charleston loan
production office is not expected to cause a material impact on the Bank's
overall operation or safety and soundness while providing an opportunity to
generate fee income.


                                        4
<PAGE>
LENDING  SERVICES

     LENDING POLICY.  The Bank offers a full range of lending products,
including commercial, real estate and consumer loans to individuals and small-
and medium-sized businesses and professional concerns.  The Bank generally
intends to allocate its loan portfolio as follows:

     LOAN CLASSIFICATION         PERCENTAGE
     -------------------         ----------
     Real estate loans               40%
     Consumer loans                  17%
     Commercial loans                43%

     LOAN APPROVAL AND REVIEW.  The Bank has established loan approval policies
that provide for various levels of officer lending authority. When the amount of
total loans to a single borrower exceeds that individual officer's lending
authority, an officer with a higher lending limit or the Bank's Loan Committee
determines whether to approve the loan request.  The Bank does not make any
loans to any of its directors or executive officers unless its board of
directors approves the loan, and the terms of the loan are no more favorable
than would be available to any other applicant.

     LENDING LIMITS.  The Bank's lending activities are subject to a variety of
lending limits imposed by federal law.  Different limits apply in certain
circumstances based on the type of loan or the nature of the borrower, including
the borrower's relationship to the Bank.  In general, however, the Bank may loan
any one borrower a maximum amount equal to either of the following:

     -    15% of the Bank's capital and surplus; or

     -    25% of its capital and surplus if the amount that exceeds 15% is fully
          secured by readily marketable collateral.

     Islands Community has not yet established any minimum or maximum loan
limits other than the statutory lending limits described above.  The Bank may
sell loan participations to other financial institutions in order to meet the
lending needs of loan customers requiring extensions of credit above the Bank's
limits.

     CREDIT RISKS.  The principal economic risk associated with each category of
loans that the Bank makes is the creditworthiness of the borrower.  Borrower
creditworthiness is affected by general economic conditions and the strength of
the relevant business market segment.  General economic factors affecting a
borrower's ability to repay include interest, inflation and employment rates, as
well as other factors affecting a borrower's customers, suppliers and employees.

     REAL ESTATE LOANS.  The Bank makes 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 excludes home equity loans, which are classified as consumer
loans.  The Bank competes 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 offers commercial real estate loans to
developers of both commercial and residential properties.  The Bank manages 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 evaluate each business on an


                                        5
<PAGE>
individual basis and attempt to determine its business risks and credit profile.
Management attempts 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 are
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 is
considered to be on a pre-sold basis.  If the borrower has not entered into an
agreement to sell the property prior to beginning construction, the loan is
considered to be on a speculative basis.  Residential and commercial
construction loans are made to builders and developers and to consumers who wish
to build their own home.  The term of construction and development loans
generally are 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 do not exceed 75 percent.
Speculative loans are based on the borrower's financial strength and cash flow
position.  Loan proceeds are 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 depends upon the performance of the builder in 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 are made to
qualified individuals for the purchase of existing single-family residences in
our primary market area.  These loans conform to the Bank's appraisal policy and
real estate lending policy which detail maximum loan-to-value ratios and
maturities.  We believe these loan-to-value ratios are 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 are 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 limits 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 retains 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 are generally the same for both loans sold in the secondary market and
those retained in the Bank's portfolio.

     CONSUMER AND INSTALLMENT LOANS.  Consumer loans 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 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 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 depends 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.

     COMMERCIAL LOANS.  Commercial lending activities are 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, and corporate borrowers.  The loans are obtained for a variety of
business purposes.   Particular emphasis is 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 market area.  The
Bank considers "small businesses" to include commercial, professional and retail


                                        6
<PAGE>
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 focuses
on niches in the market and offers 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 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.

     INVESTMENTS.  In addition to loans, the Bank makes other investments,
primarily in obligations of the United States or obligations guaranteed as to
principal and interest by the United States and other taxable securities.  No
investment held by the Bank exceeds any applicable limitation imposed by law or
regulation.  Our asset and liability management committee reviews the investment
portfolio on an ongoing basis to ascertain investment profitability and to
verify compliance with the Bank's investment policies.

     DEPOSITS.  The Bank offers 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
are insured by the FDIC up to the maximum amount permitted by law.  The Bank's
transaction accounts and time certificates are tailored to its principal market
area at competitive rates.  The sources of deposits are residents, businesses
and employees of businesses within the Bank's primary market area.  These
deposits are obtained through personal solicitation by the Bank's officers and
directors, direct mail solicitations, and advertisements published in the local
media.

     ASSET AND LIABILITY MANAGEMENT.  The Bank's primary assets consists of its
loan portfolio and its investment accounts.  Its liabilities 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 seek to
match maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching is not always possible.  Management seeks to
invest the largest portion of the Bank's assets in real estate, consumer and
commercial loans.  Loans are limited to less than 75 percent of deposits and
capital funds.  This ratio may be exceeded, however, in the initial period of
operation.  The Bank's investment account consists primarily of marketable
securities of the United States Government, federal agencies and state and
municipal governments, generally with varied maturities.

     The Bank's asset/liability mix is 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.

                                    EMPLOYEES

     At December 31, 2003, the Company and the Bank employed eight full-time
employees and  three part-time employees.  Islands Bancorp does not have any
employees other than its officers who are also employees of the Bank.  The
Company considers its relationship with its employees to be excellent.


                                        7
<PAGE>
                           SUPERVISION AND REGULATION

     Both the Company and the Bank are subject to extensive state and federal
banking regulations that impose restrictions on and provide for general
regulatory oversight of their operations.  These laws are generally intended to
protect depositors and not shareholders.  The following discussion describes the
material elements of the regulatory framework that applies to us.

ISLANDS BANCORP

     Since the Company owns all of the capital stock of the Bank, it is a bank
holding company under the federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act.  As a result, the Company is
primarily subject to the supervision, examination, and reporting requirements of
the Bank Holding Company Act and the regulations of the Federal Reserve.

     ACQUISITIONS OF BANKS.  The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before doing any
of the following:

     -    Acquiring direct or indirect ownership or control of any voting shares
          of any bank if, after the acquisition, the bank holding company will
          directly or indirectly own or control more than 5% of the Bank's
          voting shares;

     -    Acquiring all or substantially all of the assets of any bank; or

     -    Merging or consolidating with any other bank holding company.

     Additionally, the Bank Holding Company Act provides that the Federal
Reserve may not approve any of these transactions if it would result in or tend
to create a monopoly or, substantially lessen competition or otherwise function
as a restraint of trade, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by the public interest in meeting the
convenience and needs of the community to be served.  The Federal Reserve is
also required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned and the convenience
and needs of the community to be served.  The Federal Reserve's consideration of
financial resources generally focuses on capital adequacy, which is discussed
below.

     Under the Bank Holding Company Act, if adequately capitalized and
adequately managed, the Company or any other bank holding company located in
South Carolina may purchase a bank located outside of South Carolina.
Conversely, an adequately capitalized and adequately managed bank holding
company located outside of South Carolina may purchase a bank located inside
South Carolina.  In each case, however, restrictions may be placed on the
acquisition of a bank that has only been in existence for a limited amount of
time or will result in specified concentrations of deposits.  For example, South
Carolina law prohibits a bank holding company from acquiring control of a
financial institution until the target financial institution has been in
existence and has had continuous operations for five years.  As a result, no
bank holding company may acquire control of the Company or the Bank until after
the fifth anniversary of the date that the Bank began business.

     CHANGE IN BANK CONTROL.  Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company.  Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company.  Control is rebuttably presumed to exist
if a person or company acquires 10% or more, but less than 25%, of any class of
voting securities and either of the following:


                                        8
<PAGE>
     -    The bank holding company has registered securities under Section 12 of
          the Securities Act of 1934; or

     -    No other person owns a greater percentage of that class of voting
          securities immediately after the transaction.

     Our common stock is registered under the Securities Exchange Act of 1934.
The regulations provide a procedure for challenging the rebuttable presumption
of control.

     PERMITTED ACTIVITIES.  Bank holding companies are generally prohibited
under the Bank Holding Company Act, from engaging in or acquiring direct or
indirect control of more than 5% of the voting shares of any company engaged in
any activity other than the following:

     -    Banking or managing or controlling banks; and

     -    An activity that the Federal Reserve determines to be so closely
          related to banking as to be a proper incident to the business of
          banking.

     Activities that the Federal Reserve has found to be so closely related to
banking as to be a proper incident to the business of banking include:

     -    Factoring accounts receivable;

     -    Making, acquiring, brokering or servicing loans and usual related
          activities;

     -    Leasing personal or real property;

     -    Operating a non-bank depository institution, such as a savings
          association;

     -    Trust company functions;

     -    Financial and investment advisory activities;

     -    Conducting discount securities brokerage activities;

     -    Underwriting and dealing in government obligations and money market
          instruments;

     -    Providing specified management consulting and counseling activities;

     -    Performing selected data processing services and support services;

     -    Acting as agent or broker in selling credit life insurance and other
          types of insurance in connection with credit transactions; and

     -    Performing selected insurance underwriting activities.

     Despite prior approval, the Federal Reserve may order a bank holding
company or its subsidiaries to terminate any of these activities or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
it or any of its bank subsidiaries.

     Generally, if the Company qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to financial activity.  The Bank Holding Company Act
expressly lists the following activities as financial in nature:

     -    Lending, trust and other banking activities;

     -    Insuring, guaranteeing, or indemnifying against loss or harm, or
          providing and issuing annuities, and acting as principal, agent, or
          broker for these purposes, in any state;


                                        9
<PAGE>
     -    Providing financial, investment, or advisory services;

     -    Issuing or selling instruments representing interests in pools of
          assets permissible for a bank to hold directly;

     -    Underwriting, dealing in or making a market in securities;

     -    Other activities that the Federal Reserve may determine to be so
          closely related to banking or managing or controlling banks as to be a
          proper incident to managing or controlling banks;

     -    Foreign activities permitted outside of the United States if the
          Federal Reserve has determined them to be usual in connection with
          banking operations abroad;

     -    Merchant banking through securities or insurance affiliates; and

     -    Insurance company portfolio investments.

     To qualify to become a financial holding company, the Bank and any other
depository institution subsidiary of the Company must be well capitalized and
well managed and must have a Community Reinvestment Act rating of at least
satisfactory.  Additionally, the Company must file an election with the Federal
Reserve to become a financial holding company and must provide the Federal
Reserve with 30 days written notice prior to engaging in a permitted financial
activity.  We currently have no plans to elect to become a financial holding
company.

     SUPPORT OF SUBSIDIARY INSTITUTIONS.  Under Federal Reserve policy, the
Company is expected to act as a source of financial strength for the Bank and to
commit resources to support the Bank.  This support may be required at times
when, without this Federal Reserve policy, the Company might not be inclined to
provide it.  In addition, any capital loans made by the Company to the Bank will
be repaid only after its deposits and various other obligations are repaid in
full.  In the unlikely event of the Company's bankruptcy, any commitment by it
to a federal bank regulatory agency to maintain the capital of the Bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.

     SOUTH CAROLINA STATE REGULATION.  As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, the Company is
subject to limitations on sale or merger and to regulation by the South Carolina
Board of Financial Institutions. Prior to acquiring the capital stock of a
national bank, we are not required to obtain the approval of the Board, but we
must notify them at least 15 days prior to doing so.  Prior to engaging in the
acquisition of nonbanking institutions or state chartered banks, we must receive
the Board's approval, and we must file periodic reports with respect to our
financial condition and operations, management and intercompany relationships
between Islands Bancorp and its subsidiaries.

ISLANDS COMMUNITY

     As a national bank, the Bank is primarily subject to the supervision,
examination and reporting requirements of the National Bank Act and the
regulations of the Office of the Comptroller of the Currency.  The Office of the
Comptroller of the Currency regularly examines the Bank's operations and has the
authority to approve or disapprove mergers, the establishment of branches and
similar corporate actions.  The Office of the Comptroller of the Currency also
has the power to prevent the continuance or development of unsafe or unsound
banking practices or other violations of law.  Additionally, the Bank's deposits
are insured by the FDIC to the maximum extent provided by law.  The Bank is also
subject to numerous state and federal statutes and regulations that affect its
business, activities and operations.

     BRANCHING.  National banks are required by the National Bank Act to adhere
to branching laws applicable to state banks in the states in which they are
located.  Under current South Carolina law, the Bank may open branch offices
throughout South Carolina with the prior approval of the Office of the
Comptroller


                                       10
<PAGE>
of the Currency.  In addition, with prior regulatory approval, the Bank may
acquire branches of existing banks located in South Carolina.  The Bank and any
other national or state-chartered bank generally may branch across state lines
by merging with banks in other states if allowed by the applicable states' laws.
South Carolina law, with limited exceptions, currently permits branching across
state lines through interstate mergers.

     Under the Federal Deposit Insurance Act, states may "opt-in" and allow
out-of-state banks to branch into their state by establishing a new start-up
branch in the state.  Currently, South Carolina has not opted-in to this
provision.  Therefore, interstate merger is the only method through which a bank
located outside of South Carolina may branch into South Carolina.  This provides
a limited barrier of entry into the South Carolina banking market, which
protects us from an important segment of potential competition.  However,
because South Carolina has elected not to opt-in, our ability to establish a new
start-up branch in another state may be limited.  Many states that have elected
to opt-in have done so on a reciprocal basis, meaning that an out-of-state bank
may establish a new start-up branch only if their home state has also elected to
opt-in.

     PROMPT CORRECTIVE ACTION.  The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions.  Under this
system, the federal banking regulators have established five capital categories
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) in which all institutions are
placed.  Federal banking regulators are required to take various mandatory
supervisory actions and are authorized to take other discretionary actions with
respect to institutions in the three undercapitalized categories.  The severity
of the action depends upon the capital category in which the institution is
placed.  Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized.  The federal banking agencies have specified by regulation the
relevant capital level for each category.

     An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
A bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to various limitations.  The
controlling holding company's obligation to fund a capital restoration plan is
limited to the lesser of 5% of an undercapitalized subsidiary's assets at the
time it became undercapitalized or the amount required to meet regulatory
capital requirements.  An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business, except under
an accepted capital restoration plan or with FDIC approval.  The regulations
also establish procedures for downgrading an institution to a lower capital
category based on supervisory factors other than capital.

     FDIC INSURANCE ASSESSMENTS.  The FDIC has adopted a risk-based assessment
system for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities.  The system assigns an institution to one of three capital
categories: (1) well capitalized; (2) adequately capitalized; and (3)
undercapitalized.  These three categories are substantially similar to the
prompt corrective action categories described above, with the "undercapitalized"
category including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes.  The FDIC also assigns an institution to one of three supervisory
subgroups based on a supervisory evaluation that the institution's primary
federal regulator provides to the FDIC and information that the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance funds.  Assessments range from 0 to 27 cents per $100 of
deposits, depending on the institution's capital group and supervisory subgroup.
In addition, the FDIC imposes assessments to help pay off the $780 million in
annual interest payments on the $8 billion Financing Corporation bonds issued in
the late 1980s as part of the government rescue of the thrift industry.  This


                                       11
<PAGE>
assessment rate is adjusted quarterly and is set at 1.54 cents per $100 of
deposits for the first quarter of 2004.

     The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.

     COMMUNITY REINVESTMENT ACT.  The Community Reinvestment Act requires that,
in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency, shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate-income neighborhoods.  These facts are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on the Bank.  Since the Bank's aggregate assets do not exceed
$250 million, under the Gramm-Leach-Bliley Act, we are subject to a Community
Reinvestment Act examination only once every 60 months if we receive an
outstanding rating, once every 48 months if we receive a satisfactory rating and
as needed if our rating is less than satisfactory.  Additionally, we must
publicly disclose the terms of various Community Reinvestment Act-related
agreements.

     OTHER REGULATIONS.  Interest and other charges collected or contracted for
by the Bank are subject to state usury laws and federal laws concerning interest
rates.  For example, under the Soldiers' and Sailors' Civil Relief Act of 1940,
a lender is generally prohibited from charging an annual interest rate in excess
of 6% on any obligation for which the borrower is a person on active duty with
the United States military.

     The Bank's loan operations are also subject to federal laws applicable to
credit transactions, such as the following:

     -    The federal Truth-In-Lending Act, governing disclosures of credit
          terms to consumer borrowers;

     -    The Home Mortgage Disclosure Act of  1975, requiring financial
          institutions to provide information to enable the public and public
          officials to determine whether a financial institution is fulfilling
          its obligation to help meet the housing needs of the community it
          serves;

     -    The Equal Credit Opportunity Act, prohibiting discrimination on the
          basis of race, creed or other prohibited factors in extending credit;

     -    The Fair Credit Reporting Act of 1978, governing the use and provision
          of information to credit reporting agencies;

     -    The Fair Debt Collection Act, governing the manner in which consumer
          debts may be collected by collection agencies;

     -    Soldiers' and Sailors' Civil Relief Act of 1940, governing the
          repayment terms of, and property rights underlying, secured
          obligations of persons in military service; and

     -    The rules and regulations of the various federal agencies charged with
          the responsibility of implementing these federal laws.

     In  addition  to  the federal laws noted above, South Carolina has adopted,
effective  January  1,  2004,  laws  imposing  restrictions  and  procedural
requirements  on  mortgage loans classified as "high-cost home loans" and on the
"flipping"  of  consumer  home  loans. As drafted, these laws generally apply to
most  mortgage  loans  made in South Carolina. On January 13, 2004, however, the
Office of the Comptroller of the Currency published final regulations clarifying
the  ability  of  a  national  bank  to  preempt state lending laws. Under these
regulations, which became effective on February 2, 2004, the Bank is exempt from
the  foregoing  South  Carolina  laws.

     The deposit operations of the Bank are subject to the following:

     -    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

     -    The Electronic Funds Transfer Act and Regulation E issued by the
          Federal Reserve to implement that act, which govern automatic deposits
          to and withdrawals from deposit accounts


                                       12
<PAGE>
          and customers' rights and liabilities arising from the use of
          automated teller machines and other electronic banking services.

CAPITAL ADEQUACY

     The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve, in the case of the Company, and
the Office of the Comptroller of the Currency, in the case of the Bank.  The
Federal Reserve has established a risk-based and a leverage measure of capital
adequacy for bank holding companies.  Since the Company's consolidated total
assets do not exceed $150 million, under the Federal Reserve's capital
guidelines, its capital adequacy is measured on a bank-only basis, as opposed to
a consolidated basis.  The Bank is also subject to risk-based and leverage
capital requirements adopted by the Office of the Comptroller of the Currency,
which are substantially similar to those adopted by the Federal Reserve for bank
holding companies.

     The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets.  Assets and off-balance-sheet items,
such as letters of credit and unfunded loan commitments, are assigned to broad
risk categories, each with appropriate risk weights.  The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.

     The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%.  Total capital consists of two components, Tier 1 Capital and Tier
2 Capital.  Tier 1 Capital generally consists of common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock, and a limited amount of qualifying cumulative
perpetual preferred stock, less goodwill and other specified intangible assets.
Tier 1 Capital must equal at least 4% of risk-weighted assets.  Tier 2 Capital
generally consists of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves.  The total amount of Tier 2 Capital is limited to
100% of Tier 1 Capital.  At December 31, 2003, our ratio of total capital to
risk-weighted assets was 18.71% and our ratio of Tier 1 Capital to risk-weighted
assets was 15.83%.

     In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies.  These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk.  All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%.  At December 31, 2003, our leverage ratio was 18.2%.  The guidelines
also provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without reliance on intangible assets.  The
Federal Reserve considers the leverage ratio and other indicators of capital
strength in evaluating proposals for expansion or new activities.

     Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and certain other restrictions on its business.  As
described above, significant additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements.  See "-Prompt Corrective Action."

PAYMENT OF DIVIDENDS

     The Company is a legal entity separate and distinct from the Bank.  The
principal source of the Company's cash flow, including cash flow to pay
dividends to its shareholders, are dividends that the Bank


                                       13
<PAGE>
pays to the Company as its sole shareholder.  Statutory and regulatory
limitations apply to the Bank's payment of dividends to the Company, as well as
to the Company's payment of dividends to its shareholders.

     The Bank is required by federal law to obtain prior approval of the Office
of the Comptroller of the Currency for payments of dividends if the total of all
dividends declared by our board of directors in any year will exceed (1) the
total of the Bank's net profits for that year, plus (2) the Bank's retained net
profits of the preceding two years, less any required transfers to surplus.

     The payment of dividends by the Company and the Bank may also be affected
by other factors, such as the requirement to maintain adequate capital above
regulatory guidelines.  If, in the opinion of the Office of the Comptroller of
the Currency, the Bank were engaged in or about to engage in an unsafe or
unsound practice, the Office of the Comptroller of the Currency could require,
after notice and a hearing, that the Bank stop or refrain engaging in the
practice.  The federal banking agencies have indicated that paying dividends
that deplete a depository institution's capital base to an inadequate level
would be an unsafe and unsound banking practice.  Under the Federal Deposit
Insurance Corporation Improvement Act of 1991, a depository institution may not
pay any dividend if payment would cause it to become undercapitalized or if it
already is undercapitalized.  Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.  See "-Prompt
Corrective Action."

RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES

     The Company and the Bank are subject to the provisions of Section 23A of
the Federal Reserve Act.  Section 23A places limits on the amount of the
following:

     -    A bank's loans or extensions of credit to affiliates;

     -    A bank's investment in affiliates;

     -    Assets a bank may purchase from affiliates, except for real and
          personal property exempted by the Federal Reserve;

     -    Loans or extensions of credit to third parties collateralized by the
          securities or obligations of affiliates; and

     -    A bank's guarantee, acceptance or letter of credit issued on behalf of
          an affiliate.

     The total amount of the above transactions is limited in amount, as to any
one affiliate, to 10% of a bank's capital and surplus and, as to all affiliates
combined, to 20% of a bank's capital and surplus.  In addition to the limitation
on the amount of these transactions, each of the above transactions must also
meet specified collateral requirements.  The Bank must also comply with other
provisions designed to avoid the taking of low-quality assets.

     The Company and the Bank are also subject to the provisions of Section 23B
of the Federal Reserve Act which, among other things, prohibit an institution
from engaging in the above transactions with affiliates unless the transactions
are on terms substantially the same, or at least as favorable to the institution
or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.

     The Bank is also subject to restrictions on extensions of credit to its
executive officers, directors, principal shareholders and their related
interests.  These extensions of credit (1) must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with third parties, and (2) must not involve
more than the normal risk of repayment or present other unfavorable features.


                                       14
<PAGE>
PRIVACY

     Financial institutions are required to disclose their policies for
collecting and protecting confidential information.  Customers generally may
prevent financial institutions from sharing nonpublic personal financial
information with nonaffiliated third parties except under narrow circumstances,
such as the processing of transactions requested by the consumer or when the
financial institution is jointly sponsoring a product or service with a
nonaffiliated third party.  Additionally, financial institutions generally may
not disclose consumer account numbers to any nonaffiliated third party for use
in telemarketing, direct mail marketing or other marketing to consumers.

CONSUMER CREDIT REPORTING

     On December 4, 2003, the President signed the Fair and Accurate Credit
Transactions Act (the FAIR Act), amending the federal Fair Credit Reporting Act
(the FCRA).  These amendments to the FCRA (the FCRA Amendments) will become
effective as early as February 2004, but more likely in the third or fourth
quarter of 2004, depending on implementing regulations to be issued by the
Federal Trade Commission and the federal bank regulatory agencies.

     The FCRA Amendments include, among other things:

          -    new requirements for financial institutions to develop policies
               and procedures to identify potential identity theft and, upon the
               request of a consumer, place a fraud alert in the consumer's
               credit file stating that the consumer may be the victim of
               identity theft or other fraud;


          -    for entities that furnish information to consumer reporting
               agencies (which would include the Bank), new requirements to
               implement procedures and policies regarding the accuracy and
               integrity of the furnished information, and regarding the
               correction of previously furnished information that is later
               determined to be inaccurate; and

          -    a new requirement for mortgage lenders to disclose credit scores
               to consumers.

     Prior to the effective date of the FCRA Amendments, the Company and its
affected subsidiaries will implement policies and procedures to comply with the
new rules.

     The FCRA Amendments also will prohibit a business that receives consumer
information from an affiliate from using that information for marketing purposes
unless the consumer is first provided a notice and an opportunity to direct the
business not to use the information for such marketing purposes (the "opt-out"),
subject to certain exceptions.  The Company and its subsidiaries also will
implement procedures to comply with these new rules prior to the effective date
of the rules.  We do not plan to share consumer information among our affiliated
companies for marketing purposes, except as may be allowed under exceptions to
the notice and opt-out requirements.  Because no affiliate of the Company is
currently sharing consumer information with any other affiliate of the Company
for marketing purposes, the new limitations on sharing of information for
marketing purposes will not have a significant impact on the Company.

ANTI-TERRORISM LEGISLATION

     The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, signed
by the President on October 26, 2001, imposed new requirements and limitations
on specified financial transactions and account relationships, intended to


                                       15
<PAGE>
guard against money laundering and terrorism.  Most of these requirements and
limitations took effect in 2002.  Additional "know your customer" rules became
effective in June 2003, requiring the Bank to establish a customer
identification program under Section 326 of the USA PATRIOT Act.  The Company
and its subsidiaries implemented procedures and policies to comply with those
rules prior to the effective date of each of the rules.

PROPOSED LEGISLATION AND REGULATORY ACTION

     New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of financial institutions operating and doing business in the
United States.  We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may be
affected by any new regulation or statute.

EFFECT OF GOVERNMENTAL MONETARY POLICES

     Our earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its agencies.  The
Federal Reserve Bank's monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession.  The monetary policies of the Federal
Reserve affect the levels of bank loans, investments and deposits through its
control over the issuance of United States government securities, its regulation
of the discount rate applicable to member banks and its influence over reserve
requirements to which member banks are subject.  We cannot predict the nature or
impact of future changes in monetary and fiscal policies.


                                       16
<PAGE>
                        SELECTED STATISTICAL INFORMATION

            DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
                    INTEREST RATES AND INTEREST DIFFERENTIAL

     The following is a presentation of the average consolidated balance sheet
of the Company for the years ended December 31, 2003 and 2002.  This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:  ($ in thousands)

<TABLE>
<CAPTION>
                            AVERAGE CONSOLIDATED ASSETS

                                                             Year Ended December 31,
                                                           --------------------------
                                                              2003          2002
                                                           -----------  -------------
<S>                                                        <C>          <C>
Cash and due from banks                                    $       503  $         421
                                                           -----------  -------------

Taxable securities                                         $     2,280  $       1,463
Federal funds sold                                                 752            944
    Net loans                                                   22,507         11,741
                                                           -----------  -------------
Total interest-earning assets                              $    25,539  $      14,148

Other assets                                                     3,272          2,372
                                                           -----------  -------------

    Total assets                                           $    29,314  $      16,941
                                                           ===========  =============

            AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY

Non-interest-bearing deposits                              $     2,638  $       1,733
NOW and money market deposits                                    4,430          2,278
Savings deposits                                                   406            153
Time deposits                                                   16,422          7,341
Other borrowings                                                   386             83
Other liabilities                                                   59             91
                                                           -----------  -------------
    Total liabilities                                      $    24,341  $      11,679

Stockholders' equity                                             4,973          5,262
                                                           -----------  -------------
    Total liabilities and stockholders' equity             $    29,314  $      16,941
                                                           ===========  =============
</TABLE>


                                       17
<PAGE>
     The following is a presentation of an analysis of the net interest earnings
of the Company for the period indicated with respect to each major category of
interest-earning asset and each major category of interest-bearing liability: ($
in thousands)

<TABLE>
<CAPTION>
                            Year Ended December 31, 2003           Year Ended December 31, 2002
                        -------------------------------------  -------------------------------------
                                     Interest      Average                   Interest     Average
                         Average      Earned/       Yield/       Average      Earned/      Yield/
                         Amount        Paid          Rate        Amount        Paid         Rate
                        ----------  -----------  ------------  -----------  -----------  -----------
<S>                     <C>         <C>          <C>           <C>          <C>          <C>
        Assets
        ------
Taxable securities      $   2,280   $       75          3.29%  $    1,463   $       68         4.65%
Federal funds sold            752            8          1.06%         944           15         1.59%
Net loans                22,507(1)     1,702(2)         7.56%    11,741(1)       981(2)        8.36%
                        ----------  -----------  ------------  -----------  -----------  -----------
Total earning assets    $  25,539   $    1,785          6.99%  $    8,562   $      443         7.52%
                        ==========  ===========  ============  ===========  ===========  ===========
    Liabilities
    -----------
NOW and
 money market deposits  $   4,430   $       62          1.40%  $    2,278   $       45         1.98%
Savings deposits              406            4           .99%         153            1          .92%
Time deposits              16,422          504          3.07%       7,341          279         3.80%
Other borrowings              386            9          2.33%          83            1         1.57%
                        ----------  -----------  ------------  -----------  -----------  -----------
Total interest-
 bearing liabilities    $  21,644   $      579          2.67%  $    2,681   $      125         3.31%
                        ==========  ===========  ============  ===========  ===========  ===========

Net yield on
 earning assets                                         4.72%                     5.22%
                                                 ============               ===========
</TABLE>

______________________

1    At  December  31,  2003,  loans  on  non-accrual status amounted to $39. At
     December  31,  2002,  all  loans  were  accruing  interest.
2    Interest  earned  on net loans includes $241 and $100 in loan fees and loan
     service  fees for the years ended December 31, 2003 and 2002, respectively.


                                       18
<PAGE>
                  RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

     The effect on interest income, interest expense and net interest income in
the period indicated, of changes in average balance and rate from the
corresponding prior period is shown below.  The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period.  Changes resulting from average balance/rate variances are
included in changes resulting from rate.  The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate.  ($ in thousands)

<TABLE>
<CAPTION>
                                        Year Ended December 31, 2002
                                                Compared to
                                        Year Ended December 31, 2001
                                ------------------------------------------

                                         Increase (Decrease) due to

                                 Volume        Rate             Total
                                --------  ---------------  ---------------
<S>                             <C>       <C>              <C>
                                              (in thousands)
Interest earned on:
  Taxable securities            $    15   $           (8)  $            7
  Federal funds sold                 (3)              (4)              (7)
  Net loans                         806              (85)             721
                                --------  ---------------  ---------------
    Total interest income       $   818   $          (97)  $          721
                                --------  ---------------  ---------------

Interest paid on:
  NOW and money market deposits $    24   $           (7)  $           17
  Savings deposits                    3               --                3
  Time deposits                     267              (42)             225
  Other borrowings                    7                1                8
                                --------  ---------------  ---------------
    Total interest expense      $   301   $          (48)  $          253
                                --------  ---------------  ---------------

Change in net interest income   $   517   $          (49)  $          468
                                ========  ===============  ===============



                                       19
<PAGE>
                                        Year Ended December 31, 2002
                                                Compared to
                                        Year Ended December 31, 2001
                                ------------------------------------------

                                         Increase (Decrease) due to

                                 Volume        Rate             Total
                                --------  ---------------  ---------------
                                              (in thousands)
Interest earned on:
  Taxable securities            $  (154)  $          (44)  $         (198)
  Federal funds sold                (20)             (12)             (32)
  Net loans                         811               40              851
                                --------  ---------------  ---------------
    Total interest income       $   637   $          (16)  $          621
                                --------  ---------------  ---------------

Interest paid on:
  NOW and money market deposits $    29   $            1   $           30
  Savings deposits                    1               (1)               0
  Time deposits                     257                9              266
  Other borrowings                  (52)             (43)             (95)
                                --------  ---------------  ---------------
    Total interest expense      $   235   $          (34)  $          201
                                --------  ---------------  ---------------

Change in net interest income   $   402   $           18   $          420
                                ========  ===============  ===============
</TABLE>

                              INVESTMENT PORTFOLIO

     As of December 31, 2003, investment securities comprised approximately 7.2%
of the Bank's assets and net loans comprised approximately 81.2% of the Bank's
assets.  The Bank invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States,
obligations of agencies of the United States and certificates of deposit issued
by commercial banks.  In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and generally acts as a net
seller of such funds.  At December 31, 2003, however, the Bank was a net seller
of funds in the Federal funds market.  The sale of Federal Funds amounts to a
short-term loan from the Bank to another bank.

     The following table presents, for the date indicated, the book value of the
Bank's investments.  All securities held at December 31, 2003 and 2002 were
categorized as available-for-sale.  ($ in thousands)

<TABLE>
<CAPTION>
                        December 31,
                      ----------------
                       2003     2002
                      ------  --------
<S>                   <C>     <C>
U.S. Agencies         $2,096  $  1,141
FRB, FHLB stock          227       194
                      ------  --------
   Total              $2,323  $  1,335
                      ======  ========
</TABLE>


                                       20
<PAGE>
     The following table indicates as of December 31, 2003 the amount of
investments due in (i) one year or less, (ii) one to five years, (iii) five to
ten years, and (iv) over ten years:

<TABLE>
<CAPTION>
                                             Weighted
                                              Average
                                    Amount     Yield
                                    -------  ---------
<S>                                 <C>      <C>
Obligations of U.S. Agencies:
  0-1 year                          $  -  -       N/A
  Over 1 through 5 years               -  -       N/A
  Over 5 through 10 years              -  -       N/A
  Over 10 years                       2,096      3.20%
  FRB and FHLB stock (no maturity)      227      5.11%
                                    -------  ---------
  Total                             $ 2,323      3.38%
                                    =======  =========
</TABLE>

                                 LOAN PORTFOLIO

     The Bank engages in a full complement of lending activities, including
commercial/industrial, consumer and real estate loans.  As of December 31, 2003,
the Bank had a legal lending limit for unsecured loans of up to $815,000 to any
one person.

     While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of its various borrowers, risk of loss may also increase due to
factors beyond the Bank's control, such as local, regional and/or national
economic downturns.  General conditions in the real estate market may also
impact the relative risk in the Bank's real estate portfolio.  Of the Bank's
target areas of lending activities, commercial loans are generally considered to
have greater risk than real estate loans or consumer installment loans.

     Management of the Bank intends to originate loans and to participate with
other banks with respect to loans that exceed the Bank's lending limits.
Management of the Bank does not believe that loan participations necessarily
pose any greater risk of loss than loans that the Bank originates.

     The following is a description of each of the major categories of loans in
the Bank's loan portfolio:

                  COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS

     Commercial lending is directed principally towards businesses whose demands
for funds fall within the Bank's legal lending limits and which are potential
deposit customers of the Bank.  This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes.  Particular emphasis is placed on loans to small- and
medium-sized businesses.  The primary repayment risk for commercial loans is the
failure of the business due to economic or financial factors.  Although the Bank
typically looks to a commercial borrower's cash flow as the principal source of
repayment for such loans, many commercial loans are secured by inventory,
equipment, accounts receivable, and other assets.


                                       21
<PAGE>
                                 CONSUMER LOANS

     The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit.  This category of loans
also includes 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.  In evaluating these loans the Bank
reviews the borrower's level and stability of income and past credit history and
the impact of these factors on the ability of the borrower to repay the loan in
a timely manner.  In addition, the Bank maintains a proper margin between the
loan amount and collateral value.

                                REAL ESTATE LOANS

     The Bank's real estate loans consist of residential first and second
mortgage loans, residential construction loans and commercial real estate loans
to a limited degree.  These loans are made consistent with the Bank's appraisal
policy and real estate lending policy which detail maximum loan-to-value ratios
and maturities.  These loan-to-value ratios are sufficient to compensate for
fluctuations in the real estate market to minimize the risk of loss to the Bank.


                                 TYPES OF LOANS

     The following table presents various categories of loans contained in the
Bank's loan portfolio as of the date indicated and the total amount of all loans
for such period:  ($ in thousands)

<TABLE>
<CAPTION>
                                                  As of December 31,
                                               ------------------------
                Type of Loan                      2003         2002
                ------------                   -----------  -----------
<S>                                            <C>          <C>
Domestic:
  Commercial, financial and agricultural       $    4,288   $    6,570
  Real estate - construction                        5,806          360
  Real estate - mortgage                           13,641       11,173
  Installment and other loans to individuals        2,938          991
                                               -----------  -----------
    Subtotal                                   $   26,673   $   19,094
  Less:  Allowance for possible loan losses          (326)        (221)
                                               -----------  -----------
    Total (net of allowance)                   $   26,347   $   18,873
                                               ===========  ===========
</TABLE>


                                       22
<PAGE>
       MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES

     The following is a presentation of an analysis of maturities of certain
loans as of December 31, 2003:  ($ in thousands)

<TABLE>
<CAPTION>
                             Due in   Due after     Due
                             1 year      1 to      after
      Type of Loan          or less    5 years    5 years    Total
      ------------          --------  ----------  --------  -------
<S>                         <C>       <C>         <C>       <C>
Commercial, financial,
 and agricultural           $    892  $    2,604  $    792  $ 4,288
Real estate - construction     3,739       2,067      -  -    5,806
                            --------  ----------  --------  -------
      Total                 $  4,631  $    4,671  $    792  $10,094
                            ========  ==========  ========  =======
</TABLE>

                                  RISK ELEMENTS

     For  the  above  loans,  the  following is a presentation of an analysis of
sensitivities  to  changes  in  interest  rates  as  of  December  31,  2003:

<TABLE>
<CAPTION>
                             Due in   Due after     Due
                             1 year      1 to      after
      Type of Loan          or less    5 years    5 years    Total
      ------------          --------  ----------  --------  -------
<S>                         <C>       <C>         <C>       <C>
Predetermined interest rate  $  3,046  $    3,584  $    712  $ 7,342
Floating interest rate          1,585       1,087        80    2,752
                             --------  ----------  --------  -------
      Total                  $  4,631  $    4,671  $    792  $10,094
                             ========  ==========  ========  =======
</TABLE>

     As of December 31, 2003, there were no loans not disclosed above that are
classified for regulatory purposes as doubtful, substandard or special mention
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.  There
are no loans not disclosed above where known information about possible credit
problems of borrowers causes management to have serious doubts as to the ability
of such borrowers to comply with the present loan repayment terms.


                                       23
<PAGE>
                         SUMMARY OF LOAN LOSS EXPERIENCE

     An analysis of the Bank's loss experience is furnished in the following
table for the period indicated, as well as a breakdown of the allowance for
possible loan losses:  ($ in thousands)

               ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                   -----------------------------
                  Type of Loan                         2003            2002
                  ------------                     -------------  --------------
<S>                                                <C>            <C>
Balance at beginning of period                     $        221   $          77

Charge-offs:
Real estate loans                                          -  -            -  -
Installment and other loans to individuals                  (16)           -  -
Commercial loans                                           -  -            -  -
Recoveries                                                 -  -            -  -
                                                   -------------  --------------
Net charge-offs                                             (16)           -  -
                                                   -------------  --------------

Additions charged to operations                             121             144
                                                   -------------  --------------
Balance at end of period                           $        326   $         221
                                                   =============  ==============

Ratio of net charge-offs during the period
   to average loans outstanding during the period          0.07%              0%
                                                   =============  ==============
</TABLE>

     At December 31, 2003 and 2002, the allowance was allocated as follows: ($
in thousands)

<TABLE>
<CAPTION>
                                               December 31, 2003         December 31, 2002
                                            -----------------------  ------------------------
                                                       Percent of                Percent of
                                                     loans in each             loans in each
                                                      category to               category to
                                            Amount    total loans     Amount    total loans
                                            -------  --------------  --------  --------------
<S>                                         <C>      <C>             <C>       <C>
Commercial, financial and agricultural      $    60           16.1%  $   102            34.4%
Real estate - construction                      103           21.8%        6             1.9%
Real estate - mortgage                          113           51.1%       90            58.5%
Installment and other loans to individuals       36           11.0%       11             5.2%
Unallocated                                      14            N/A        12             N/A
                                            -------  --------------  --------  --------------
      Total                                 $   326          100.0%  $   221           100.0%
                                            =======  ==============  ========  ==============
</TABLE>

     In considering the adequacy of the Company's allowance for possible loan
losses, management has focused on the fact that as of December 31, 2003, 16.1%
outstanding loans are in the category of commercial loans, which includes
commercial, industrial and agricultural loans.  Commercial loans are generally
considered by management as having greater risk than other categories of loans
in the Company's loan portfolio.  However, 94.6% of these commercial loans at
December 31, 2003 were made on a secured basis.  Management believes that the
secured condition of the preponderant portion of its commercial loan portfolio
greatly reduces any risk of loss inherently present in commercial loans.


                                       24
<PAGE>
     The Company's consumer loan portfolio is also well secured.  At December
31, 2003, 92.5% of the Company's consumer loans were secured by collateral
primarily consisting of automobiles, boats and other personal property.
Management believes that these loans involve less risk than commercial loans.

     Real estate mortgage loans constituted 51.1% of outstanding loans at
December 31, 2003.  The loans in this category represent residential and
commercial real estate mortgages where the amount of the original loan generally
does not exceed 85% of the appraised value of the collateral.  These loans are
considered by management to be well secured with a low risk of loss.

     A review of the loan portfolio by an independent firm is conducted
annually.  The purpose of this review is to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses.  The
review includes analyses of historical performance, the level of non-conforming
and rated loans, loan volume and activity, review of loan files and
consideration of economic conditions and other pertinent information.  Upon
completion, the Board and management of the Bank approve the report.  In
addition to the above review, the Bank's primary regulator, the Office of the
Comptroller of the Currency (the "OCC"), also conducts an annual examination of
the loan portfolio.  Upon completion, the OCC presents its report of findings to
the Board and management of the Bank.  Information provided from the above two
independent sources, together with information provided by the management of the
Bank and other information known to members of the Board, are utilized by the
Board to monitor, on a quarterly basis, the loan portfolio.  Specifically, the
Board attempts to identify risks inherent in the loan portfolio (e.g., problem
loans, potential problem loans and loans to be charged off), assess the overall
quality and collectibility of the loan portfolio, and determine amounts of the
allowance for loan losses and the provision for loan losses to be reported based
on the results of their review.

                                    DEPOSITS

     The Bank offers a full range of interest-bearing and non-interest-bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement and Keogh accounts, regular interest-bearing
statement savings accounts and certificates of deposit with a range of maturity
date options.  The sources of deposits are residents, businesses and employees
of businesses within the Bank's market area, obtained through the personal
solicitation of the Bank's officers and directors, and advertisements published
in the local media.  In addition, the Bank uses the internet to obtain deposits
from institutions located elsewhere.  The Bank pays competitive interest rates
on time and savings deposits up to the maximum permitted by law or regulation.
In addition, the Bank has implemented a service charge fee schedule competitive
with other financial institutions in the Bank's market area, covering such
matters as maintenance fees on checking accounts, per item processing fees on
checking accounts and returned check charges.


                                       25
<PAGE>
     The following table presents, for the periods indicated, the average amount
of and average rate paid on each of the following deposit categories: ($ in
thousands)

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                      ------------------------------------------
                                             2003                  2002
                                      --------------------  --------------------
                                      Average    Average    Average    Average
Deposit Category                       Amount   Rate Paid    Amount   Rate Paid
                                      --------  ----------  --------  ----------
<S>                                   <C>       <C>         <C>       <C>
Non interest-bearing demand deposits  $  2,638        N/A   $  1,733        N/A
NOW and money market deposits            4,430       1.40%     2,278       1.98%
Savings deposits                           406        .99%       153        .92%
Time deposits                           16,422       3.07%     7,341       3.80%
</TABLE>

     The following table indicates amounts outstanding of time certificates of
deposit of $100,000 or more and respective maturities at December 31, 2003: ($
in thousands)

<TABLE>
<CAPTION>
                                   At
                              December 31,
Time Certificates of Deposit      2003
----------------------------  -------------
<S>                           <C>
3 months or less              $       1,613
3-6 months                              605
6-12 months                           2,171
Over 12 months                        1,806
                              -------------
      Total                   $       6,195
                              =============
</TABLE>

                           RETURN ON EQUITY AND ASSETS

     Returns on average consolidated assets and average consolidated equity for
the period indicated were as follows:

<TABLE>
<CAPTION>
                                            Year Ended
                                        December 31, 2003
                                        ------------------
<S>                                     <C>
Return on average assets                              .01%
Return on average equity                              .04%
Average equity to average assets ratio               17.0%
Dividend payout ratio                                 -- %
</TABLE>



ITEM  2.   DESCRIPTION  OF  PROPERTIES

     Our main office is located adjacent to Beaufort Plaza at 2348 Boundary
Street, Beaufort, South Carolina.  We purchased a former Wachovia Bank office
located at this site.  The office is a one-story banking facility with
approximately 7,600 square feet.  We completed renovations of the main office
building in November 2002.  The total cost of the renovations was approximately
$1,350,000.


                                       26
<PAGE>
     In addition, we purchased approximately 2.3 acres of land at 131 Sea Island
Parkway on Lady's Island, South Carolina.  Initially, we planned to construct
our main office on this site.  However, we decided to locate the main office at
the Boundary Street location because we believe it provides the Bank with
greater visibility and is more accessible to our customers.  We intend to keep
the Lady's Island location as a future branch site.  The Bank will be required
to seek regulatory approval prior to establishing a branch at this location.

     Our Charleston loan production office is located in a 500-square-foot
leased office at 3 Southpark Circle, Suite 260, Charleston, South Carolina
29407.  Rent for the office is $667 per month under a lease that is cancelable
with 30 days' prior notice.

ITEM 3.   LEGAL PROCEEDINGS

     There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject, nor are there material
proceedings known to the Company to be contemplated by any governmental
authority.   Additionally, the Company is unaware of any material proceedings,
pending or contemplated, in which any existing or proposed director, officer or
affiliate, or any principal security holder of the Company or any associate of
any of the foregoing, is a party or has an interest adverse to the Company.

ITEM  4.   SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

     None.

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS

     The response to this Item is partially included in the Company's Annual
Report to Shareholders at page 39 and is incorporated herein by reference.

     The Company issued no unregistered securities during the fiscal year ended
December 31, 2003.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

     The response to this Item is included in the Company's Annual Report to
Shareholders under the heading, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," at pages 1 through 8, and is
incorporated herein by reference.

ITEM 7.   FINANCIAL STATEMENTS

     The following financial statements are included in the Company's Annual
Report to Shareholders at pages 9 through 38, and are incorporated herein by
reference.

     -    Report of Independent Public Accountants


                                       27
<PAGE>
     -    Consolidated Balance Sheets as of December 31, 2003 and 2002

     -    Consolidated Statements of Operations for the Years Ended December 31,
          2003, 2002 and 2001.

     -    Consolidated Statements of Changes in Shareholders' Equity for the
          Years Ended December 31, 2003, 2002 and 2001

     -    Consolidated Statements of Cash Flows for the Years Ended December 31,
          2003, 2002 and 2001

     -    Notes to Consolidated Financial Statements

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

ITEM  8A.  CONTROLS  AND  PROCEDURES

     Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and as the date
of this report, our management, including our Chief Executive Officer and
Principal Financial and Accounting Officer, reviewed the effectiveness and
design of our disclosure controls and procedures under Exchange Act Rule
13a-15(b).  Based upon that evaluation, our Chief Executive Officer and
Principal Financial and Accounting Officer, concluded that such disclosure
controls and procedures are adequate to ensure that material information
relating to the Company, including its consolidated subsidiary, that is required
to be included in its periodic filings with the Securities and Exchange
Commission, is timely made known to them.  During the quarter ended December 31,
2003, there were no changes in the Company's internal controls that materially
affected, or are reasonably likely to materially affect, the  Company's control
over financial reporting.

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The responses to this Item are included in the Company's proxy statement
for the Annual Meeting of Shareholders to be held on April 27, 2004, under the
following headings and are incorporated herein by reference.

     "Proposal 1: Election of Directors - Class II Director Nominees, - Class I
Director Nominee, - Class III Continuing Directors and - Class I Continuing
Directors" at pages 3 through 5.

     "Executive Officers" at page 6.

     "Section 16(a) Beneficial Ownership Reporting Compliance" at page 10.

     The Company has a Code of Ethics that applies to the Company's Chief
Executive Officer and Principal Financial and Accounting Officer.  The Company
will provide a copy of the Code of Ethics free of charge to any shareholder upon
written request to the Company.


                                       28
<PAGE>
ITEM  10.  EXECUTIVE  COMPENSATION

     The responses to this Item are included in the Company's proxy statement
for the Annual Meeting of Shareholders to be held on April 27, 2004, under the
heading "Compensation" at pages 6 through 8, and are incorporated herein by
reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The responses to this Item are partially included in the Company's proxy
statement for the Annual Meeting of Shareholders to be held on April 27, 2004,
under the heading "Security Ownership of Certain Beneficial Owners and
Management" at pages 8 through 9, and are incorporated herein by reference.

     The following table sets forth information regarding the number of shares
subject to options issued and reserved for future issuance under the Islands
Bancorp 2002 Stock Incentive Plan.  This plan was approved by the Board of
Directors of the Company on March 19, 2002 and was approved by the shareholders
of the Company on April 23, 2002.  The Company does not maintain any other
equity compensation plans.

<TABLE>
<CAPTION>
                                                                          Number of shares
                                                                      remaining available for
                       Number of securities to    Weighted-average     future issuance under
                       be issued upon exercise   exercise price of       the Plan (excludes
                       of outstanding options   outstanding options     outstanding options)
                       -----------------------  --------------------  ------------------------
<S>                    <C>                      <C>                   <C>
Equity compensation
plans approved by                       38,081  $              10.00                    97,905
security holders

Equity compensation
plans not approved by                       --                   N/A                        --
security holders

Total                                   38,081  $              10.00                    97,905
</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The responses to this Item are included in the Company's proxy statement
for the Annual Meeting of Shareholders to be held on April 27, 2004, under the
headings "Certain Relationships and Related Transactions" at page 9 and
"Compensation" at pages 6 through 8 and are incorporated herein by reference.


                                       29
<PAGE>
ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB

(a)  Exhibits

<TABLE>
<CAPTION>
Exhibit
Number   Exhibit
-------  -------
<S>      <C>
3.1      Articles of Incorporation(1)

3.2      Bylaws(1)

4.1      Specimen Stock Certificate(1)

4.2      See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and
         Bylaws defining rights of holders of the common stock

10.1*    Employment Agreement dated as of July 27, 1999 between the Islands Bancorp
         and William B. Gossett(1)

10.2     Form of Organizers Warrant Agreement(1)

10.3     Assignment and Assumption Agreement dated August 25, 1999, between Islands
         Bancorp and NBB General Partnership(1)

10.4     Reserved.

10.5     Escrow Agreement dated November 23, 1999 between Islands Bancorp and The
         Bankers Bank(1)

10.6     Loan Agreement dated September 7, 1999 between Islands Bancorp and
         GrandSouth Bank, as extended on December 7, 1999, and form of Guaranty
         Agreement issued to GrandSouth Bank by various organizers of Islands
         Bancorp(1)

10.7     Promissory Note dated November 15, 2000 by Islands Bancorp in favor of The
         Bankers Bank and form of Commercial Guaranty issued to The Bankers Bank by
         various organizers of Islands Bancorp(2)

10.8     Promissory Note dated December 26, 2000 by Islands Bancorp in favor of The
         Bankers Bank and form of Commercial Guaranty issued to The Bankers Bank by
         various organizers of Islands Bancorp(2)

10.9     Agreement between Islands Community Bank and Patterson Construction, Inc.
         for the main office renovation of Islands Community Bank, dated November 6,
         2001(3)

13.1     Islands Bancorp 2003 Annual Report to Shareholders.  Except with respect to
         those portions specifically incorporated by reference into this Report, the
         Company's 2003 Annual Report to Shareholders is not deemed to be filed as part
         of this Report


                                       30
<PAGE>
Exhibit
Number   Exhibit
-------  -------
22.1     Subsidiaries of Islands Bancorp

24.1     Power of Attorney (appears on the signature pages to this Annual Report on Form
         10-KSB

31.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1     Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
         906 of the Sarbanes-Oxley Act of 2002
<FN>
_________________________
*    Compensatory plan or arrangement.

(1)  Incorporated herein by reference to exhibit of same number to the Company's
     Registration Statement on Form SB-2, Registration No. 333-92653, filed December 13,
     1999, as amended.

(2)  Incorporated herein by reference to exhibit of same number to the Company's Annual
     Report on Form 10-KSB filed March 30, 2001.

(3)  Incorporated herein by reference to exhibit of same number to the Company's Annual
     Report on Form 10-KSB filed April 1, 2002.
</TABLE>

(b)  Reports on Form 8-K filed in the fourth quarter of 2003:  None.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held April 26, 2004, under the
heading, "Independent Public Accountant," at pages 10 through 11.


                                       31
<PAGE>
                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) of the Securities
Exchange  Act  of 1934, Islands Bancorp has duly caused this Report to be signed
on  its  behalf  by  the  undersigned,  thereunto  duly  authorized.

                                   ISLANDS BANCORP

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

                                   Date:   March 26, 2004


                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Report constitutes and appoints William B. Gossett
and D. Martin Goodman, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits hereto, and
other documents in connection herewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Islands
Bancorp and in the capacities and on the dates indicated.

          SIGNATURE                      TITLE                   DATE
-----------------------------  ---------------------------  --------------


      /s/ Louis O. Dore        Director                     March 26, 2004
-----------------------------
        Louis O. Dore


 /s/ Paul M. Dunnavant, III    Treasurer and Director       March 26, 2004
-----------------------------
   Paul M. Dunnavant, III


   /s/ Martha B. Fender        Vice President and Director  March 26, 2004
-----------------------------
     Martha B. Fender


 /s/ Daryl A. Ferguson         Director                     March 26, 2004
-----------------------------
   Daryl A. Ferguson


<PAGE>
          SIGNATURE                      TITLE                   DATE
-----------------------------  ---------------------------  --------------


 /s/ D. Martin Goodman         Chairman of the Board of     March 26, 2004
-----------------------------  Directors
   D. Martin Goodman


 /s/ William B. Gossett        President, Chief Executive   March 26, 2004
-----------------------------  Officer and Director*
   William B. Gossett


 /s/ Stancel E. Kirkland, Sr.  Director                     March 26, 2004
-----------------------------
   Stancel E. Kirkland, Sr.


     /s/ Carl E. Lipscomb      Director                     March 26, 2004
-----------------------------
      Carl E. Lipscomb


  /s/ Edward J. McNeil, Jr.    Secretary and Director       March 26, 2004
-----------------------------
    Edward J. McNeil, Jr.


 /s/ Frances K. Nicholson      Director                     March 26, 2004
-----------------------------
   Frances K. Nicholson


     /s/ Narayan Shenoy        Director                     March 26, 2004
-----------------------------
     Dr. Narayan Shenoy


     /s/ J. Frank Ward         Director                     March 26, 2004
-----------------------------
       J. Frank Ward


    /s/ Bruce K. Wyles         Director                     March 26, 2004
-----------------------------
      Bruce K. Wyles


_____________________________
*  Principal Executive, Financial and Accounting Officer.


<PAGE>
<TABLE>
<CAPTION>
                                      EXHIBIT INDEX
                                      -------------

Exhibit
Number   Exhibit
-------  -------
<S>      <C>
3.1      Articles of Incorporation(1)

3.2      Bylaws(1)

4.1      Specimen Stock Certificate(1)

4.2      See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and
         Bylaws defining rights of holders of the common stock

10.1*    Employment Agreement dated as of July 27, 1999 between the Islands Bancorp
         and William B. Gossett(1)

10.2     Form of Organizers Warrant Agreement(1)

10.3     Assignment and Assumption Agreement dated August 25, 1999, between Islands
         Bancorp and NBB General Partnership(1)

10.4     Reserved.

10.5     Escrow Agreement dated November 23, 1999 between Islands Bancorp and The
         Bankers Bank(1)

10.6     Loan Agreement dated September 7, 1999 between Islands Bancorp and
         GrandSouth Bank, as extended on December 7, 1999, and form of Guaranty
         Agreement issued to GrandSouth Bank by various organizers of Islands
         Bancorp(1)

10.7     Promissory Note dated November 15, 2000 by Islands Bancorp in favor of The
         Bankers Bank and form of Commercial Guaranty issued to The Bankers Bank by
         various organizers of Islands Bancorp(2)

10.8     Promissory Note dated December 26, 2000 by Islands Bancorp in favor of The
         Bankers Bank and form of Commercial Guaranty issued to The Bankers Bank by
         various organizers of Islands Bancorp(2)

10.9     Agreement between Islands Community Bank and Patterson Construction, Inc.
         for the main office renovation of Islands Community Bank, dated November 6,
         2001(3)

13.1     Islands Bancorp 2003 Annual Report to Shareholders.  Except with respect to
         those portions specifically incorporated by reference into this Report, the
         Company's 2003 Annual Report to Shareholders is not deemed to be filed as part
         of this Report


<PAGE>
Exhibit
Number   Exhibit
-------  -------

22.1     Subsidiaries of Islands Bancorp

24.1     Power of Attorney (appears on the signature pages to this Annual Report on Form
         10-KSB

31.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1     Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
         906 of the Sarbanes-Oxley Act of 2002
<FN>
_________________________
*    Compensatory plan or arrangement.

(1)  Incorporated herein by reference to exhibit of same number to the Company's
     Registration Statement on Form SB-2, Registration No. 333-92653, filed December 13,
     1999, as amended.

(2)  Incorporated herein by reference to exhibit of same number to the Company's Annual
     Report on Form 10-KSB filed March 30, 2001.

(3)  Incorporated herein by reference to exhibit of same number to the Company's Annual
     Report on Form 10-KSB filed April 1, 2002.
</TABLE>


<PAGE>