UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-16934
BOL BANCSHARES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
LOUISIANA 72-1121561
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
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300 ST. CHARLES AVENUE, NEW ORLEANS, LA 70130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(504) 889-9400
(ISSUER'S TELEPHONE NUMBER)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT: NONE
Common Stock, par value $1.00 per share
_____________________________
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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 the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No ______
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
Total Revenue for fiscal year ended December 31, 2007: $10,044,373.
The aggregate market value of the voting common equity stock held by
non-affiliates of the registrant was approximately $2,336,297. For this
purpose, certain executive officers and directors are considered affiliates.
The number of shares of Common Stock, $1.00 par value, outstanding as
of February 29, 2008 was approximately 179,145.
Transitional Small Business Disclosure Format: Yes____ No X
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Cross Reference Index
Page
Part I
Item 1: Business 3
Item 2: Properties 6
Item 3: Legal Proceedings 7
Item 4: Submission of Matters to a Vote of Security Holders 7
Part II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6: Management's Discussion and Analysis 8
Item 7: Financial Statements and Supplementary Data 32
Item 8: Changes in and Disagreements with Accountants and
Financial Disclosure 68
Item 8A(T): Controls and Procedures 68
Item 8B: Other Information 68
Part III
Item 9: Directors and Executive Officers of the Registrant 69
Item 10: Executive Compensation 70
Item 11: Security Ownership of Certain Beneficial Owners and
Management 71
Item 12: Certain Relationships and Related Transactions 72
Item 13: Exhibits and Reports on Form 8-K
(a) Exhibits 72
(b) Reports on Form 8-K 72
Item 14: Principal Accountant Fees and Services 72
Signatures 73
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Item 1 Description of Business
Here and after BOL Bancshares, Inc. shall be referred to as the
Company and subsidiary Bank of Louisiana shall be referred to as the Bank.
History and General Business
The Company was organized as a Louisiana corporation on May 7, 1981,
for the purpose of becoming a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). The Company
remained inactive until April 29, 1988, when it acquired the Bank in a three-
bank merger of the Bank of Louisiana in New Orleans (the "Old Bank"), Bank of
the South ("South Bank"), and Fidelity Bank & Trust Company, all Louisiana
state-chartered banks. The Old Bank was the surviving bank in the merger and
subsequently changed its name to the Bank's current name. The merger was
originally accounted for as a "purchase", but after discussions with the
Securities and Exchange Commission, the accounting treatment of the merger
was changed to a manner similar to a "pooling of interests". [Since the change
in accounting treatment, the Company has recast its financial statements, to
reflect "pooling" accounting.] In addition, at the time of the bank's
merger, the Company merged with BOS Bancshares, Inc., a Louisiana corporation,
and the registered bank holding company for South Bank. The Company was the
surviving entity in that merger. The Company is the sole shareholder and
registered bank holding company of the Bank.
Other than owning and operating the Bank, the Company may also engage,
directly or through subsidiary corporations, in those activities closely
related to banking that are specifically permitted under the BHC Act. See
"Supervision and Regulation Enforcement Action". The Company, after
acquiring the requisite approval of the Board of Governors of the Federal
Reserve System (the "FRB") and any other appropriate regulatory agency, may
seek to engage de novo in such activities or to acquire companies already
engaged in such activities. The Bank has formed BOL Assets, LLC to engage in
the permissible activity of holding real estate from loans which were in
default and held past the FDIC's time limits. There can be no assurance,
however, that the Company will not form or acquire any other entity in the
future.
If the Company attempts to form or acquire other entities and engage in
activities closely related to banking, the Company will be competing with
other bank holding companies and companies currently engaged in the line of
business or permissible activity in which the Company might engage, many of
which have far greater assets and financial resources than the Company and a
greater capacity to raise additional debt and equity capital. See "Territory
Served and Competition".
Forward-Looking Statements are Subject to Change
We make certain statements in this document as to what we expect may
happen in the future. These statements usually contain the words "believe",
"estimate", "project", "expect", "anticipate", "intend" or similar
expressions. Because these statements look to the future, they are based on
our current expectations and beliefs. Actual results or events may differ
materially from those reflected in the forward-looking statements. You
should
be aware that our current expectations and beliefs as to future events are
subject to change at any time, and we can give no assurances that the future
events will actually occur.
Critical Accounting Policies
In reviewing and understanding financial information of the Company,
you are encouraged to read and understand the significant accounting policies
used in preparing our consolidated financial statements. These policies are
described in Note A of the notes to our consolidated financial statements
included in this Form 10-KSB. Our accounting and financial reporting
policies conform to accounting principles generally accepted in the United
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States of America and to general practices within the banking industry.
Accordingly, the consolidated financial statements require certain estimates,
judgments, and assumptions, which are believed to be reasonable, based upon the
information available. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the periods presented.
The following policies comprise those that management believes are the most
critical to aid in fully understanding and evaluating our reported financial
results. These policies require numerous estimates or economic assumptions
that may prove inaccurate or may be subject to variations which may
significantly affect our reported results and financial condition for the
period or in future periods.
Allowance for Loan Losses. We have identified the evaluation of the
allowance for loan losses as a critical accounting policy where amounts are
sensitive to material variation. The allowance for loan losses is
established through a provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Subsequent recoveries are added
to the allowance. The allowance is an amount that management believes will
cover known and inherent losses in the loan portfolio, based on evaluations
of the collectibility of loans. The evaluations take into consideration such
factors as changes in the types and amount of loans in the loan portfolio,
historical loss experience, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral, estimated
losses relating to specifically identified loans, and current economic
conditions. This evaluation is inherently subjective as it requires material
estimates including, among others, exposure at default, the amount and timing
of expected future cash flows on impacted loans, value of collateral,
estimated losses on our commercial and residential loan portfolios and
general amounts for historical loss experience. All of these estimates may be
susceptible to significant change.
Banking Industry
The Company derives its revenues largely from dividends from the Bank
when the Bank upstreams dividends. As is the case with any financial
institution, the profitability of the Bank is subject, among other things, to
fluctuating availability of money, loan demand, changes in interest rates,
actions of fiscal and monetary authorities, and economic conditions in
general. See "Banking Products and Services", "Supervision and Regulation
Enforcement Action", and "Management's Discussion and Analysis".
Banking Products and Services
The Bank is a full service commercial bank that provides a wide range
of banking services for its customers. Some of the major services that it
offers include checking accounts, negotiable order of withdrawal ("NOW")
accounts, individual retirement accounts ("IRAs"), savings and other time
deposits of various types, and business, real-estate, personal use, home
improvement, automobile, and a variety of other loans, as discussed more fully
below. Other services include letters of credit, safe deposit boxes, money
orders, traveler's checks, credit cards, wire transfer, e-banking, night
deposit, and drive-in facilities. Prices and rates charged for services
offered are competitive with the area's existing financial institutions in the
Bank's primary market area.
The Bank offers a wide variety of fixed and variable rate loans to
qualified borrowers. With regard to interest rates, the Bank continues to
meet legal standards while remaining competitive with the existing financial
institutions in its market area. The specific types of loans that the Bank
offers include the following:
Consumer Loans. The Bank's consumer loans consist of automobile,
mobile home, recreational vehicle, and boat loans; home improvement and second-
mortgage loans; secured and unsecured personal expense loans; and educational
loans.
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Real Estate Loans. The Bank's real estate loans consist of residential
first and second mortgage loans on one-to-four family homes; construction and
development loans; multiple dwelling unit loans; housing rehabilitation
loans; loans to purchase developed real property; and commercial real estate
loans.
Commercial Loans (Secured and Unsecured). The Bank's commercial loans
consist of working capital loans, secured and unsecured lines of credit, and
small equipment loans.
Credit Cards. The Bank offers a variety of nationally recognized
credit cards, in addition to its own Mr. Bol credit card, and private label
credit cards for use at retail establishments nationwide. As of December 31,
2007 the Bank held $9,064,000 in credit card debt.
The Bank has a number of proprietary accounts it services which is
included above. These accounts consist largely of small to medium sized
merchants who have issued their own private-label credit cards. The Bank
acquires these credit card accounts, typically with reserves posted, and
requires the merchant to repurchase accounts 180 days or more past due. As
of December 31, 2007 the Bank held $1,583,000 in proprietary accounts.
Territory Served and Competition
Market Area. The market area for the Bank is defined in the Bank's
Community Reinvestment Act Statement as the greater New Orleans metropolitan
area. This area includes all of the City of New Orleans and surrounding
Parishes. The Bank has branch offices in Orleans, Jefferson, and St. Tammany
Parishes.
Population. In December of 2007 an urban planning consultant firm
estimated New Orleans population at 300,000 or about 65 percent of its pre-
Hurricane Katrina size, which was around 455,000.
Competition. The Bank competes with other commercial banks in New
Orleans and with savings and loan associations, credit unions, and other
types of financial services providers. The Bank is one of the smallest
commercial banks in New Orleans in terms of assets and deposits.
Economy. While there is still a long way to go, considerable
measurable progress is being made toward the New Orleans region's gradual
economic recovery in the aftermath of the widespread devastation wreaked by
Hurricanes Katrina (August 29, 2005) and Rita (September 24, 2005).
Maritime Industry: All 14 of Louisiana's public coastal ports are
operating at pre-Katrina and Rita capacity.
Tourism and Conventions: Tourism is a $4 billion plus industry.
Although most of the city flooded and some neighborhoods were
devastated, most tourist venues-including the French Quarter-weren't
hard hit by Katrina. But the chaos that followed the hurricane left New
Orleans with a black eye. As its population has grown, so has the
city's crime problem, offering a second worry for the hospitality
industry.
A spokeswoman for the New Orleans Metropolitan Convention and Visitors
Bureau, said 2008 is shaping up to be the best since Katrina for
convention business. Bookings stand at 80-90 percent of pre-storm
levels.
Governmental agencies and coalitions have crafted and embraced
comprehensive plans for rebuilding New Orleans and its surrounding
parishes for the near, medium and long term. Our communities and
citizens are working hard to make a solid come-back. Our vision is one
of a more livable, sustainable and safer future for New Orleans, which
will include all the rich cultural and architectural heritage that has
made the region so beloved to natives and visitors alike.
Employees
As of December 31, 2007, the Bank had 72 full-time and approximately 9
part-time employees. The Bank considers its relationship with its employees
to be very good. The employee benefit programs provided by the Bank include
group life and health insurance, paid vacations, sick leave, and a Section
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401(k) savings plan. The Company has no employees who are not employees of
the Bank. See "Executive Compensation".
Item 2 Description of Property
In addition to its main office, the Bank has five branch locations and
an operations center. Set forth below is a description of the offices of the
Bank.
Main Office. The main office of the Company is located at 300 St.
Charles Avenue in the central business district of New Orleans, Louisiana.
The building consists of approximately 13,100 square feet of office space,
and parking is provided on the streets and commercial lots nearby. The Bank
occupies the ground floor and the fourth floor. The second and third floors
are leased. Rental income received is $2,543 per month. The lease commenced
December 15, 2003 and terminates on December 15, 2018. The Bank owns the
building.
Severn Branch. The Severn Branch of the Bank is located in the central
business district of Metairie at 3340 Severn Avenue, Metairie, Louisiana.
The premises consist of approximately 4,600 total square feet of office space
on the first floor of a four-story office building, and parking is provided for
approximately 100 cars. On August 20, 2007 for a price of $4,650,000 the
Bank purchased the land and improvements from Severn South Partnership which
the Bank was paying rent to. The property consists of a four story building
with offices that are leased to other businesses. The purchase was approved
by FDIC (Federal Deposit Insurance Corp) and OFI (Office of Financial
Institutions, State of Louisiana) on August 6, 2007 with the stipulation that
the investment in fixed assets not exceed 50 percent of its equity capital
and reserves by December 31, 2008. The percentage as of December 31, 2007 was
54.39%. Management feels certain that the required 50% will be reached
within the 18 month time frame allowed by the agencies. The Bank leased office
space from Severn South Partnership. The general partner of Severn South
Partnership is a majority shareholder in BOL BANCSHARES, INC. Rent paid to
Severn South Partnership for the years ended December 31, 2007 (prior to the
purchase described above), 2006 and 2005 totaled $247,407, $381,386, and
$410,012 respectively. Rental income received after the purchase & through
December 31, 2007 was $108,326.
Oakwood Branch. The Oakwood Branch of the Bank is located in the
Oakwood Shopping Center at 197 Westbank Expressway, Gretna, Louisiana. The
premises consisted of approximately 3,730 total square feet of office space,
which includes 1,560 square feet designated for its drive-in facility. The
Bank leases the lobby and drive-in facility from Oakwood Shopping Center,
Ltd. There was heavy storm damage to this shopping center and the Bank has
relocated its branch to another location within the shopping center and
reopened during the 4th quarter of 2007. The lease will expire November 14,
2016 with a monthly lease amount of $12,822 per month.
Lapalco Branch. The Lapalco Branch of the Bank is located in the Belle
Meade Plaza Shopping Center at 605 Lapalco Boulevard, Gretna, Louisiana. The
premises consist of approximately 2,500 square feet of office space in a one-
story building, and parking is provided by the shopping center. The lease
will expire March, 2017 with a monthly lease amount of $6,384 per month.
Gause Branch. The Gause Branch of the Bank is located in the central
business district of Slidell at 636 Gause Boulevard, Slidell, Louisiana. The
building consists of approximately 13,800 total square feet of office space
in a three-story office building, and parking is provided for approximately 50
cars. The Bank owns the building and underlying land upon which it is
situated. The Bank occupies approximately 3,300 square feet in this building
and leases the remaining space to various tenants for varying rental rates
and terms. Rental income received during 2007 totaled $96,071.
Tammany Mall Branch. The Tammany Mall Branch of the Bank is located
at 3180 Pontchartrain, Slidell, Louisiana. The premises consist of
approximately 4,000 total square feet of office space, and parking is provided
for approximately 40 cars. The Bank owns the building.
Operations Center. The Bank's operations center, which houses its
accounting, audit, data processing, credit card, bookkeeping, and marketing
departments, is located at 3340 Severn Avenue, Metairie, Louisiana. The
building consists of approximately 44,500 total square feet of space in a
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four-story office building, and parking is provided for approximately 200
cars. See "Severn Branch" above for information on the building purchase.
Item 3 Legal Proceedings
Because of the nature of the banking industry in general, the Company
and the Bank are each party from time to time to litigation and other
proceedings in the ordinary course of business, none of which (other than
those described below), either individually or in the aggregate, have a
material effect on the Company's and/or the Bank's financial condition.
Reserves for such litigation, if the Company deems such litigation to have
sufficient merit or which may subject the Company to significant exposure,
have been posted and are reflected in the Company's consolidated financial
statements.
The following actions, however, have been brought against the Bank and,
if the claimants were wholly successful on the merits, could result in
significant exposure to the Bank:
1. The Company is a defendant in a lawsuit filed by a proprietary
merchant alleging that the Company mishandled the Plaintiff's proprietary
credit card portfolio. All previous cases by and between the Bank and the
proprietary merchant have become final, with the merchant having received the
money which was once held in the registry of the court. One last case is
presently pending in the Fifth Circuit Court of Appeals on the Bank's appeal
from the last dismissal. The case has been fully briefed and is expected to
be decided in the next several months. The outcome is presently doubtful,
given the Fifth Circuit's penchant for affirming the decisions of the
district judges.
2. The Bank has a suit in the United States District Court which began
in 2002 against an insurance company arising from the insurance company
drafting the Bank for $273,000 in payments under a previously-existing
employee's health plan. The Bank has amended its complaint to seek penalties
and damages in excess of the $273,000. The matter is set for trial on April
7, 2008 and a favorable result is expected. Given the amount of time which
has elapsed and the possibility of penalties, the case has the potential for
a significant recovery of over $400,000. A loss of $272,000 was charged to
operations during 2004.
3. The Bank is a defendant in a lawsuit filed by one of its customers
for the unauthorized transfer of funds via telephone. The matter was tried
before a judge only and has been fully briefed. A favorable decision is
expected forthwith.
4. The Bank is a defendant in a lawsuit pending in the 22nd Judicial
District Court in St. Tammany Parish. The issues involved the clearing of a
safety deposit box at the Gause branch by a notary with authority from the
court to do so in the succession of the owner of the box. The causes of
action against the Bank are unclear and the case is in the discovery stages.
It is doubtful that the Bank has any exposure.
5. The Bank entered into an agreement with a company for disaster
protection. The company had a contract to provide technical and physical
backup in the event the Bank's data systems were impaired by a natural
disaster. When Katrina hit, however, the company woefully failed to provide
the services agreed and the Bank has made demand for payment of $901,992.50.
The Bank filed suit which is set for trial March 24, 2008 before a jury. The
company has counterclaimed for some $75,000 in fees.
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted, during the fourth quarter of fiscal
year 2007 to a vote of security holders, through the solicitation of proxies.
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market in the shares of Bank Stock, as
the Company owns 100% of the issued and outstanding shares of Bank Stock.
There is no established trading market in the shares of Company Common Stock.
The Company Common Stock is not listed or quoted on any stock exchange or
automated quotation system. Management is aware, however, that Dorsey &
Company, New Orleans, Louisiana does make a market in the Company Common
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Stock. The following table sets forth the range of high and low sales prices
of Company Common Stock since 2006, as determined by the Company based on
trading records of Dorsey & Company. The following table does not purport to
be a listing of all trades in Company Common Stock during the time periods
indicated, but only those trades of which Dorsey and Company has informed the
Company. The prices indicated below do not reflect mark-ups, mark-downs, or
commissions, but do represent actual transactions. Finally, the prices
listed below are not necessarily indicative of the prices at which shares of
Company Stock would trade. As of December 31, 2007, the Company had
approximately 589 shareholders of record. There were no dividends declared on
the Company common stock for the years ended 2007 or 2006.
2007
High Low
First Quarter 31.00 29.75
Second Quarter - -
Third Quarter - -
Fourth Quarter - -
2006
High Low
First Quarter - -
Second Quarter - -
Third Quarter 28.00 19.00
Fourth Quarter - -
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No dividends were paid on shares of Company Common stock in 2007 or
2006.
Annual Shareholders Meeting
The Annual Meeting of the shareholders of Registrant will be held at
300 St. Charles Avenue, 4th Floor, New Orleans, Louisiana, on Tuesday April 8,
2008 at 3:30 p.m.
Independent Auditors
LaPorte, Sehrt, Romig & Hand, 110 Veterans Memorial Blvd., Suite 200,
Metairie, LA 70005-4958.
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of
operations of BOL Bancshares, Inc. (the "Company") and its bank subsidiary,
(the "Bank") for the years ending December 31, 2007, 2006, and 2005. This
discussion and analysis should be read in conjunction with the consolidated
financial statements, related notes, and selected financial data appearing
elsewhere in this report.
This discussion may contain certain forward-looking statements, which
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those stated. Readers are cautioned not to place undue reliance on these
forward-looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management considers interest rate risk to be a market risk that could
have a significant effect on the financial condition of the Company.
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Hurricane Katrina Disclosure
Management expects insurance proceeds for storm damages caused by
Hurricane Katrina to cover the majority of damages sustained to the Bank's
branches. Of the 7 branch locations that were affected by Hurricane Katrina,
only the Carrollton branch was not reopened. Repairs to several of the
Bank's buildings are ongoing. The Company's management team and employees have
and are continuing to work diligently to control operating expenses and costs
while restoring normal business operations.
Overview
The Company provides a full range of quality financial services in
selected market areas. As of December 31, 2007, the Company's total assets
were $105,270,000 as compared to $105,171,000 at December 31, 2006.
Loans comprise the largest single component of the Bank's interest-
earning assets and provide a far more favorable return than other categories
of earnings assets. The Bank's loans totaled $55,820,000, and $57,335,000
net of unearned discount and Allowance for Loan Losses at December 31, 2007,
and 2006. The Bank's net interest margin was 8.04% for the year ended December
31, 2007.
Historically, credit card loans have been an important part of the
Bank's total loan portfolio. However, the Bank has been diversifying its
earning assets into commercial and installment loans. At December 31, 2007,
credit card loans were $9,064,000 and represented 16.24% of the Bank's loan
portfolio of $55,820,000. At December 31, 2006, credit card loans were
$9,995,000 and represented 17.43% of the Bank's loan portfolio of
$57,335,000.
The Bank's current strategy is to continue to grow its traditional
banking operations primarily in the metropolitan New Orleans area and to
expand its proprietary accounts, so long as it can maintain the minimum
required Tier 1 leverage ratio required. The Bank focuses on providing its
customers with the financial sophistication and breadth of products of a
regional bank while successfully retaining the local appeal and level of
service of a community bank.
Results of Operations
Net Income - December 31, 2007 Compared to December 31, 2006
The Company's net income for the year 2007 was $1,477,000 or $8.24 per
share, a decrease of $653,000 from the Company's net income of $2,130,000 in
2006. Net income for the year 2005 was $468,000. The most significant
contributing factor within the non-interest income and expense category for
2007 is a decrease of $514,000 in non-interest income. This decrease was due
mainly to a gain on insurance settlement. In 2006, $600,000 in insurance
proceeds was received on an OREO property that the Bank had no plans to
repair. The Bank had a purchase offer and the property was sold in July,
2006. This was offset by an increase of $87,000 from the gain of an OREO
sale of $88,000 in 2007, as compared to a minimal gain of $1,000 on sold OREO
in 2006.
Non-interest expense increased $24,000. The major component of this
increase was the recovery of $202,000 during 2006 due to insurance recovery
of damages sustained during Hurricane Katrina in 2005 as compared to the
recovery of $1,200 during 2007. This was offset by a decrease in Other Real
Estate write-downs of $241,000. During 2007, the write-down on Other Real
Estate parcels was $24,000 compared to a write-down of $265,000 in 2006.
Income tax expense decreased $217,000 in 2007 compared to the same
period last year from $938,000 in 2006 to $721,000 in 2007 due to the
decrease in pretax net income of $870,000 from 2006 to 2007.
Net Income - December 31, 2006 Compared to December 31, 2005
The Company's net income for the year 2006 was $2,130,000 or $11.89 per
share, an increase of $1,662,000 from the Company's net income of $468,000 in
2005. The most significant contributing factor within the non-interest
income and expense category for 2006 is a decrease of $1,143,000 in non-
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interest expenses. Salaries and employee benefits decreased $499,000. This
decrease is directly attributable to the Bank outsourcing its credit card
operations and the Bank's core processing, thereby reducing staff, and also
staff not returning after Hurricane Katrina. Occupancy expense decreased
$324,000 and rental expense was reduced by $207,000 in 2006 post Katrina due to
two branch offices that were not able to reopen and one branch office wherein
only the drive-in facility was operating. Depreciation expense increased
$58,000 due to the purchase of equipment necessary to facilitate outsourcing
the Bank's core processing, in addition to the replacement of equipment,
furniture and fixtures destroyed by Hurricane Katrina. Disaster recovery
services decreased $136,000 from an expense of $77,000 in 2006 to a recovery
of $59,000 from insurance proceeds. Estimated loss (recovery) contingency
decreased $432,000 due to the insurance recovery of damages sustained during
Hurricane Katrina of $202,000 in 2006 from an expense of $230,000 in 2005. ORE
expenses increased $228,000 due mainly to $265,000 write-down of one ORE
property in 2006.
Non-interest income decreased $51,000, due mainly to a decrease in
deposit related fees of $192,000 of which $139,000 was due to the reduction
of fees collected on overdrawn accounts. Other Real Estate income decreased
$245,000 due to the gain on the sale of an ORE property of $235,000 in 2005
as compared to a gain of $1,000 in 2006. Other income decreased $173,000 in
2006 due mainly to the Bank receiving $141,000 as beneficiary of two insurance
policies on the life of the Bank's president, Mr. James Comiskey, who passed
on in February 2005. In 2006, $600,000 in insurance proceeds was received on
an OREO property that the Bank had no plans to repair. The Bank had a
purchase offer and the property was sold in July, 2006.
Income tax expense increased $795,000 in 2006 compared to the same
period last year from $143,000 in 2005 to $938,000 in 2006 due to the
increase in net income from $612,000 in 2005 to $3,067,000 in 2006.
Net Interest Income/Margin - December 31, 2007 Compared to December 31, 2006
Net interest income which is total interest income (including fees)
less total interest expense was $7,804,000 in 2007 compared to $8,424,000 in
2006. Net interest income for 2005 was $7,084,000.
Interest on earning assets decreased $420,000 from $9,037,000 in 2006
to $8,617,000 in 2007. Interest income on federal funds sold decreased
$467,000 due to a decrease in the average balance of $10,161,000 from
$36,360,000 in 2006 as compared to $26,199,000 in 2007. This decrease was due
primarily to the decrease in the average balance of deposits which decreased
$17,131,000 from $109,103,000 in 2006 to $91,972,000 in 2007. The customers
who had received insurance proceeds and road home money have used these funds
to repair or replace property damaged by Hurricane Katrina. Interest income on
investment securities decreased $88,000 from $531,000 earning 2.96% in 2006
to $443,000 earning 3.58% in 2007 due to $6,000,000 in called or matured
securities resulting in a decrease of average balances from $17,939,000 in
2006 to $12,370,000 in 2007. Taxable-equivalent income on loans increased
$135,000 or 2.01%, from $6,731,000 in 2006 to $6,866,000 in 2007. This
increase primarily resulted from an increase of $784,000 in the average
balance of loans from $57,718,000 in 2006 to $58,502,000 in 2007.
Interest on deposits increased $225,000 from $475,000 in 2006 to
$700,000 in 2007. This increase resulted primarily from an increase in the
rates paid from .88% in 2006 to 1.52% in 2007.
Net Interest Income/Margin - December 31, 2006 Compared to December 31, 2005
Net interest income which is total interest income (including fees)
less total interest expense was $8,424,000 in 2006 compared to $7,084,000 in
2005.
Interest on earning assets increased $1,468,000 from $7,569,000 in
2005 to $9,037,000 in 2006. Taxable-equivalent income on loans decreased
$50,000 or .74%, from $6,781,000 in 2005 to $6,731,000 in 2006. This decrease
primarily resulted from a decrease of $3,111,000 in the average balance of
loans from $60,829,000 in 2005 to $57,718,000 in 2006. Interest income on
federal funds sold increased $1,479,000 due to an increase in the average
balance of $27,957,000 from $8,403,000 in 2005 as compared to $36,360,000 in
2006. The additional funds sold was attributable to additional funds on
10
deposit from customers receiving insurance proceeds and FEMA monies post
Katrina. Due to the uncertainty of how long the funds would remain in
customer's accounts, the Bank chose to invest the additional monies in
overnight Federal Funds. In addition, Federal Funds rates paid increased from
3.52% in 2005 to 4.88% in 2006. Interest income on investment securities
increased $39,000 from $492,000 earning 2.51% in 2005 to $531,000 earning
2.96% in 2006 due to several step-up rates in government agencies held for
investment.
Interest on deposits increased $156,000 from $319,000 in 2005 to
$475,000 in 2006. This increase resulted primarily from an increase in the
rates paid from .67% in 2005 to .88% in 2006.
11
TABLE 1 Average Balances, Interests and Yields
2007 2006 2005
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest
Rate
(Dollars in Thousands)
ASSETS
INTEREST-EARNING ASSETS:
Loans, net of
Unearned income (1)(2)
58,502 6,866 11.74% 57,718 6,731 11.66% 60,829 6,781
11.15%
Investment securities
12,370 443 3.58% 17,939 531 2.96% 19,567 492
2.51%
Federal funds sold 26,199 1,308 4.99% 36,360 1,775 4.88% 8,403 296
3.52%
Total Interest-Earning Assets
97,071 8,617 8.88% 112,017 9,037 8.07% 88,799 7,569
8.52%
Cash and due from banks
3,946 6,084 6,475
Allowance for loan Losses
(1,803) (1,804) (1,797)
Premises and equipment 4,001 2,334 2,124
Other Real Estate 1,105 894 633
Other assets 1,284 1,517 1,392
TOTAL ASSETS 105,604 121,042 97,626
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Demand Deposits 15,487 214 1.38% 18,313 158 0.86% 14,866 83
0.56%
Savings deposits 24,505 271 1.11% 30,273 177 0.58% 26,712 134
0.50%
Time deposits 6,181 215 3.47% 5,576 140 2.51% 6,154 102
1.66%
Total Int-Bearing Deposits
46,173 700 1.52% 54,162 475 0.88% 47,732 319
0.67%
Long-Term debt 1,544 113 7.30% 1,843 138 7.48% 2,169 164
7.56%
Total Interest-Bearing Liabilities
47,717 813 1.70% 56,005 613 1.09% 49,901 483
0.97%
Non-interest-bearing deposits
45,799 54,941 39,458
Other liabilities 2,199 1,783 1,256
Shareholders' equity 9,889 8,313 7,011
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 105,604 121,042 97,626
Net Interest Income 7,804 8,424 7,086
Net Interest Spread 7.17% 6.97%
7.56%
Net Interest Margin 8.04% 7.52%
7.98%
(1) Fee income relating to loans of $452,000 in 2007, $586,000 in 2006 and
$663,000 in 2005 is included in interest income.
(2) Non-accrual loans are included in average balances and income on such loans,
if recognized, is recognized on the cash basis.
|
12
Table 2 Rate/Volume Analyses (1)
2007 Compared to 2006 2006 Compared to 2005
Change In Interest Change in Interest
Due to Total Due to Total
(Dollars in Thousands) Rate Volume Change Rate Volume Change
Net Loans 44 91 135 297 (347) (50)
Investment Securities 77 (165) (88) 80 (41) 39
Federal Funds Sold 29 (496) (467) 494 985 1,479
Total Interest Income 150 (570) (420) 871 597 1,468
Deposits:
Demand Deposits 80 (24) 56 56 19 75
Savings Deposits 128 (34) 94 25 18 43
Time Deposits 60 15 75 48 (10) 38
Total Int-Bearing Dep 268 (43) 225 129 27 156
|
Long-Term Debt (3) (22) (25) (1) (25) (26)
Total Interest Expense 265 (65) 200 128 2 130
(1) The change in interest due to both rate and volume has been allocated to
the components in proportion to the relationship of the dollar amounts of the
change in each.
Interest Sensitivity Gap Analysis
The major elements management utilizes monthly to manage interest rate
risk include the mix of fixed and variable rate assets and liabilities and
the maturity pattern of assets and liabilities. It is the Bank's policy not to
invest in derivatives in the ordinary course of business. The Bank performs
a quarterly review of assets and liabilities that reprice and the time bands
within which the repricing occurs. Balances are reported in the time band
that corresponds to the instruments next repricing date or contractual
maturity, whichever occurs first. Through such analysis, the Bank monitors
and manages its interest sensitivity gap to minimize the effects of changing
interest rates.
The interest rate sensitivity structure within the Company's balance
sheet at December 31, 2007, has a net interest sensitive asset gap of 33.71%
when projecting out one year. In the near term, defined as 90 days, the
Company currently has a net interest sensitive liability gap of 5.55%. The
information represents a general indication of repricing characteristics over
time; however, the sensitivity of certain deposit products may vary during
extreme swings in the interest rate cycle. Since all interest rates and
yields do not adjust at the same velocity, the interest rate sensitivity gap
is only a general indicator of the potential effects of interest rate changes
on net interest income.
The following table illustrates the Company's interest rate sensitivity
analysis at December 31, 2007, as well as the cumulative position at December
31, 2007:
13
TABLE 3 Asset/Liability and Gap Analysis
December 31, 2007
1-30 31-60 1-90 91-365 1 Year- Over
Days Days Days Days 5 Years 5 Years Total
(Dollars in Thousands)
Total
Earning Assets
Securities-HTM - 3,000 5,000 - - - 8,000
Securities - AFS - - - - 740 - 740
Loans 11,715 2,744 3,413 28,753 8,794 401 55,820
Federal
Funds sold 27,490 - - - - - 27,490
Total
Earning Assets 39,205 2,744 6,413 33,753 9,534 401 92,050
Non
Earning Assets - - - - 13,220 - 13,220
|
TOTAL ASSETS 39,205 2,744 6,413 33,753 22,754 401 105,270
Interest-Bearing Liabilities
Savings &
Now accounts 35,936 - - 204 - - 36,140
Money market 4,248 - - - - 4,248
CD's < $100,000 519 476 343 2,882 1,391 - 5,611
CD's > $100,000 - 100 900 1,025 235 - 2,260
Notes payable - - - - 1,543 - 1,543
Total Int-
Bearing
Liabilities 40,703 576 1,243 4,111 3,169 - 49,802
Non Costing
Liabilities 1,518 - - - 53,950 - 55,468
TOTAL LIABILITIES 42,221 576 1,243 4,111 57,119 - 105,270
Interest
Sensitivity Gap (1,498) 2,168 5,170 29,642 6,365 401 42,248
Cumulative Gap (1,498) 670 5,840 35,482 41,847 42,248
|
Cumulative Gap/Total Assets
-1.42% 0.64% 5.55% 33.71% 39.75% 40.13%
14
Provision for Loan Losses
Management's policy is to maintain the allowance for possible loan
losses at a level sufficient to absorb estimated losses inherent in the loan
portfolio. The allowance is increased by the provision for loan losses and
decreased by charge-offs, net of recoveries. Management's evaluation process
to determine potential losses includes consideration of the industry,
specific conditions of individual borrowers, historical loan loss experience,
and the general economic environment. As these factors change, the level of
loan loss provision changes.
At December 31, 2007 and December 31, 2006 the allowance for possible
loan losses was $1,800,000. In 2007, the provision for loan losses was
$277,000 compared to $564,000 in 2006. Net charge-offs were $277,000 in 2007
compared to $677,000 in 2006. Based on the volume of credit card charges and
payments, the credit card portfolio turns over every eight to nine months,
requiring a provision to loan loss allowance less than annual charge-offs due
to recoveries being contemporaneously made.
TABLE 4 Allowance for Loan Losses
December 31,
2007 2006
(Dollars in Thousands)
Balance at beginning of period $1,800 $1,913
Charge-Offs:
Commercial 32 22
Real estate 11 58
Installment 15 150
Credit Cards 424 704
Total Charge-offs 482 934
Recoveries:
Commercial 3 20
Real estate 0 0
Installment 7 24
Credit Cards 195 213
Total Recoveries 205 257
Net charge-offs 277 677
Provision for loan losses 277 564
Balance at end of period $1,800 $1,800
Ratio of net charge-offs during period
to average loans outstanding 0.47% 1.17%
Allowance for possible loan losses as a
percentage of loans 3.12% 3.04%
|
Non-interest Income
An important source of the Company's revenue is derived from non-
interest income.
For the year 2007 non-interest income decreased $514,000. This decrease
was due mainly to a gain on insurance settlement. In 2006, $600,000 in
insurance proceeds was received on an OREO property that the Bank had no
plans to repair. The Bank had a purchase offer and the property was sold in
July, 2006. This was offset by an increase of $87,000 from the gain of an OREO
sale of $88,000 in 2007, as compared to a minimal gain of $1,000 on sold OREO
in 2006.
For the year 2006 non-interest income decreased $51,000, due mainly to
a decrease in deposit related fees of $196,000 of which $139,000 was due to the
reduction of fees collected on overdrawn accounts. Other Real Estate income
decreased $245,000 due primarily to the gain on the sale of an ORE property
of $235,000 in 2005 as compared to a gain of $1,000 in 2006. Other income
decreased $173,000 in 2006 due mainly to the Bank receiving $141,000 as
beneficiary of two insurance policies on the life of the Bank's president,
Mr. James Comiskey, who passed in February 2005. In 2006, $600,000 in
insurance proceeds was received on an OREO property that the Bank had no plans
15
to repair. The Bank had a purchase offer and the property was sold in July,
2006.
The following table sets forth the major components of non-interest
income for the last two years.
TABLE 5 Non-interest Income
$ Change
December 31, From Prior
2007 2006 Year
(Dollars in Thousands)
Service Charges 277 337 (60)
NSF Charges 315 270 45
Gain on Sale of Securities 0 0 0
Cardholder & Other Cr Card Inc 543 608 (65)
Other Comm. & Fees 65 60 5
ORE Income 0 0 0
Gain on Sale of ORE 88 1 87
Gain on Insurance Settlement 0 600 (600)
Other Income 139 65 74
|
Total Non-interest Income $1,427 $1,941 ($514)
Non-interest Expense
The major categories of non-interest expense include salaries and
employee benefits, occupancy and equipment expenses and other operating costs
associated with the day-to-day operations of the Company.
For the year 2007 non-interest expense increased $24,000. The major
component of this increase was the recovery of $202,000 during 2006 due to
insurance recovery of damages sustained during Hurricane Katrina in 2005 as
compared to the recovery of $1,200 during 2007. This was offset by a
decrease in Other Real Estate write-downs of $241,000. During 2007, the write-
down on Other Real Estate parcels was $24,000 compared to a write-down of
$265,000 in 2006.
The most significant factor during 2006 is a decrease of $1,143,000.
Salaries and employee benefits decreased $499,000. This decrease is directly
attributable to the Bank outsourcing its credit card operations and the
Bank's core processing, thereby reducing staff, and also staff not returning
after Hurricane Katrina. Occupancy expense decreased $324,000 and rental
expense was reduced by $207,000 in 2006 post Katrina due to 2 branch offices
that were not able to reopen and one branch office wherein only the drive-in
facility was operating. Depreciation expense increased $58,000 due to the
purchase of equipment necessary to facilitate outsourcing the Bank's core
processing, in addition to the replacement of equipment, furniture and fixtures
destroyed by Hurricane Katrina. Disaster recovery services decreased $136,000
from an expense of $77,000 in 2005 to a recovery of $59,000 from insurance
proceeds. Estimated loss (recovery) contingency decreased $432,000 due to the
insurance recovery of damages sustained during Hurricane Katrina of $202,000 in
2006 from an expense of $230,000 in 2005. ORE expenses increased $228,000 due
mainly to $265,000 write-down of one ORE property in 2006.
The following table sets forth the major components of non-interest
expense for the last two years:
16
TABLE 6 Non-interest Expenses
$ Change
December 31, From Prior
2007 2006 Year
(Dollars in Thousands)
Salaries & Benefits 2,749 2,689 60
Occupancy Expense 1,058 1,080 (22)
Advertising Expense 9 5 4
Communications 163 171 (8)
Postage 59 66 (7)
Outsourcing Fees 1,432 1,406 26
Loan & Credit Card Expense 125 132 (7)
Professional Fees 202 173 29
Legal Fees 103 119 (16)
Insurance & Assessments 76 83 (7)
Stationery, Forms & Supply 111 143 (32)
Promotional Expenses 74 68 6
ORE Expenses 87 389 (302)
Misc. Losses 100 5 95
Estimated Loss (Recovery) Contingency 0 (202) 202
Other Operating Expense 410 407 3
Total Non-interest Expense $6,758 $6,734 $24
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Provision for Income Taxes
Income tax expense for 2007 was $721,000 compared to $938,000 in 2006,
and an income tax expense of $143,000 in 2005. The income tax paid was for
federal income taxes only, as Louisiana does not have an income tax for
banks. The Company's effective tax rate approximated statutory rates.
Financial Condition
The Bank manages its assets and liabilities to maximize long-term
earnings opportunities while maintaining the integrity of its financial
position and the quality of earnings. To accomplish this objective,
management strives to effect efficient management of interest rate risk and
liquidity needs. The primary objectives of interest-sensitivity management
are to minimize the effect of interest rate changes on the net interest
margin and to manage the exposure to risk while maintaining net interest income
at acceptable levels. Liquidity is provided by carefully structuring the
balance sheet. The Bank's asset liability committee meets regularly to review
both the interest rate sensitivity position and liquidity.
Liquidity
The purpose of liquidity management is to ensure that there is
sufficient cash flow to satisfy demands for credit, deposit withdrawals, and
other corporate needs. Traditional sources of liquidity include asset
maturities and growth in core deposits. These are sources of liquidity that
the Bank has not fully utilized. The Bank, nevertheless, has maintained
adequate liquidity through the sale of federal funds. Traditionally,
17
liquidity sources for the Bank are generated from operating activities and
financing activities.
Net cash from operating activities primarily results from net income
adjusted for the following non-cash items: the provision for loan losses;
depreciation and amortization; fair value adjustments on foreclosed property;
and deferred income taxes or benefits.
Significant financing activities generally include core deposits,
securities sold under agreements to repurchase, and long-term debt. The Bank
anticipates capital needs will be met from the growth in retained earnings.
Financing activity cash flows from deposits, which decreased 4.13% to
$89,666,000 in 2007 from $93,531,000 in 2006, or $3,865,000, was the primary
reason for the decrease in liquidity. As customers utilize their insurance
proceeds for purchasing new homes or making repairs for the damages caused by
Katrina, they are withdrawing the funds in their accounts. Management
anticipated this fact and therefore has invested the funds in readily
available Federal Funds Sold to correspondent banks. The Bank had unused
sources of liquidity in the form of unused federal funds lines of $4,000,000
from a correspondent bank, and borrowing availability from the FRB discount
window equal to the Bank's principal amount of unpledged investment
securities. The Bank manages asset and liability growth through pricing
strategies within regulatory capital constraints. Management believes that
its core deposit strength minimizes the risk of deposit runoff.
Loans
The loan portfolio is the largest category of the Bank's earning
assets.
The following table summarizes the composition of the loan portfolio for the
last two years:
TABLE 7 Loans Net by Category
December 31,
2007 2006
(Dollars in Thousands)
Commercial, financial, & 2,754 3,491
agricultural
Real estate-mortgage 43,513 42,557
Personal Loans 2,175 2,215
Credit cards 9,064 9,995
Overdrafts 114 877
|
Loans 57,620 59,135
Less:
Allowance for possible loan losses 1,800 1,800
Loans, net $55,820 $57,335
At December 31, 2007 total loans outstanding were $55,820,000 and
$57,335,000 at December 31, 2006. Average total loans during 2007 increased
$784,000 or 1.36%, to $58,502,000 from $57,718,000 at December 31, 2006.
The Bank experienced an increase of $956,000 in real estate loans from
$42,557,000 in 2006 to $43,513,000 in 2007, which was offset by a decrease in
credit card loans of $931,000, a decrease in commercial loans of $737,000, a
decrease of 763,000 in overdrafts and a decrease in personal loans of
$40,000.
In 2005 the Bank experienced a decrease of $3,656,000 in real estate
loans from $43,543,000 in 2004 to $39,887,000 in 2005, a decrease in credit
card loans of $1,747,000, a decrease in personal loans of $908,000, and a
18
decrease in commercial loans of $49,000. The Bank lost several seasoned
lenders during the first quarter of 2005. Loan production was down until
lenders were replaced. In addition, Management has noted strong housing
appreciation in undamaged housing in the Gulf Coast areas which were impacted
by the 2005 hurricanes. When a significant portion of the housing stock has
been destroyed, the law of supply and demand dictates that the remaining
houses will dramatically increase in value. We feel the gains don't
accurately reflect normal market conditions as the market will likely
experience significant, unpredictable shifts during the next two years.
Therefore, Management has been extremely conservative when considering
appraisal values as collateral on real estate.
The following table shows the maturity distribution and interest rate
sensitivity of the Bank's loan portfolio at December 31, 2007:
TABLE 8 Loan Maturity and Interest Rate Sensitivity
December 31, 2007
Maturing
Within One To Over
One Year 5 Years 5 Years Total
(Dollars in Thousands)
Loan Maturity by Type
Commercial, financial and
agricultural 2,513 243 0 2,756
Real estate construction, land
and land development 37,562 5,341 611 43,514
All other loans 1,956 9,394 0 11,350
Total $42,031 $14,978 $611 $57,620
Rate Sensitivity of Loans
Loans:
Fixed rate loans 38,214 14,978 611 53,803
Variable rate loans 3,400 0 0 3,400
Non-Accrual Loans 417 0 0 417
Total $42,031 $14,978 $611 $57,620
|
As of December 31, 2007 and 2006, the Bank's recorded investment in
loans that are considered impaired under SFAS 114 totaled $417,000 and
$68,000, respectively.
Non-performing Assets
Non-performing assets consist of non-accrual and restructured loans
and other real estate owned. Non-accrual loans are loans on which the interest
accruals have been discontinued when it appears that future collection of
principal or interest according to the contractual terms may be doubtful.
Interest on these loans is reported on the cash basis as received when the
full recovery of principal is anticipated or after full principal has been
recovered when collection of interest is in question. Restructured loans are
those loans whose terms have been modified, because of economic or legal
reasons related to the debtors' financial difficulties, to provide for a
reduction in principal, change in terms, or fixing of interest rates at below
19
market levels. Other real estate owned is real property acquired by
foreclosure or deed taken in lieu of foreclosure.
Non-performing assets at December 31, 2007 were $1,453,000 and
$1,233,000 at December 31, 2006. During 2007, non-accrual loans increased by
$349,000 and other real estate owned decreased $129,000. At December 31,
2007, and 2006, there were no restructured loans.
Since December 31, 2006, the ratio of past due loans to total loans has
decreased from 2.52% to .85% at December 31, 2007. During that time, the
Bank increased its ratio of non-performing assets to loans and other real
estate owned from a low of 2.04% at December 31, 2006, to a high of 2.48% at
December 31, 2007. The allowance for possible loan losses as a percent of
period-end loans increased to 3.12% at December 31, 2007, compared to 3.04% at
December 31, 2006. Management believes the allowance for possible loan losses
is dequate to provide for losses inherent in the loan portfolio.
When a loan is classified as non-accrual, previously accrued interest
is reversed and interest income is decreased to the extent of all interest
accrued in the current year. If any portion of the accrued interest had been
accrued in the previous years, accrued interest is decreased and a charge for
that amount is made to the allowance for possible loan losses. For 2007, the
gross amount of interest income that would have been recorded on non-accrual
loans at December 31, 2007, if all such loans had been accruing interest at
the original contract rate, was $31,000.
TABLE 9 Non-performing Assets
December 31,
2007 2006
(Dollars in Thousands)
Non-accrual Loans 417 68
Restructured Loans 0 0
Other Real Estate Owned 1,036 1,165
Total Non-performing Assets $1,453 $1,233
Loans past due 90 days or more 488 1,491
Ratio of past due loans to loans 0.85% 2.52%
Ratio of non-performing assets to loans
and other real estate owned 2.48% 2.04%
|
Management is aware of and working with customers who experienced
damage due to the hurricanes.
Allocation of Allowance for Possible Loan Losses
Allocation of the allowance for loan losses is based primarily on
previous credit loss experience, adjusted for changes in the risk
characteristics of each category. Additional amounts are allocated based on
the evaluation of the loss potential of individual troubled loans and the
anticipated effect of economic conditions on both individual loans and loan
categories. Since the allocation is based on estimates and subjective
judgment, it is not necessarily indicative of the specific amounts of loan
categories in which losses may ultimately occur.
Approved credit card accounts are reviewed on a monthly basis to assure
compliance with the Bank's credit policy. Review procedures include
determination that the appropriate verification process has been completed,
recalculation of the borrower's debt ratio, and analyses of the borrower's
credit history to determine if it meets established Bank criteria. Policy
exceptions are carefully analyzed monthly. Delinquent accounts are monitored
daily and charged off before 180 days, which is the industry standard. Prior
to charge-off, interest on credit card loans continue to accrue. A monthly
20
provision for credit card losses is included in the Bank's overall provision
for loan losses.
Table 10 Allocation of Allowance for Possible Loan Losses
December 31, 2007 December 31, 2006
Allowance % * Allowance % *
(Dollars in Thousands)
Non-accrual loans 163 0.72% 34 0.11%
Substandard/Impaired/Doubtful 591 14.17% 627 0.12%
Construction loans 201 12.62% - -
Commercial, financial
and agricultural 287 49.74% 370 62.58%
Consumer Installment 48 6.82% 50 6.99%
Credit Cards 501 15.73% 716 16.90%
|
Overdrafts 9 0.20% 3 1.48%
Total 1,800 1,800
* Percentage of respective loan type to total loans.
Investment Securities
The Company's investment portfolio policy is to maximize income
consistent with liquidity, asset quality, regulatory constraints, and
asset/liability objectives. The Bank's Board of Directors reviews such
policy not less than annually. The levels of taxable and tax-exempt securities
and short-term investments reflect the Company's strategy of maximizing
portfolio yields while providing for liquidity needs. The investment
securities totaled $8,740,000 at December 31, 2007, and $14,536,000 at December
31, 2006. The majority of the holdings are backed by U.S. Government or
federal agency guarantees limiting the credit risks associated with these
securities. Although credit risks are minimal, interest rates and their
respective interest income is subject to risk due to fluctuating interest
rates. The average maturity of the securities portfolio was one year or less
at December 31, 2007. At year-end 2007, $740,000 of the Company's investment
securities were classified as available-for-sale, compared to $536,000 at
December 31, 2006. The gross unrealized holding gains on these securities at
December 31, 2007 were $437,000 and $218,000 at December 31, 2006.
There were no investments and no obligations of any one state or
municipality at December 31, 2007, or 2006.
At December 31, 2007, and 2006 the Bank had no U.S. Treasury securities
or obligations of U. S. government corporations or federal agencies, as
available for sale.
The following table sets forth the carrying and approximate market
values of investment securities for the last two years:
21
TABLE 11 Investment Securities
December 31,
2007 2006
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in Thousands)
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 8,000 7,997 14,000 13,815
Other investments 302 740 318 536
|
Total $8,302 $8,737 $14,318 $14,351
TABLE 12 Securities Maturities and Yields
December 31, 2007
Amortized Fair Average
Cost Value Yield (2)
(Dollars in Thousands)
Available-for-Sale
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies
Due in 1 year or less - -
Due 1-5 years - -
Total - - -
Held-to-Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies
Due in 1 year or less 8,000 7,997 4.31%
Due 1-5 years
|
Total $8,000 $7,997 4.31%
(1) This table excludes equity investments, which have no maturity date.
(2) Weighted average yields are calculated on the basis of the carrying value
of the security. The weighted average yields on tax-exempt obligations are
compounded on a fully taxable-equivalent basis assuming a federal tax rate of
34%.
Below is a table of equity securities that are included in Investment
Securities at December 31, 2007 (dollars in thousands):
22
TABLE 13 Other Securities
Mississippi River Bank 613
Liberty Financial Services, Inc. 96
Business Resource Capital 20
MasterCard International 11
Total Other Securities $740
|
Deposits
Total deposits at December 31, 2007 were $89,666,000 which represented
a decrease of $3,865,000 or 4.13% from $93,531,000 at December 31, 2006.
During 2007, interest bearing deposits increased by $2,175,000. Core deposits,
the Bank's largest source of funding, consists of all interest bearing and non-
interest bearing deposits except certificates of deposits over $100,000.
Core deposits are obtained from a broad range of customers. Average core
deposits decreased $17,872,000 or 16.44% to $90,868,000 in 2007. Market rate
core deposits, primarily CD's of less than $100,000 and money market accounts,
decreased $177,000 in 2007.
Non-interest bearing deposits are comprised of business accounts,
including correspondent bank accounts, escrow deposits, as well as individual
accounts. Average non-interest bearing demand deposits represented 50.40% of
average core deposits in 2007 compared to 50.53% in 2005.
The average amount of, and average rate paid on deposits by category
for the period shown are presented below:
TABLE 14 Selected Statistical Information
December 31,
2007 2006
Average Average
Amount Rate Amount Rate
(Dollars in Thousands)
Non-interest-bearing Deposits $45,799 N/A $54,941 N/A
Interest-bearing Demand Deposits 15,487 1.38% 18,313 0.86%
Savings Deposits 24,505 1.11% 30,273 0.58%
Time Deposits 6,181 3.47% 5,576 2.51%
Total Average Deposits $91,972 $109,103
|
The composition of average deposits for the last two years is presented
below:
23
TABLE 15 Deposit Composition
December 31,
2007 2006
(Dollars in Thousands)
Average % Of Average % Of
Balances Deposits Balances Deposits
Demand, non-interest-bearing 45,799 49.80% 54,941 50.36%
NOW accounts 11,728 12.75% 14,513 13.30%
Money market deposit accounts 3,759 4.09% 3,800 3.48%
Savings accounts 24,505 26.64% 30,273 27.75%
Other time deposits 5,077 5.52% 5,213 4.78%
Total core deposits 90,868 98.80% 108,740 99.67%
Certificates of deposit of
$100,000 or more 1,104 1.20% 363 0.33%
|
Total deposits $91,972 100.00% $109,103 100.00%
The following table sets forth maturity distribution of Time Deposits
of $100,000 or more for the past two years:
TABLE 16 Maturity Distribution of Time Deposits $100,000 or More
December 31,
2007 2006
(Dollars in Thousands)
Three months or less 1,000 200
After three months through one year 1,025 305
Over one year through three years 235 0
Total $2,260 $505
|
Other Assets and Other Liabilities
Other liabilities increased $2,308,000 mainly due to insurance proceeds
that will be used to complete the repairs on property damaged by Hurricane
Katrina.
The following are summaries of other assets and other liabilities for
the last two years:
24
TABLE 17 Other Assets & Other Liabilities
Other Assets December 31,
2007 2006
(Dollars in Thousands)
Interest Receivable 285 416
Prepaid Expenses 361 281
Accounts Receivable 69 129
Cash Surrender Value 209 267
Other Assets 0 4
Total Other Assets $924 $1,097
Other Liabilities December 31,
2007 2006
(Dollars in Thousands)
Accrued Expenses Payable 225 284
Deferred Membership Fees 17 21
Blanket Bond Fund 50 50
Other Liabilities 2,577 206
Total Other Liabilities $2,869 $561
|
Borrowings
The Company's long-term debt is comprised primarily of debentures which
will be due July 5, 2009. Each $500 debenture is secured by a pledge of
51.07 shares of the Bank's stock.
The Bank has no long-term debt. It is the Bank's policy to manage its
liquidity so that there is no need to make unplanned sales of assets or to
borrow funds under emergency conditions. The Bank maintains a Federal Funds
line of credit in the amount of $4,000,000 with a correspondent bank. The
Bank can borrow the amount of unpledged securities at the discount window at
the Federal Reserve Bank by pledging those securities.
Shareholders' Equity
Shareholders' equity at December 31, 20067 was $10,740,000, an increase
of $1,617,000 or 17.72% from $9,123,000 at December 31, 2006, and amounted to
10.20% of total assets. Realized shareholders' equity, which includes
preferred and common stock, capital in excess of par, and retained earnings,
increased $1,472,000 or 16.64% to $10,318,000 at December 31, 2007, from
$8,846,000 at December 31, 2006.
During 2007, the increase in shareholder's equity was primarily
attributable to net income of $1,476,000, a decrease in Preferred Stock of
$7,000, and an increase in capital in excess of par-retired Preferred Stock
of $3,000. In addition, there was a increase in accumulated other
comprehensive income, which is used to refer to revenues, expenses, gains, and
losses that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income, in the amount of
$145,000.
No dividends were paid on shares of Company Common Stock in 2007 or
2006.
Shareholders' equity at December 31, 2006, was $9,123,000, an increase
of $2,058,000 or 29.13% from $7,065,000 at December 31, 2005, and amounted to
8.67% of total assets. Realized shareholders' equity, which includes
25
preferred and common stock, capital in excess of par, and retained earnings,
increased $2,113,000 or 31.38% to $8,846,000 at December 31, 2006, from
$6,733,000 at December 31, 2005.
During 2006, the increase in shareholder's equity was primarily
attributable to net income of $2,130,000, a decrease in Preferred Stock of
$28,000, and an increase in capital in excess of par-retired Preferred Stock
of $12,000. In addition, there was a decrease in accumulated other
comprehensive income, which is used to refer to revenues, expenses, gains,
and losses that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income, in the amount of
$55,000.
No dividends were paid on shares of Company Common Stock in 2006 or
2005.
The Company maintains an adequate capital position that exceeds all
minimum regulatory capital requirements. The Company's internal capital
growth rate (net income less dividends declared as a percentage of average
shareholders' equity) for 2007 was 14.93% compared to 25.62% in 2006. The
ratio of average shareholders' equity to average assets was 9.36% and 6.87%
in 2007 and 2006, respectively.
At December 31, 2007, the Company's primary capital ratio as defined by
the FRB was 11.19%, compared to 9.82% in 2006. The total capital ratio was
11.19% at December 31, 2007, and 9.82% in 2006, compared to the guidelines,
which mandate a minimum primary capital ratio of 5.50% and total capital
ratio of 6.00% for bank holding companies and banks.
The Bank's leverage ratio (Tier 1 capital to total assets) at December
31, 2007, was 10.31% compared to 9.27% at December 31, 2006, which are
compared to the minimum capital requirement of 4.00% for well-managed Banking
organizations.
The Company's ratios are in excess of the FRB's requirements, as
indicated in the Capital Adequacy schedule below:
Table 18 Capital Adequacy
December 31,
2007 2006
Amount Percent Amount Percent
(Dollars in Thousands)
Tier I capital
Actual 10,740 15.84% 9,123 15.06%
Minimum 2,715 4.00% 2,425 4.00%
Excess 8,025 11.84% 6,698 11.06%
Total risk-based capital
Actual 11,599 17.11% 9,893 16.33%
Minimum 5,425 8.00% 4,845 8.00%
Excess 6,174 9.11% 5,048 8.33%
Tier I capital leverage ratio
Actual 10,740 10.17% 9,123 7.54%
Minimum 4,220 4.00% 4,845 4.00%
Excess 6,520 6.17% 4,278 3.54%
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Dividends that may be paid by the Bank to the Company are subject to certain
regulatory limitations. Under Louisiana banking law, the approval of the OFI
will be required if the total of all dividends declared in any calendar year
by the Bank exceed the Bank's net profits to date and retained net profits
for the year in which such dividend is declared and the immediately preceding
year, subject to maintenance of minimum required regulatory capital.
26
Supervision and Regulation Enforcement Action
Bank Holding Company Regulation
Federal
The Company is a bank holding company within the meaning of the BHC
Act, and is registered with the FRB. It is required to file annual reports
with the FRB and such additional information as the FRB may require pursuant to
the BHC Act. The FRB may also perform periodic examinations of the Company and
its subsidiaries. The following summary of the BHC Act and of the other acts
described herein is qualified in its entirety by express reference to each of
the particular acts.
The BHC Act requires every bank holding company to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control
of more than 5% of the voting shares of any bank which is already not
majority owned by the Company. The BHC Act prohibits a bank holding company,
with certain exceptions, from acquiring direct or indirect ownership or control
of more than 5% of the outstanding voting shares of any company which is not a
bank and from engaging in any business other than banking or furnishing
services to or performing services for its subsidiaries. The 5% limitation
is not applicable to ownership of shares in any company the activities of which
the FRB has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. As set forth below,
however, the Gramm-Leach-Bliley Financial Modernization Act of 1999, enacted
on November 12, 1999, broadens the ability of a bank holding company to own
or control companies other than banks.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") allows the FRB to
approve an application of an adequately capitalized and adequately managed
bank holding company to acquire control of, or acquire all or substantially
all of the assets of, a bank located in a state other than such holding
company's home state, without regard to whether the transaction is prohibited
by the laws of any state. The FRB may not approve the acquisition of a bank
that has not been in existence for the minimum time period (not exceeding
five years) specified by the statutory law of the target bank's state. The
Riegle-Neal Act also prohibits the FRB from approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of
the deposits in the target bank's home state or in any state in which the
target bank maintains a branch. The Riegle-Neal Act does not affect the
authority of states to limit the percentage of total insured deposits in the
state which may be held or controlled by a bank or bank holding company to the
extent such limitation does not discriminate against out-of-state banks or bank
holding companies. Individual states may also waive the 30% statewide
concentration limit contained in the Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transaction is
prohibited by the law of any state, unless the home state of one of the banks
has opted out of the Riegle-Neal Act by adopting a law after the date of
enactment of the Riegle-Neal Act and prior to June 1, 1997, which applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks. Interstate acquisitions of branches are
permitted only if the law of the state in which the branch is located permits
such acquisitions. Interstate mergers and branch acquisitions are also
subject to the nationwide and statewide insured deposit concentration amounts
described above.
The Riegle-Neal Act authorizes the FDIC to approve interstate branching
de novo by national and state banks, respectively, only in states that
specifically allow for such branching. The Riegle-Neal Act also requires the
appropriate federal banking agencies to prescribe regulations that prohibit
any out-of-state bank from using the interstate branching authority primarily
for the purpose of deposit production.
The Bank is an "affiliate" of the Company within the meaning of the
Federal Reserve Act. This act places restrictions on a bank's loans or
extensions of credit to purchases of or investments in the securities of, and
purchases of assets from an affiliate, a bank's loans or extensions of credit
to third parties collateralized by the securities or obligations of an
27
affiliate, the issuance of guarantees, acceptances, and letters of credit on
behalf of an affiliate, and certain bank transactions with an affiliate, or
with respect to which an affiliate acts as agent, participates, or has a
financial interest. Furthermore, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit, lease or sale of property or furnishings of
services.
Under FRB policy, the Company is expected to act as a source of
financial strength to its subsidiary bank and to commit resources to support
its subsidiary. This support may be required at times when, absent such FRB
policy, the Company may not be inclined to provide it. Under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August
9, 1989 in connection with (a) the default of a commonly controlled FDIC-
insured depository institution or (b) any assistance provided by the FDIC to
any commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence
of certain conditions indicating that a default is likely to occur in the
absence of regulatory assistance. Under FDICIA (see discussion below) a bank
holding company may be required to guarantee the capital plan of an
undercapitalized depository institution. Any capital loans by a bank holding
company to any of its subsidiary banks are subordinate in right of payment to
deposits and to certain other indebtedness of such subsidiary bank. In the
event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to
a priority of payment.
Louisiana
Under the Louisiana Bank Holding Company Act of 1962, as amended (the
"Louisiana BHC Act"), bank holding companies are authorized to operate in
Louisiana provided the activities of the non bank subsidiaries thereof are
limited to the ownership of real estate and improvements, computer services,
equipment leasing, and other directly related banking activities. In
addition, a bank holding company and its subsidiaries may not engage in any
insurance activity in which a bank may not engage. The Commissioner of the
OFI is authorized to administer the Louisiana BHC Act by the issuance of
orders and regulations. At present, prior approval of the Commissioner would
not be required for the formation and operation of a nonblank subsidiary of
the Company if its activities meet the requirements of the Louisiana BHC Act.
Bank Regulation
The Bank is subject to examination and regulation by the FDIC. The
Bank is chartered under the banking laws of the State of Louisiana and is
subject to the supervision of, and regular examination by, the OFI. As an
affiliate of the Bank, the Company is also subject to examination by the OFI.
In addition, the deposits of the Bank are insured by the Deposit Insurance
Fund ("DIF") thereby rendering the Bank subject to the provisions of the
Federal Deposit Insurance Act ("FDIA") and, as a state nonmember bank, to
supervision and examination by the FDIC. The FDIA requires the FDIC approval
of any merger and/or consolidation by or with an insured bank, as well as the
establishment or relocation of any bank or branch office. The FDIC also
supervises compliance with the provisions of federal law and regulations that
place restrictions on loans by FDIC-insured banks to their directors,
executive officers, and other controlling persons.
In December 1991, a major banking bill entitled the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted, which
substantially revises the bank regulatory and funding provisions of the FDIA
and makes revisions to several other federal banking statues. Among other
things, the FDICIA requires the federal banking regulators to take "prompt
corrective action" in respect of depository institutions that do not meet
minimum capital requirements. The Bank has capital levels above the minimum
requirements. In addition, an institution that is not well capitalized is
generally prohibited form accepting brokered deposits and offering interest
28
rates on deposits higher than the prevailing rate in its market and also may
not be able to "pass through" insurance coverage for certain employee benefit
accounts. The FDICIA also requires the holding company of any
undercapitalized depository institution to guarantee, in part, certain
aspects of such depository institution's capital plan for such plan to be
acceptable. The FDICIA contains numerous other provisions, including new
account, audit and reporting requirements, termination of the "too big to fail"
doctrine except in special cases, limitations on the FDIC's payment of deposits
at foreign branches, new regulatory standards in such areas as asset quality,
earnings and compensation and revised regulatory standards for, among other
things, powers of state banks, real estate lending and capital adequacy. The
FDICIA also required that a depository institution provide 90 days prior
notice of the closing of any branches.
Furthermore, all banks are affected by the credit policies of other
monetary authorities, including the FRB, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The FRB's monetary policies have had a significant
effect on the operating results of commercial banks in the past, and the
Company expects this trend to continue in the future.
Dividends
The FRB has issued a policy statement on the payment of cash dividends
by bank holding companies. In the policy statement, the FRB expressed its
view that a bank holding company experiencing earnings weaknesses should not
pay cash dividends exceeding its net income or which could only be funded in
ways that weaken the bank holding company's financial health, such as by
borrowing. Additionally, the FRB possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy
actions that represent unsafe or unsound practices or violations of applicable
statues and regulations. Among these powers is the ability to prohibit or
limit the payment of dividends by banks and bank holding companies.
In addition to the restrictions on dividends imposed by the FRB,
Louisiana law also places limitations on the Company's ability to pay
dividends. For example, the Company may not pay dividends to its
shareholders if, after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Because a major source of the
Company's revenue is dividends that it receives and expects to receive from the
Bank, the Company's ability to pay dividends to its shareholders will depend on
the amount of dividends paid by the Bank to the Company. The Company cannot be
sure that the Bank will, in any circumstances, pay such dividends to the
Company, as Louisiana banking law provides that a Louisiana bank may not pay
dividends if it does not have, or will not have after the payment of such
dividend, unimpaired surplus equal to 50% of the outstanding capital stock of
the bank. In addition, OFI approval is required to declare or pay any
dividend that would bring the total of all dividends paid in any one calendar
year to an amount greater than the total of such bank's net profits for such
year combined with the net profits of the immediately preceding year.
Effect of Governmental Policies
The Company and the Bank are affected by the policies of regulatory
authorities, including the FRB. An important function of the Federal Reserve
System is to regulate the national money supply. Among the instruments of
monetary policy used by the Federal Reserve are: purchases and sales of U.S.
Government securities in the marketplace; changes in the discount rate, which
is the rate any depository institution must pay to borrow from the Federal
Reserve; and changes in the reserve requirements of depository institutions.
These instruments are effective in influencing economic and monetary growth,
interest rate levels, and inflation.
The monetary policies of the Federal Reserve and other governmental
policies have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the future.
Because of changing conditions in the national economy and in the financial
markets, as well as the result of actions by monetary and fiscal authorities,
it is not possible to predict with certainty future changes in interest
29
rates, deposit levels, loan demand or the business and earnings of the Company
or whether the changing economic conditions will have a positive or negative
effect on operations and earnings.
Code of Ethics
The Company has adopted a code of ethics that applies to all directors,
officers and employees that is designed to deter wrongdoing and promote the
following:
1.) Honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
2.) Full, fair, accurate, timely and understandable disclosure in
reports and documents;
3.) Compliance with applicable governmental laws, rules and
regulations;
4.) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
5.) Accountability for adherence to the code.
A copy of the Bank's code of ethics may be obtained by writing to:
Bank of Louisiana
Accounting Department
300 St. Charles Avenue
New Orleans, LA 70130-3104
Community Reinvestment Act (CRA)
In connection with its lending activities, the Bank is subject to a
variety of federal laws designed to protect borrowers and promote lending to
various sectors of the economy and populations.
The CRA requires FDIC insured banks to define the assessment areas
that they serve, identify the credit needs of those assessment areas and take
actions that respond to the credit needs of the community. The FDIC must
conduct regular CRA examinations of the Bank and assign it a CRA rating of
"outstanding," "satisfactory," "needs improvement" or "unsatisfactory." The
Bank has received a "satisfactory" rating from the FDIC.
Indemnification of Directors and Officers
The Board of Directors of the Bank of Louisiana, on June 8, 1988,
adopted a resolution to amend the Articles of Incorporation of the Bank by
adding a new Article VII as follows:
No director or officer of the corporation shall be personally liable to
the corporation or its shareholder for monetary damages for breach of
fiduciary duty as a director or officer, except for liability (i) for breach
of the director's or officer's duty of loyalty to the corporation or its
shareholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for any unlawful
dividend or any other unlawful distribution, payment or return of assets made
to shareholders, or (iv) for any transaction from which the director or
officer derived an improper personal benefit.
Sarbanes-Oxley Act of 2002
The following is a brief summary of some of the provision of the
Sarbanes-Oxley Act of 2002 ("SOX") that affect the Company and the Bank. It
is not intended as an exhaustive description of SOX or its impact on us.
SOX instituted or increased various requirements for corporate
governance, board of director and audit committee composition and membership,
board duties, auditing standards, external audit firm standards, additional
disclosure requirements, including CEO and CFO certification of financial
statements and related controls, and other new requirements.
Board of directors are now required to have a majority of independent
directors, and audit committees are required to be wholly independent, with
30
greater financial expertise. Such independent directors are not allowed to
receive compensation from the company on whose board they serve except for
directors' fees. Additionally, requirements for auditing standards and
independence of external auditors were increased and included independent
audit partner review, audit partner rotation, and limitations over non-audit
services. Penalties for non-compliance with existing and new requirements
were established or increased.
In addition, Section 404 of SOX currently requires that by the end of
2006, our management perform a detailed assessment of internal controls and
report thereon as follows:
1. We must state that we accept the responsibility for maintaining an
adequate internal control structure and procedures for financial
reporting
2. We must present an assessment, as of the end of the December 31,
2007 fiscal year, of the effectiveness of the internal control
structure and procedure for our financial reporting, and
3. We must have our auditors attest to, and report on, as of the end
of the December 31, 2008 fiscal year, the assessment made by
management. The attestation must be made in accordance with
standards for attestation engagements issued or adopted by the
Public Company Accounting Oversight Board.
We have taken steps with respect to achieving compliance.
Financial Modernization Act
The Gramm-Leach-Bliley Act, ("GLB") of 1999 permits bank holding
companies meeting certain management, capital, and community reinvestment act
standards to engage in a substantially broader range of non-banking
activities than permitted previously, including insurance underwriting and
merchant banking activities. This act repeals the provision of the Glass
Steagall Act, thus permitting affiliations of banks with securities firms and
registered investment companies. The act authorizes financial holding
companies, which permits banks to be owned by or to own securities firms,
insurance companies, and merchant banking companies. The act gives the FRB
authority to regulate financial holding companies, but provides for functional
regulation of subsidiary activities.
In addition, the GLB Act also provided significant new protections for
the privacy of customer information that are applicable to the Company.
Accordingly, we must (1) adopt and disclose a privacy policy; (2) give
customers the right to prevent us from making disclosure of non-public
financial information, subject to specified exceptions; and (3) follow
regulatory standards to protect the security and confidentiality of customer
information.
Item 7 Financial Statements
31
Laport, Sehrt, Romig & Hand
Certified Public Accountants
To the Board of Directors
BOL Bancshares, Inc. & Subsidiary
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of BOL
BANCSHARES, INC. (the Company) and its wholly-owned subsidiary, Bank of
Louisiana, as of December 31, 2007 and 2006, and the related consolidated
statements of income, comprehensive income, changes in stockholders' equity,
and cash flows for the years ended December 31, 2007, 2006 and 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board in the United States of America. Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BOL
BANCSHARES, INC. and its wholly-owned subsidiary, Bank of Louisiana, as of
December 31, 2007 and 2006, and the results of their operations and their cash
flows for the years ended December 31, 2007, 2006 and 2005, in conformity with
accounting principles generally accepted in the United States of America.
/s/ LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
Metairie, Louisiana
February 27, 2008
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110 Veterans Memorial Boulevard, Suite 200, Metairie, LA 70005-4958
504-835-5522 Fax 504-835-5535
5100 Village Walk, Suite 202, Covington, La 70433-4012 985-892-5850
Fax 985-892-5956
5153 Bluebonnet Boulevard, Suite B, Baton Rouge, La 70809-3076 225-296-5150
Fax 225-296-5151
WWW. LAPORTE.COM
RSM McGladrey Network
An Independently Owned Member
32
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2007 2006
Cash and Cash Equivalents
Non-Interest Bearing Balances and Cash $ 4,161,408 $ 4,814,778
Federal Funds Sold 27,490,000 23,750,000
Total Cash and Cash Equivalents 31,651,408 28,564,778
Investment Securities
Securities Held-to-Maturity (Fair Value of
$7,997,180in 2007 and $13,814,690 in 2006) 8,000,000 14,000,000
Securities Available-for-Sale, at Fair Value 739,676 535,517
Loans - Less Allowance for Loan Losses of
$1,800,000 in 2007 and 2006 55,819,935 57,334,547
Property, Equipment and Leasehold Improvements
(Net of Depreciation and Amortization) 6,923,048 2,285,414
Other Real Estate 1,035,924 1,165,240
Other Assets 924,281 1,097,474
Deferred Taxes 80,645 88,532
Letters of Credit 94,934 99,420
Total Assets $105,269,851 $105,170,922
|
The accompanying notes are an integral part of these financial statements.
33
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2007 2006
LIABILITIES
Deposits
Non-Interest Bearing $ 41,407,597 $ 47,447,486
Interest Bearing 48,258,817 46,083,880
Notes Payable 1,543,201 1,544,201
Other Liabilities 2,869,250 561,154
Letters of Credit Outstanding 94,934 99,420
Accrued Interest 355,775 311,459
Total Liabilities 94,529,574 96,047,600
STOCKHOLDERS' EQUITY
Preferred Stock - Par Value $1
2,081,857 Shares Issued and Outstanding in 2007
2,089,334 Shares Issued and Outstanding in 2006 2,081,857 2,089,334
Common Stock - Par Value $1
179,145 Shares Issued and Outstanding in
2007 and 2006 179,145 179,145
Accumulated Other Comprehensive Income 421,934 276,959
Capital in Excess of Par - Retired Stock 140,892 137,901
Retained Earnings 7,916,449 6,439,983
Total Stockholders' Equity 10,740,277 9,123,322
Total Liabilities and Stockholders' Equity $105,269,851 $105,170,922
|
34
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended
December 31,
2007 2006 2005
INTEREST INCOME $8,617,125 $9,036,957 $7,569,237
INTEREST EXPENSE 812,904 612,641 485,006
Net Interest Income 7,804,221 8,424,316 7,084,231
PROVISION FOR LOAN LOSSES 276,704 563,587 586,871
Net Interest Income
After Provision for Loan Losses 7,527,517 7,860,729 6,497,360
OTHER INCOME
Service Charges on Deposit Accounts 610,691 607,063 803,319
Gain on Insurance Settlement - 600,000 -
Other Non-Interest Income 816,557 733,917 1,188,611
Total Other Income 1,427,248 1,940,980 1,991,930
OTHER EXPENSES
Salaries and Employee Benefits 2,749,357 2,688,824 3,188,009
Occupancy Expense 1,058,482 1,080,441 1,403,933
Estimated (Recovery) Loss Contingency( 1,200) (202,442) 230,000
Other Non-Interest Expense 2,950,938 3,167,473 3,055,426
Total Other Expenses 6,757,577 6,734,296 7,877,368
INCOME BEFORE INCOME TAX EXPENSE 2,197,188 3,067,413 611,922
INCOME TAX EXPENSE 720,722 937,807 143,433
NET INCOME $1,476,466 $2,129,606 $468,489
EARNINGS PER SHARE OFCOMMON STOCK $8.24 $11.89 $2.62
|
The accompanying notes are an integral part of these financial statements.
35
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended
December 31,
2007 2006 2005
NET INCOME $,476,466 $2,129,606 $468,489
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized Holding (Losses) Gains on
Investment Securities Available-for-
Sale, Arising During the Period 144,975 (54,740) 55,440
OTHER COMPREHENSIVE INCOME (LOSS) 144,975 (54,740) 55,440
COMPREHENSIVE INCOME $1,621,441 $2,074,866 $523,929
|
The accompanying notes are an integral part of these financial statements.
36
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated Capital In
Other Excess of
Preferred Common Comprehensive Par Retained
Stock Stock Income Retired Stock Earnings Total
BALANCE - January 1,
2005 2,157,853 179,145 276,259 101,863 3,841,888 6,557,008
Preferred Stock
Retired (40,609) - - 24,365 - (16,244)
Other Comprehensive Income,
Net of Applicable Deferred
Income Taxes - - 55,440 - - 55,440
Net Income for the
Year 2005 - - - - 468,489 468,489
BALANCE - December 31,
2005 2,117,244 179,145 331,699 126,228 4,310,377 7,064,693
Preferred Stock Retired
(27,910) - - 11,673 - (16,237)
Other Comprehensive Loss,
Net of Applicable Deferred
Income Taxes - - (54,740) - - (54,740)
Net Income for the
Year 2006 - - - - 2,129,606 2,129,606
BALANCE - December 31,
2006 2,089,334 179,145 276,959 137,901 6,439,983 9,123,322
Preferred Stock Retired
(7,477) - - 2,991 - (4,486)
Other Comprehensive Income,
Net of Applicable Deferred
Income Taxes - - 144,975 - - 144,975
Net Income for the
Year 2007 - - - - 1,476,466 1,476,466
|
BALANCE - December 31,
2007 $2,081,857 $79,145 $421,934 $140,892 $7,916,449 $10,740,277
The accompanying notes are an integral part of these financial statements.
37
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2007 2006 2005
OPERATING ACTIVITIES
Net Income $1,476,466 $2,129,606 $468,489
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Loan Losses 276,704 563,587 586,871
Write Down of Other Real Estate 24,493 265,000 -
Depreciation and Amortization Expense 351,653 296,109 237,975
(Increase) Decrease in Deferred Income
Taxes (66,800) (24,584) 37,580
(Gain) Loss on Sale or Disposal of Property
and Equipment - (99,451) 6,471
Gain on Sale of Other Real Estate (88,341) (683) (235,000)
Decrease (Increase) in Other Assets 173,193 (56,655) (77,369)
Increase (Decrease) in Other Liabilities and
Accrued Interest Payable 2,352,412 (386,609) 319,067
Net Cash Provided by Operating Activities4,499,780 2,686,320 1,344,084
INVESTING ACTIVITIES
Proceeds from Held-to-Maturity Investment
Securities Released at Maturity 6,000,000 5,000,000 -
Proceeds from Sale of Available-for-Sale Investment
Securities 15,500 - -
Proceeds from Sale or Disposal of
Property and Equipment - 152,400 1,251
Purchases of Property and Equipment (4,989,287) (403,618) (325,267)
Proceeds from Sale of Other Real Estate 300,000 380,000 585,000
Purchases of Loans - (109,624) (242,899)
|
Net Decrease (Increase) in Loans 1,131,075 (1,671,256)5,402,230
Net Cash Provided by Investing Activities
2,457,288 3,347,902 5,420,315
The accompanying notes are an integral part of these financial statements.
38
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended
December 31,
2007 2006 2005
FINANCING ACTIVITIES
Net (Decrease) Increase in Non-Interest Bearing
and Interest Bearing Deposits (3,864,952) 21,883,923) 32,325,835
Federal Funds Repaid - - ( 350,000)
Preferred Stock Retired (4,486) (16,237) (16,244)
Proceeds from Issuance of Long-Term Debt - 1,400,000 -
Principal Payments on Long-Term Debt (1,000) (2,001,206) (42,510)
Net Cash (Used in)
Provided by Financing Activities (3,870,438) (22,501,366)31,917,081
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,086,630 (16,467,144) 38,681,480
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 28,564,778 45,031,922 6,350,442
CASH AND CASH EQUIVALENTS -
END OF YEAR $31,651,408 $28,564,778 $45,031,922
SUPPLEMENTAL DISCLOSURES:
Additions to Other Real Estate
Through Foreclosure $106,836 $1,151,659 $278,578
Cash Paid During the Year for Interest $768,588 $909,350 $459,950
Cash Paid During the Year for
Income Taxes $783,704 $952,000 $55,777
Market Value Adjustment for Unrealized
Gain on Securities Available-for-
Sale $219,659 $(82,939) $84,000
|
Accounting Policies Note:
Cash Equivalents Include Amounts Due from Banks
and Federal Funds Sold. Generally, Federal Funds
are Purchased and Sold for One Day Periods.
The accompanying notes are an integral part of these financial statements.
39
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OF THE COMPANY
BOL BANCSHARES, INC. (the Company) was organized as a Louisiana
corporation on May 7, 1981, for the purpose of becoming a registered bank
holding company under the Bank Holding Company Act. The Company was inactive
until April 29, 1988, when it acquired Bank of Louisiana, BOS Bancshares,
Inc. and its wholly-owned subsidiary, Bank of the South, and Fidelity Bank
and Trust Company of Slidell, Inc., and its wholly-owned subsidiary, Fidelity
Land Co. in a business reorganization of entities under common control in a
manner similar to a pooling of interest. The acquired companies are engaged
in the banking industry.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, Bank of Louisiana (the Bank)
and its wholly-owned subsidiary, BOL Assets, LLC. In consolidation,
significant inter-company accounts, transactions, and profits have been
eliminated.
INVESTMENT SECURITIES
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using methods
approximating the interest method. Other marketable securities are classified
as available-for-sale and are carried at fair value. Realized gains and
losses on securities are included in net income. Unrealized gains and losses on
securities available-for-sale are recognized as direct increases or decreases
in stockholders' equity. Cost of securities sold is recognized using the
specific identification method.
LOANS AND UNEARNED INCOME
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Unearned discounts on loans are
recognized as income over the term of the loans on the interest method.
Interest on other loans is calculated and credited to operations on a simple
interest basis. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely. Loan
origination fees and certain direct origination costs, when material, are
capitalized and recognized as an adjustment of the yield on the related loan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluation of the collectibility of loans and prior
loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrowers' ability to pay. Accrual of interest is discontinued
and accrued interest is charged off on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrowers' financial condition is such that collection of interest is doubtful.
40
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Buildings, office equipment and leasehold improvements are stated at
cost, less accumulated depreciation and amortization computed principally on
the straight-line and modified accelerated cost recovery methods over the
estimated useful lives of the assets. Maintenance and repairs are expensed
as incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
INCOME TAXES
The Company and its consolidated subsidiary file a consolidated
Federal income tax return. Federal income taxes are allocated between the
companies, in accordance with a written agreement.
MEMBERSHIP FEES
Membership fees are collected in the anniversary month of the
cardholder and are amortized over a twelve-month period using the straight-
line method.
CASH AND DUE FROM BANKS
The Bank considers all amounts Due from Banks and Federal Funds Sold,
to be cash equivalents.
The Bank is required to maintain non-interest bearing reserve balances
to fulfill its reserve requirements. The average amount of the required reserve
balance was approximately $2,168,500 and $3,588,500 for the years ended
December 31, 2007 and 2006, respectively.
NON-DIRECT RESPONSE ADVERTISING
The Bank expenses advertising costs as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and deferred tax assets.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Bank's activities are with customers located within the
New Orleans area, except for credit card lending, which is nationwide. Note C
discusses the types of lending that the Bank engages in and Note E discusses
the type of securities that the Company invests in. The Bank does not have
any significant concentrations in any one industry or customer.
41
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING STANDARDS
In June 2006, the FASB issued Interpretation Number (FIN) 48,
Accounting for Uncertainty in Income Taxes (as amended). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes. This Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning after
December 15, 2006.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007.
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans (as amended). This
Statement improves financial reporting by requiring an employer to recognize
the overfunded or underfunded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability in its statement
of financial position and to recognize changes in that funded status in the
year in which the changes occur through comprehensive income. This Statement
also requires an employer to measure the funded status of a plan as of the
date of its year-end statement of financial position. An employer with
publicly traded equity securities shall initially apply the requirement to
recognize the funded status of a benefit plan as of the end of the fiscal
year ending after December 31, 2006. The requirement to measure plan assets
and benefit obligations as of the date of the employer's fiscal year-end
statement of financial position is effective for fiscal years ending after
December 31, 2008.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (as amended). This Statement
permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to provide entities with the
opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15,
2007.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements (an amendment of ARB No. 51).
This Statement was issued to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements. This Statement is effective for
fiscal years, and interim periods with those fiscal years, beginning on or
42
after December 31, 2008.
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B
OTHER REAL ESTATE
The Bank has acquired various parcels of real estate in connection
with the default and foreclosure on certain loans. These properties, which
are held for sale, are recorded on the Bank's records at the lower of the
loan balance or net realizable value. Any difference is charged to the
allowance for loan losses in the year of foreclosure.
The net income (expense) from Other Real Estate totaled $1,014 in
2007, ($387,931) in 2006, and $85,754 in 2005, respectively. During the year
ended December 31, 2007 and 2006, the bank wrote down Other Real Estate to
appraised value, less cost to sell. As such, $24,493 and $265,000 was charged
to operations in 2007 and 2006, respectively. In addition, during the year
ended December 31, 2006 the Bank received insurance proceeds, for damages
incurred on Other Real Estate, in excess of repairs made, resulting in a
$600,000 gain included in Other Income on the Statement of Income.
NOTE C
LOANS
Major classification of loans is as follows:
December 31,
2007 2006
Real Estate Mortgages:
Residential 1-4 Family $6,964,793 $8,910,361
Commercial 23,032,682 22,813,013
Construction 9,789,755 7,349,548
Second Mortgages 1,623,948 1,692,099
Other 2,101,669 1,792,055
43,512,847 42,557,076
Commercial 2,754,150 3,491,341
Personal 2,175,194 2,214,607
Credit Cards 9,063,742 9,994,816
Overdrafts 114,002 876,707
57,619,935 59,134,547
Allowance for Loan Losses 1,800,000 1,800,000
$55,819,935 $57,334,547
|
43
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C
LOANS (Continued)
The following is a classification of loans by rate and maturity:
(Dollar amounts in thousands)
December 31,
2007 2006
Fixed Rate Loans:
Maturing in 3 Months or Less $11,644 $15,579
Maturing Between 3 and 12 Months 26,570 21,142
Maturing Between 1 and 5 Years 14,978 16,772
Maturing After 5 Years 611 681
53,803 54,174
Variable Rate Loans:
Maturing Quarterly or More Frequently 3,400 4,893
Maturing Between 3 and 12 Months - -
Non-Accrual Loans 417 68
57,620 59,135
Less: Allowance for Loan Losses 1,800 1,800
Net Loans $55,820 $57,335
|
As of December 31, 2007 and 2006, the Bank's recorded investment in
loans that are considered impaired under SFAS No. 114 totaled $417,382 and
$67,826, respectively. Specific allowances pertaining to impaired loans
totaled $162,607 and $33,911 at December 31, 2007 and 2006, respectively.
The Bank purchases credit card portfolios occasionally, resulting in
premiums or discounts. Premiums and discounts are being amortized as an
adjustment to interest income over a three year period following the purchase
date. Unamortized premiums at December 31, 2007 and 2006,totaled $-0-.
NOTE D
NON-PERFORMING ASSETS
Non-performing assets include real estate acquired through foreclosure
or deed taken in lieu of foreclosure. These assets are included on the
accompanying consolidated balance sheets under the account caption, "Other
Real Estate," and amount to $1,035,924 at December 31, 2007, and $1,165,240
at December 31, 2006.
Loans are placed on non-accrual status when, in management's opinion,
the collection of additional interest is questionable. Thereafter, no
interest is taken into income unless received in cash or until such time as
the borrower demonstrates the ability to pay principal and interest.
44
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D
NON-PERFORMING ASSETS (Continued)
At December 31, 2007, $417,386 of loans were in non-accrual status and
$30,587 of interest was foregone in the year then ended. At December 31,
2006, $67,826 of loans were in non-accrual status and $1,460 of interest was
foregone in the year then ended. Interest income recognized on non-accrual
loans totaled $-0- during the years ended December 31, 2007, 2006 and 2005.
NOTE E
INVESTMENT SECURITIES
Carrying amounts and approximate market values of investment securities
are summarized as follows:
Securities held-to-maturity consisted of the following at December 31, 2007:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Agency Securities $8,000,000 $ - $2,820 $7,997,180
|
Securities available-for-sale consisted of the following at December 31, 2007:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity Securities 302,180 $437,496 $ - $739,676
|
Securities held-to-maturity consisted of the following at December 31, 2006:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Agency Securities $14,000,000 $ - $185,310 $13,814,690
|
45
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E
INVESTMENT SECURITIES (Continued)
Securities available-for-sale consisted of the following at December 31, 2006:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity Securities $317,681 $217,836 $ - $535,517
|
The maturities of investment securities at December 31, 2007, are as follows:
Securities Held-to-Maturity Securities Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Amounts Maturing in:
One Year or Less $ 8,000,000 $ 7,997,180 $ 302,180 $ 739,676
After One Year
Through Five
Years - - - -
$ 8,000,000 $ 7,997,180 $ 302,180 $ 739,676
|
Securities of $500,000 and $600,000 at December 31, 2007 and 2006,
respectively, were pledged to secure public funds, $500,000 at December 31,
2007 and 2006, was pledged to secure treasury tax and loan accounts with the
Federal Reserve Bank, and $500,000 at December 31, 2007 and 2006, was pledged
to VISA USA.
The Company's investment in U.S. Agency Securities has been in a
continuous unrealized loss position in excess of twelve months as of December
31, 2007 and 2006. The unrealized losses on the Company's investments were
caused by interest rate increases. The Company purchased these investments at
a discount relative to their face amount, and the contractual cash flows of
these investments are guaranteed by agencies of the U.S. Government.
Accordingly, it is expected that the securities would not be settled at a
price less than the amortized cost of the Company's investment. Because the
decline in market value is attributable to changes in interest rates and not
credit quality and because the Company has the ability and intent to hold
these investments until maturity, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2007.
46
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F
INCOME TAXES
The components of the provision for income tax expense (benefit) are:
2007 2006 2005
Current $ 787,522 $ 962,391 $ 105,853
Deferred (66,800) (24,584) 37,580
Total Provision for Income Tax $ 720,722 $ 937,807 $ 143,433
|
A reconciliation of income tax at the statutory rate to income tax expense
at the Company's effective rate is as follows:
2007 2006 2005
Computed Tax Expense (Benefit)
at the Expected Statutory Rate $ 747,044 $ 1,042,920 $ 208,053
Katrina Tax Credits (58,105) (70,569) (41,439)
Other Adjustments 31,783 (34,544) (23,181)
Income Tax Expense
for Operations $ 720,722 $ 937,807 $ 143,433
|
Certain income and expense items are accounted for differently for
financial reporting purposes than for income tax purposes. Provisions for
deferred taxes are made in recognition of these temporary differences and are
measured using the income tax rates applicable to the period when the
differences are expected to be realized or settled.
There were net deferred tax assets of $80,646 and $88,532 as of
December 31, 2007 and 2006, respectively. The major temporary differences,
which created deferred tax assets and liabilities, are as follows:
2007 2006
Deferred Tax Assets:
Other Real Estate $ 235,711 $ 227,383
Allowance for Loan Loss 276,996 252,052
Total Deferred Tax Assets 512,707 479,435
Deferred Tax Liabilities:
Section 481A Adjustment - Prepaid Expenses (102,568) (65,364)
Unrealized Gain on Securities (198,447) (123,760)
Fixed Assets (131,047) (201,779)
Total Deferred Tax Liabilities (432,062) (390,903)
Deferred Tax Assets, Net of Deferred
Tax Liabilities $ 80,645 $ 88,532
|
47
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
December 31,
2007 2006
Furniture and Equipment $ 2,610,160 $ 2,402,250
Bank Owned Vehicles 42,354 57,441
Leasehold Improvements 490,843 359,466
Land 1,092,425 578,425
Buildings 5,859,133 1,723,133
10,094,915 5,120,715
Less: Accumulated Depreciation and Amortization 3,171,867 2,835,301
$ 6,923,048 $ 2,285,414
|
Depreciation and amortization expense aggregated $351,653 in 2007, $296,109
in 2006, and $237,975 in 2005.
NOTE H
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
For the Years Ended
December 31,
2007 2006
Balance - January 1 $ 1,800,000 $ 1,912,908
Provision Charged to Operations 276,704 563,587
Loans Charged Off (482,510) (933,105)
Recoveries 205,806 256,610
Balance - December 31 $ 1,800,000 $ 1,800,000
|
NOTE I
STOCKHOLDERS' EQUITY
PREFERRED STOCK
8%, non-cumulative, non-participating, non-convertible, par value $1;
3,000,000 shares authorized, 2,081,857 shares issued and outstanding in 2007,
and 3,000,000 shares authorized, 2,089,334 shares issued and outstanding in
2006. Preferred stock ranks prior to common stock as to dividends and
liquidation.
COMMON STOCK
Par value $1; 1,000,000 shares authorized, 179,145 shares issued and
outstanding in 2007 and 2006.
48
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I
STOCKHOLDERS' EQUITY (Continued)
On August 10, 1999, the Company declared a dividend distribution of
one purchase right for each outstanding share of common stock. Each right
entitles the holder, at any time following the "Distribution Date" to
purchase one share of common stock of the Company at an exercise price
of $7.50 per share. A "Distribution Date" occurs either ten days following
certain actions designed to acquire 20% or more of the Company's voting
securities or ten days following a determination by the Board of Directors
that a person having beneficial ownership of at least 10%, is an adverse
person. The rights will expire on August 9, 2009.
NOTE J
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average number of
shares outstanding, which were 179,145 in 2007, 2006 and 2005. There was no
provision for dividends for the years ended December 31, 2007, 2006 or 2005.
NOTE K
CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit. A
summary of the Bank's commitments and contingent liabilities are as follows:
2007 2006
Credit Card Arrangements $ 44,190,000 $ 46,472,000
Commitments to Extend Credit 3,448,000 5,755,000
|
Commitments to extend credit, credit card arrangements and standby
letters of credit all include exposure to some credit loss in the event of
nonperformance of the customer. The Bank's credit policies and procedures for
credit commitments and financial guarantees are the same as those for
extension of credit that are recorded on the consolidated balance sheets.
Because these instruments have fixed maturity dates, and because many of them
expire without being drawn upon, they do not generally present any
significant liquidity risk to the Bank.
The Bank in the course of conducting its business, becomes involved as
a defendant or plaintiff in various lawsuits. The Bank has appealed a
decision by a federal district court regarding a lawsuit filed by one of its
proprietary customers for alleged breach of contract. The case is expected
to be decided during 2008. Outside counsel for the Bank has advised that a
favorable outcome is unlikely.
49
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE K
CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
The Bank is a plaintiff in a suit against its former health insurer for
reimbursement of claims paid on behalf of the Bank's employee health plan.
The Bank has amended its complaint to seek penalties and damages in excess of
$273,000. Although the matter is set for trial in 2008 and a favorable
outcome is expected, the amount of damages expected to be recovered has not
been reflected in the accompanying financial statements.
The Bank is a defendant in a lawsuit filed by one of its customers for
the unauthorized transfer of funds via telephone. The matter has been tried
before a judge, and a favorable decision is expected.
The Bank is a plaintiff in a suit against a vendor that was contracted
to provide technical and physical backup for the Bank's data systems. The
Bank has demanded payment for approximately $902,000 in damages. The matter
is set for trial in 2008, and the outcome is presently unknown.
Several of the Bank's branches sustained damage as a result of
Hurricane Katrina. In addition, due to concessions made to customers to
facilitate the timely processing of transactions, the Bank has estimated that
it has sustained some losses. Based on management's evaluation,
$150,000 in building and equipment losses and $80,000 in transaction losses
were accrued during 2005. During 2007 and 2006, the Bank recognized a
recovery from this contingency of $1,200 and $202,442, respectively.
NOTE L
RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans to its
directors, officers and principal holders of equity securities. These loans
are made on substantially the same terms including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other persons. An analysis of loans made to directors, officers and
principal holders of equity securities, including companies in which they
have a significant ownership interest, is as follows:
2007 2006
Balance - January 1 $ 367,315 $ 696,950
New Loans Made 448,973 865,680
Repayments (332,092) (1,195,315)
Balance - December 31 $ 484,196 $ 367,315
|
In 2007, the Bank leased office space from Severn South Partnership.
The general partners of this Partnership are majority shareholders in BOL
BANCSHARES, INC. During 2007, the Bank purchased the building from Severn
South Partnership. Rent paid to Severn South Partnership, prior to the
purchase, for the years ended December 31, 2007, 2006 and 2005, totaled
$247,407, $381,386 and $410,012, respectively.
50
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE L
RELATED PARTY TRANSACTIONS (Continued)
During the years ended December 31, 2007, 2006, and 2005, legal fees
paid to a director totaled $34,407, $54,216 and $63,813, respectively.
At December 31, 2007 and 2006, amounts due to Directors of the Company,
including accrued interest, totaled $367,483 and $353,063, respectively.
These amounts, which are included in Notes Payable and Accrued Interest
Payable in the accompanying consolidated balance sheets, are payable on
demand and bear interest at 10% per annum. Of the debentures payable at
December 31, 2007 and 2006, $38,500 and $33,500, respectively, were to
Directors of the Company (see Note S).
NOTE M
LEASES
The Bank leases office space under agreements expiring in various years
through December 31, 2016. Two of the leases are with related parties, as
discussed in Note L. In addition, the Bank rents office space on a month-to-
month basis from non-related groups. Various pieces of data processing
equipment are also leased.
The total minimum rental commitment at December 31, 2007, under the
leases is due as follows:
December 31,
2008 $ 171,956
2009 173,821
2010 175,686
2011 177,551
2012 179,416
Thereafter 722,327
$ 1,600,757
|
For the years ended December 31, 2007, 2006 and 2005, $374,970,
$428,186 and $635,299 was charged to rent expense, respectively.
The Bank is the lessor of office space under operating leases expiring
in various years through 2018.
51
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE M
LEASES (Continued)
Minimum future rentals to be received on non-cancelable leases as of
December 31, 2007, are:
December 31,
2008 $ 181,185
2009 159,961
2010 115,423
2011 47,670
2012 43,383
Thereafter 181,859
$ 729,481
|
NOTE N
LETTERS OF CREDIT
Standby Letters of Credit obligate the Bank to meet certain financial
obligations of its clients, if, under the contractual terms of the agreement,
the clients are unable to do so. These instruments are primarily issued to
support public and private financial commitments, including commercial paper,
bond financing, initial margin requirements on futures exchanges and similar
transactions. Outstanding letters of credit were $94,934 and $99,420 as of
December 31, 2007 and 2006, respectively. Of the $94,934 in letters of credit
at December 31, 2007, $26,314 was secured by cash, $37,420 was secured by
real property, and $31,200 was unsecured. All of the letters of credit are
scheduled to mature in 2008.
NOTE O
INTEREST BEARING DEPOSITS
Major classifications of interest bearing deposits are as follows:
December 31,
2007 2006
NOW Accounts $ 12,143,180 $ 11,999,572
Money Market Accounts 4,247,728 3,721,879
Savings Accounts 23,789,080 25,321,413
Certificates of Deposit Greater
Than $100,000 2,259,884 504,741
Other Certificates of Deposit 5,818,945 4,536,275
$ 48,258,817 $ 46,083,880
|
52
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE O
INTEREST BEARING DEPOSITS (Continued)
The maturities of Certificates of Deposit Greater than $100,000 at
December 31, 2007 follows: (Dollar amounts in thousands)
Three Months or Less $ 1,000
After Three Months Through One Year 1,025
Over One Year Through Three Years 235
$ 2,260
|
NOTE P
FUNDS AVAILABLE FOR DIVIDENDS
The Bank is restricted under applicable laws and regulatory authority
in the payment of cash dividends. Such laws generally restrict cash dividends
to the extent of the Bank's earnings.
During the year ended December 31, 2007 and 2006, the Bank paid BOL
Bancshares, Inc. dividends totaling $643,500 and $1,001,000, respectively.
NOTE Q
CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Bank's market area.
All such customers are depositors of the Bank. The concentrations of credit
by type of loan are set forth in Note C. Commercial letters of credit were
granted primarily to commercial borrowers.
NOTE R
EMPLOYEE BENEFITS
Effective January 1, 2001, the Bank adopted a Section 401(k) savings
plan. The Plan covers substantially all employees who are at least eighteen
years old and have completed six months of continuous service. The Bank may
make discretionary contributions and is not required to match employee
contributions under the plan. The Bank made no contributions to
the plan during the years ended December 31, 2007, 2006 or 2005.
53
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE S
NOTES PAYABLE
The following is a summary of notes payable at December 31, 2007 and
2006:
December 31,
2007 2006
Notes payable to a current Director of the
Company, payable on demand, interest
at 10%. $ 144,201 $ 144,201
Debentures payable, due July 2009, interest at
7%, callable at 103%, 102% and 101% of
face value during the first, second, and third
years, respectively, following the closing date,
interest payable semi-annually, each $500
debenture secured by 51.07 shares of the
Bank's stock. 1,399,000 1,400,000
$ 1,543,201 $ 1,544,201
|
Following are maturities of long-term debt:
December 31,
2008 144,201
2009 1,399,000
$ 1,543,201
54
|
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE T
INTEREST INCOME AND INTEREST EXPENSE
Major categories of interest income and interest expense are as follows:
December 31,
2007 2006 2005
INTEREST INCOME
Interest and Fees on Loans:
Real Estate Loans $ 3,678,857 $ 3,105,702 $ 2,880,180
Installment Loans 149,420 164,472 373,797
Credit Cards and Related Plans 2,744,183 3,017,998 3,275,934
Commercial and All
Other Loans 293,519 442,563 251,444
Interest on Investment Securities -
U.S. Treasury and Other
Securities 443,302 531,038 492,062
Interest on Federal Funds Sold 1,307,844 1,775,184 295,820
$ 8,617,125 $ 9,036,957 $ 7,569,237
|
INTEREST EXPENSE
Interest on Time Deposits
of $100,000 or More $ 49,009 $ 10,710 $ 5,747
Interest on Other Deposits 651,236 464,101 312,948
Interest on Federal Funds Purchased - - 1,623
Interest on Notes Payable 112,659 137,830 164,688
$ 812,904 $ 612,641 $ 485,006
|
55
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE U
NON-INTEREST INCOME AND NON-INTEREST EXPENSES
Major categories of other non-interest income and non-interest expenses
are as follows:
December 31,
2007 2006 2005
OTHER NON-INTEREST INCOME
Cardholder and Other Charge Card
Income $ 547,641 $ 607,878 $ 637,331
Other Commission and Fees 62,253 59,864 67,151
Other Real Estate Income 88,491 683 246,353
Other Income 118,172 65,492 237,776
$ 816,557 $ 733,917 $ 1,188,611
OTHER NON-INTEREST EXPENSES
Loan and Charge Card Expenses$ 125,011 $ 132,441 $ 151,527
Communications 221,459 237,171 237,770
Outsourcing Fees 1,431,830 1,406,282 1,403,693
Stationery, Forms and Supplies 110,869 142,522 169,019
Professional Fees 304,946 291,550 285,126
Insurance and Assessments 76,404 83,027 101,651
Advertising 9,090 5,110 4,127
Miscellaneous Losses 4,477 4,538 129,878
Promotional Expenses 73,911 68,283 80,327
Other Real Estate Expenses 87,477 388,614 160,598
Other Expenses 505,464 407,935 331,710
$ 2,950,938 $ 3,167,473 $ 3,055,426
|
56
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE V
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
BOL BANCSHARES, INC.
CONDENSED BALANCE SHEETS
December 31,
2007 2006
ASSETS
Due from Banks $ 1,054,614 $ 416,632
Securities Available-for-Sale, at Fair Value 708,896 489,236
Other Assets 1,104 25,542
Due from Subsidiary Bank 56,653 63,571
Investment in Bank of Louisiana 10,943,907 10,071,875
$ 12,765,174 $ 11,066,856
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes Payable $ 1,543,201 $ 1,544,201
Deferred Taxes 148,749 74,064
Accrued Interest 264,332 256,654
Shareholders' Equity 10,808,892 9,191,937
$ 12,765,174 $ 11,066,856
|
57
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE V
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC.
STATEMENTS OF INCOME
December 31,
2007 2006 2005
INCOME
Dividend Income - Bank of Louisiana $ 643,500 $ 1,001,000 $ 214,500
Interest Income 5,544 2,329 983
Miscellaneous Income 40,323 38,278 28,243
689,367 1,041,607 243,726
EXPENSES
Interest 112,659 137,830 164,688
Other Expenses 5,226 4,325 7,345
117,885 142,155 172,033
INCOME BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY 571,482 899,452 71,693
Equity in Undistributed
Earnings of Subsidiary 872,032 1,176,974 341,519
INCOME BEFORE
INCOME TAX BENEFIT 1,443,514 2,076,426 413,212
INCOME TAX BENEFIT 32,952 53,180 55,277
NET INCOME $ 1,476,466 $ 2,129,606 $ 468,489
|
58
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE V
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
December 31,
2007 2006 2005
OPERATING ACTIVITIES
Net Income $ 1,476,466 $ 2,129,606 $ 468,489
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Equity in Undistributed Earnings
of Subsidiary (872,032) (1,176,974) (341,519)
Net (Increase) Decrease in Other Assets 24,438 17,365 52,610
Net Decrease in Other Liabilities 7,678 (303,012) (5,787)
Net Cash Provided by Operating
Activities 636,550 666,985 173,793
FINANCING ACTIVITIES
Preferred Stock Retired (4,486) (16,237) (16,244)
Decrease (Increase) in Due to/from Subsidiary 6,918 33,367 (96,938)
Proceeds from Issuance of Long-Term Debt - 1,400,000 -
Repayment of Long-Term Debt (1,000) (2,001,206) (42,510)
Net Cash Provided by (Used in) Financing
Activities 1,432 (584,076) (155,692)
NET INCREASE IN CASH
AND CASH EQUIVALENTS 637,982 82,909 18,101
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 416,632 333,723 315,622
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 1,054,614 $ 416,632 $ 333,723
|
59
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE W
COMPREHENSIVE INCOME
Comprehensive income was comprised of changes in the Company's
unrealized holding gains or losses on securities available-for-sale during
2007, 2006 and 2005. The following represents the tax effects associated with
the components of comprehensive income:
December 31,
2007 2006 2005
Gross Unrealized Holding Gains (Losses)
Arising During the Period $ 219,659 $ (82,939) $ 84,000
Tax (Expense) Benefit (74,684) 28,199 (28,560)
144,975 (54,740) 55,440
Reclassification Adjustment for
Gains Included in Net Income - - -
Tax Benefit - - -
- - -
Net Unrealized Holding Gains (Losses)
Arising During the Period $ 144,975 $ (54,740) $ 55,440
|
NOTE X
REGULATORY MATTERS
As of December 31, 2007, the most recent notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized "well capitalized" the Bank must
maintain minimum leverage capital ratios and minimum amounts of capital to
total "risk weighted" assets, as set forth in the table. Management
philosophy and plans are directed to enhancing the financial stability of the
Bank to ensure the continuity of operations.
60
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE X
REGULATORY MATTERS (Continued)
The Bank's actual capital amounts and ratios are also presented in the
table. (Dollars in thousands.)
December 31, 2007
Required
to be Well
Required Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Tier I Capital (to
Average Assets) $10,944 10.31% $4,246 4.00% $5,307 5.00%
Tier I Capital (to Risk-
Weighted Assets) $10,944 16.08% $2,720 4.00% $4,081 6.00%
Total Capital (to
Risk-Weighted
Assets) $11,807 17.34% $5,441 8.00% $6,801 10.00%
December 31, 2006
Required
to be Well
Required Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Tier I Capital (to
Average Assets) $10,072 9.27% $4,347 4.00% $5,434 5.00%
Tier I Capital (to Risk-
Weighted Assets) $10,072 15.56% $2,588 4.00% $3,883 6.00%
Total Capital (to
Risk-Weighted
Assets) $10,893 16.83% $5,177 8.00% $6,471 10.00%
|
61
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE Y
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate the value:
CASH AND SHORT-TERM INVESTMENTS
For cash, the carrying amount approximates fair value. For short-term
investments, fair values are calculated based upon general investment market
interest rates for similar maturity investments.
INVESTMENT SECURITIES
For securities and marketable equity securities held-for-investment
purposes, fair values are based on quoted market prices.
LOAN RECEIVABLES
For certain homogeneous categories of loans, such as residential
mortgages, credit card receivables and other consumer loans, fair value is
estimated using the current U.S. treasury interest rate curve, a factor for
cost of processing and a factor for historical credit risk to determine the
discount rate.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings deposits and certain money
market deposits are calculated based upon general investment market interest
rates for investments with similar maturities. The value of fixed maturity
certificates of deposit is estimated using the U.S. treasury interest rate
curve currently offered for deposits of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present credit-worthiness of the
counterparties.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 2007
Carrying Fair
Amount Value
Financial Assets:
Cash and Short-Term Investments $4,161,408 $4,161,408
Investment Securities 8,739,676 8,736,856
Loans 57,619,935 57,814,110
Less: Allowance for Loan Losses (1,800,000) (1,800,000)
$68,721,019 $68,912,374
Financial Liabilities:
Deposits $89,666,414 $89,713,840
Unrecognized Financial Instruments:
Commitments to Extend Credit $3,448,000 $3,448,000
Credit Card Arrangements 44,190,000 44,190,000
$47,638,000 $47,638,000
|
62
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Y
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
December 31, 2006
Carrying Fair
Amount Value
Financial Assets:
Cash and Short-Term Investments $4,814,778 $4,814,778
Investment Securities 14,535,517 14,350,207
Loans 59,134,547 59,255,169
Less: Allowance for Loan Losses (1,800,000) (1,800,000)
$76,684,842 $76,620,154
Financial Liabilities:
Deposits $93,531,366 $93,523,876
Unrecognized Financial Instruments:
Commitments to Extend Credit $5,755,000 $5,755,000
Credit Card Arrangements 46,472,000 46,472,000
$52,227,000 $52,227,000
63
|
Laport, Sehrt, Romig & Hand
Certified Public Accountants
To the Board of Directors
BOL Bancshares, Inc. & Subsidiary
Report of Independent Registered Public Accounting Firm on Supplementary
Information
Our report on our audits of the basic financial statements of BOL
BANCSHARES, INC. and its wholly-owned subsidiary, Bank of Louisiana, for the
years ended December 31, 2007 and 2006, appears on page 1. These audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplementary information contained in Schedules I, II
and III is presented for the purpose of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
Metairie, Louisiana
February 27, 2008
|
110 Veterans Memorial Boulevard, Suite 200, Metairie, LA 70005-4958 504-835-
5522 Fax 504-835-5535
5100 Village Walk, Suite 202, Covington, La 70433-4012 985-892-5850 Fax
985-
892-5956
|
5153 Bluebonnet Boulevard, Suite B, Baton Rouge, La 70809-3076 225-296-5150
Fax
225-296-5151
WWW. LAPORTE.COM
RSM McGladrey Network
An Independently Owned Member
64
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE I
BALANCE SHEETS
UNCONSOLIDATED
ASSETS
December 31,
2006 2005
Cash and Due from Banks
Non-Interest Bearing Balances and Cash $4,161,408 $4,814,778
Federal Funds Sold 27,490,000 23,750,000
Investment Securities
|
Securities Held-to-Maturity (Fair Value of $7,997,180 in 2007
and $13,814,690 in 2006) 8,000,000 14,000,000
Securities Available-for-Sale, at Fair Value 30,780 46,280
Loans: Less Allowance for Loan Losses of $1,800,000 in 2007
and in 2006 55,819,935 57,334,547
Property, Equipment and Leasehold Improvements (Net
of Depreciation and Amortization) 6,923,048 2,285,414
Other Real Estate 1,035,924 1,165,240
Other Assets 928,536 1,077,291
Deferred Taxes 298,006 231,208
Letters of Credit 94,934 99,420
Total Assets $104,782,571 $104,804,178
|
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-Interest Bearing $41,408,938 $47,451,276
Interest Bearing 49,313,135 46,500,361
Other Liabilities 2,925,903 561,154
Letters of Credit Outstanding 94,934 99,420
Due to Parent - 63,571
Accrued Interest 91,443 54,805
Total Liabilities 93,834,353 94,730,587
|
STOCKHOLDERS' EQUITY
Common Stock - 143,000 Shares Issued and Outstanding
1,430,000 1,430,000
Surplus 4,616,796 4,616,796
Retained Earnings 4,901,422 4,026,795
Total Stockholders' Equity 10,948,218 10,073,591
|
Total Liabilities and Stockholders' Equity $104,782,571 $104,804,178
See independent registered public accounting firm report on supplementary
information.
65
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE II
STATEMENTS OF INCOME
UNCONSOLIDATED
For the Years Ended
December 31,
2007 2006 2005
INTEREST INCOME $8,617,125 $9,036,957 $7,569,237
INTEREST EXPENSE 705,790 477,140 321,300
Net Interest Income 7,911,335 8,559,817 7,247,937
|
PROVISION FOR LOAN LOSSES 276,704 563,587 586,871
Net Interest Income After Provision
for Loan Losses 7,635,631 7,996,230 6,661,066
OTHER INCOME
Service Charges on Deposit Accounts610,691 607,063 803,319
Other Non-Interest Income 776,234 1,295,637 1,160,367
1,386,925 1,902,700 1,963,686
OTHER EXPENSES
Salaries and Employee Benefits 2,749,357 2,688,824 3,188,009
Occupancy Expense 1,058,482 1,080,441 1,403,933
Estimated Loss Contingency (1,200) (202,442) 230,000
Other Non-Interest Expense 2,943,116 3,160,969 3,044,981
6,749,755 6,727,792 7,866,923
INCOME BEFORE INCOME
TAX EXPENSE 2,271,801 3,171,138 757,829
INCOME TAX EXPENSE 753,674 990,987 198,710
NET INCOME $1,518,127 $2,180,151 $559,119
|
See independent registered public accounting firm report on supplementary
information.
66
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNCONSOLIDATED
Common Retained
Stock Surplus Earnings Total
BALANCE - January 1, 2005 $1,430,000 $4,616,796 $2,503,025 $8,549,821
Dividends Paid - $1.50 Per Share - - (214,500) (214,500)
Net Income for the Year 2005 - - 559,119 559,119
BALANCE - December 31, 2005 1,430,000 4,616,796 2,847,644 8,894,440
Dividends Paid - $1.50 Per Share - - (1,001,000) (1,001,000)
Net Income for the Year 2006 - - 2,180,151 2,180,151
BALANCE - December 31, 2006 1,430,000 4,616,796 4,026,795 10,073,591
Dividends Paid - $1.50 Per Share - - (643,500) (643,500)
Net Income for the Year 2007 - - 1,518,127 1,518,127
BALANCE - December 31, 2007 $1,430,000 $4,616,796 $4,901,422 $10,948,218
|
See independent registered public accounting firm report on supplementary
information.
67
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure - None
Item 8A(T) Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, and
that such information is accumulated and communicated to management to allow
timely decisions regarding required disclosure. Management necessarily
applied its judgment in assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only reasonable assurance
regarding management's control objectives.
With the participation of management, the certifying officers of the
Company have evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of a date within 90 days of
the filing date of this report and have concluded that such controls and
procedures are effective. There have been no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial report for the Company. Internal control
over financial reporting is a process to provide reasonable assurance regarding
the reliability of our financial reporting for external purposes in accordance
with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes maintaining
records that in reasonable detail accurately and fairly reflect our
transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; providing reasonable
assurance that receipts and expenditures of Company assets are made in
accordance with management authorization; and providing reasonable assurance
that unauthorized acquisition, use or disposition of Company assets that could
have a material affect on our financial statements would have been prevented or
detected on a timely basis. Because of the inherent limitations of internal
control over financial reporting, misstatements may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management, with the participation of the certifying officers of the
Company, assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control - Integrated Framework. Based
on this assessment, management, with the participation of the certifying
officers of the Company, believes that, as of December 31, 2007, the
Company's internal control over financial reporting is effective based on those
criteria.
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
the Company's registered public accounting firm pursuant to temporary rules
of the Securities and Exchange Commission that permit the Company to provide
only management's report in this annual report.
Item 8B Other Information
None
68
Item 9 Directors and Executive Officers of the Company
Directors and executive officers of the Company each serve for a term of
one year.
Position with the Company and Bank of Director
Name Age Louisiana (the "Bank") and Principal Occupation Since
G. Harrison Scott 84 Director; Chairman of the Board of 1981
the Company and the Bank and President
of the Company and the Bank
Franck F. LaBiche 62 Director of the Company and the Bank 2004
President, Executone Systems Co. of La. Inc.
Henry L. Klein 63 Director of the Company and the Bank 2004
and Secretary of the Company
Attorney at Law
Johnny C. Crow 57 Director of the Company and the Bank 2005
Insurance Agent, New York Life Ins. Co.
Sharry R. Scott 37 Director of the Company and the Bank 2005
Assistant Attorney General, Louisiana
Department of Justice
|
Non-Director Executive Officer
Position with the Company and the
Name Age Bank and Principal Occupation
Peggy L. Schaefer 56 Ms. Schaefer has served as Treasurer of
the Company since 1988 and Senior Vice
President and Chief Financial Officer of
the Bank since 1996.
|
No family relationships exist among the executive officers of the
Company or the Bank. There is one family relationship that exists among the
current directors, that of Mr. G. Harrison Scott and his daughter Sharry R.
Scott. Except for service as a director of the Company, no director of the
Company is a director of any other company with a class of securities
registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(b) of that act or any company registered as an
investment company under the Investment Company Act of 1940.
69
Item 10 Executive Compensation
The Company pays no salaries or other compensation to its directors
and executive officers. The Bank paid each director, other than Mr. Scott, a
fee for attending each meeting of the Board of Directors, and each meeting of
the Bank's Audit and Finance Committee and Executive Committee, in the amount
of 400, $300, and $300, respectively.
From October 1, 1990, through June 30, 1992, the director-recipients
loaned these fees to the Company. During the year 2006, the Company paid off
the loans to the former directors for a total of $563,091, including
principal and interest. There is one director who was not paid off, and as of
December 31, 2007, the balance due was $367,483, including accrued and unpaid
interest at the rate of 10% per annum. At this time, there is no maturity
date.
The following table sets forth compensation for the Bank's executive
officer for the calendar years 2007, 2006, and 2005. No other executive
officer received total compensation in excess of $100,000 during 2007.
Annual Compensation Long Term Compensation
Awards
Payouts
Other Annual Restricted Stock
Options/LTIP All Other
Name and Principal Year Salary Bonus Compensation Award(s) SARs Payouts
Compensation
Position ($) ($) ($) ($) (#) ($)
($)
G. Harrison Scott, 2007 89,800 0 82,000 0 0 0
12,837
Chairman of the 2006 89,800 0 82,000 0 0 0
-
Board & President 2005 89,800 0 68,333 0 0 0
-
of the Bank
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In addition to the cash compensation shown in the foregoing table, the
Bank provided an automobile to Mr. Scott. Annual compensation does not
include amounts attributable to miscellaneous benefits received by Mr. Scott.
The cost to the Bank of providing such benefits did not exceed 10% of the
total annual salary and bonus paid to Mr. Scott.
Committees of the Board of Directors of the Company and the Bank
The Company does not have standing audit, or compensation committees
of the Board of Directors, or committees performing similar functions. In lieu
thereof, the Board of Directors as a group performs the foregoing functions.
During fiscal year 2007, the Board of Directors of the Company held a
total of 4 meetings. Each director attended at least 75% of the aggregate of
the meetings of the Board of Directors.
The Bank does not have standing nominating, or compensation committees
of the Board of Directors, or committees performing similar functions. In
lieu thereof, the Board of Directors as a group performs the foregoing
functions.
During fiscal year 2007, the Board of Directors of the Bank held a
total of 13 meetings. Each director attended at least 75% of the aggregate of
the meetings of the Board of Directors and of the committees on which such
director served.
The Board of Directors of the Bank has an Executive Committee
consisting of five permanent members. The permanent members of the Executive
Committee in 2007 were Messrs. Scott (chairman), Crow, Klein, LaBiche, and Ms.
S. Scott. The Executive Committee formulates policy matters for determination
by the Board of Directors and reviews financial reports, loan reports, new
business, and other real estate owned information. The Executive Committee met
29 times in 2007.
The Board of Directors of the Bank does have an Audit and Finance
Committee and does not have a charter. This committee meets monthly on the
first Tuesday of the month. By Bank policy, the Audit and Finance Committee
reviews information from management; reviews financial and delinquency
reports; reviews the work performed by the Bank's internal auditor and by the
independent certified public accountant firm. In addition this committee
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also reviews capital expenditures in excess of $5,000; analyzes the Loan Loss
Reserve adequacy; and approves charged off loans. The Audit and Finance
Committee met 12 times in 2007.
The Audit and Finance Committee discloses the following:
1. They have reviewed and discussed the audited financial statements
with management, and with the independent auditors.
2. They have received a letter and written disclosure from the
independent auditors, and have discussed the independence of the
auditors.
3. They have recommended to the Board of Directors that the financial
statements as issued by the independent auditors be included in
the Annual Report.
The permanent members of the Audit and Finance Committee were Messrs.
LaBiche (chairman), Klein, and Crow, and the rotating member was Ms. S.
Scott.
Item 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 2006, certain
information as to the Company Stock beneficially owned by (i) each person or
entity, including any "group" as that term is used in Section 13(d) (3) of
the Exchange Act, who or which was known to the Company to be the beneficial
owner of more that 5% of the issued and outstanding Stock, (ii) the directors
of the Company, (iii) all directors and executive officers of the Company and
the Bank as a group.
Company Stock Beneficially Owned as of
December 31, 2007 (1)
Common Preferred
Name of Beneficial Owner Number Percent Number Percent
Edward J. Soniat 10,381 5.79% 257,326 12.36%
Directors:
G. Harrison Scott (Direct) 41,865 23.37% 157,673 7.57%
G. Harrison Scott (Beneficial owner
of Scott Family, LLP) 55,992 31.26% - -
Franck F. LaBiche 500 - (*) - -
Henry L. Klein 500 - (*) - -
Johnny C. Crow 1,502 - (*) - -
Sharry R. Scott 0 - (2) - -
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All Directors & Executive Officers 100,614 56.16% 160,445 7.70%
of the Company and the Bank as a group (6 persons)
(*)Represents less than 1% of the shares outstanding.
(1) Based upon information furnished by the respective persons. Pursuant
to rules promulgated under the 1934 Act, a person is deemed to
beneficially own shares of stock if he or she directly or indirectly
has or shares (a) voting power, which includes the power to vote or to
direct the voting of the shares; or (b) investment power, which
includes the power to dispose or direct the disposition of the shares.
Unless otherwise indicated, the named beneficial owner has sole voting
power and sole investment power with respect to the indicated shares.
(2) Sharry R. Scott, through ownership of an interest in Scott Family LLP,
owns 7,151 shares of common stock.
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Item 12 Certain Relationships and Related Transactions
The Bank makes loans in the ordinary course of business to its directors
and executive officers, on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and do not involve more than the normal risk
of collectability or present other unfavorable features. At December 31,
2007, two directors had aggregate loan balances in excess of $60,000, which
amounted to approximately $280,000 in the aggregate.
On August 20, 2007 for a price of $4,650,000 the Bank purchased the
land and improvements from Severn South Partnership to which the Bank was
paying rent. The property consists of a four story building with offices that
are leased to other businesses. The purchase was approved by FDIC (Federal
Deposit Insurance Corp) and OFI (Office of Financial Institutions, State of
Louisiana) on August 6, 2007 with the stipulation that the investment in
fixed assets not exceed 50 percent of its equity capital and reserves by
December 31, 2008. The percentage as of December 31, 2007 was 54.39%.
Management feels certain that the required 50% will be reached within the 18
month time frame allowed by the agencies.
The Bank leased office space from Severn South Partnership. The
general partner of Severn South Partnership is a majority shareholder in BOL
Bancshares, Inc. Rent paid to Severn South Partnership for the years ended
December 31, 2007 (prior to the purchase described above), 2006 and 2005
totaled $247,407, $381,386, and $410,012 respectively.
Item 13 Exhibits and Reports on Form 8-K
Exhibits
31.1 Section 302 Principal Executive Officer Certification
31.2 Section 302 Principal Financial Officer Certification
32.1 Section 1350 Certification
32.2 Section 1350 Certification
Reports on Form 8-K
NONE
Item 14 Principal Accountant Fees and Services
AUDIT FEES
The aggregate fees billed by LaPorte, Sehrt, Romig and Hand for its
audit of the Company's annual financial statements for 2007 and for its
reviews of the Company's unaudited interim financial statements included in
Form 10-QSB filed by the Company during 2007 was $79,803. The fees billed
for 2006 were $71,373.
Tax Fees
The aggregate fees billed by LaPorte, Sehrt, Romig and Hand for tax
compliance, tax preparation, and tax review for 2007 were $27,241. The fees
billed for 2006 were $24,812.
All Other Fees
The aggregate fees billed by LaPorte, Sehrt, Romig & Hand for other
accounting services for 2007 were $3,185. The fees billed for 2006 were $0.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BOL BANCSHARES, INC.
/s/ G. Harrison Scott
______________________
April 8, 2008 G. Harrison Scott
Date Chairman
(in his capacity as a duly authorized
officer of the Registrant)
/s/ Peggy L. Schaefer
______________________
Peggy L. Schaefer
Treasurer
(in her capacity as Chief Accounting
Officer of the Registrant)
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In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated on April 8, 2008.
/s/ G. Harrison Scott /s/ Johnny C. Crow
___________________________________ _________________________________
G. Harrison Scott - Director Johnny C. Crow - Director
/s/ Franck F. LaBiche /s/ Sharry R. Scott
___________________________________ ____________________________
Franck F. LaBiche - Director Sharry R. Scott - Director
/s/ Henry L. Klein
___________________________________
Henry L. Klein - Director
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