UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
COMMISSION FILE NUMBER 0-16934
BOL BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-1121561
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
300 ST. CHARLES AVENUE, NEW ORLEANS, LA 70130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(504) 889-9400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Common Stock, par value $1.00 per share
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes No _X_
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No _X_
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company in Rule 12b-2 of the Exchange Act.
Large accelerated filer __ Accelerated filer __
Non-accelerated filer __ Smaller reporting company 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_
As of February 28, 2009, the aggregate market value of the voting common
equity stock held by non-affiliates of the registrant was $2,527,536. For
this purpose, certain executive officers and directors are considered
affiliates.
The number of shares of Common Stock outstanding as of February 28, 2009
was 179,145.
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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 72
Item 8A(T): Controls and Procedures 72
Item 8B: Other Information 72
Part III
Item 9: Directors and Executive Officers of the Registrant 73
Item 10: Executive Compensation 74
Item 11: Security Ownership of Certain Beneficial Owners and
Management 75
Item 12: Certain Relationships and Related Transactions 76
Item 13: Exhibits and Reports on Form 8-K
(a) Exhibits 76
(b) Reports on Form 8-K 76
Item 14: Principal Accountant Fees and Services 76
Signatures 77
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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-K. Our accounting and financial reporting policies
conform to accounting principles generally accepted in the United 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
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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 collectability 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 collectability 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, 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.
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.
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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, 2008
the Bank held $7,591,000 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, 2008 the Bank held $575,000 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. The U.S. Census Bureau's latest estimates on the population
of New Orleans ranks the parish the third fastest-growing county in the nation
at 311,000. According to those numbers, New Orleans grew by 8.2 percent in
one year. Metro wide, New Orleans gained more than 24,500 residents, boosting
the metro population to more that 1.13 millon people. The growth made metro
New Orleans the 36th fastest-growing metropolitan area in the nation, at a
rate of 2.2 percent.
Competition. The Bank competes with other commercial banks, savings and
loan associations, credit unions, and other types of financial services
providers in the New Orleans metropolitan area. 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).
A spokesperson of the Federal Reserve Bank of Atlanta stated that
tourism, which survived last year because of international visitors
coming to the Southeast to take advantage of the weak dollar, is
unlikely to pull off the same coup this year because of global economic
doldrums and stronger U.S. currency erasing the bargain for foreign
travelers. New Orleans convention and leisure travel business will
surely be affected as consumers pull back on spending this year. The
longer the U.S. recession goes on, the more vulnerable the New Orleans
area economy becomes.
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.
Construction, not surprisingly, was the strength of New Orleans' job
market, growing 6.2 percent over the year while the rest of the country
saw a 5.9 percent decline in the sector. New Orleans added 2,000
construction jobs in 2008; 1,500 in the hotel industry; 1,500 in food
and beverage services; 1,100 in state government jobs, including public
hospital workers and teachers; 800 in the professional/technical sector;
and 800 in private hospitals.
Employees
As of December 31, 2008, the Bank had 75 full-time and approximately 2
part-time employees, including executive officers, loan and other banking
5
officers, branch personnel, operations personnel and other support personnel.
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 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, 2008 was
48.24%. 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), and 2006 totaled
$247,407, and $381,386 respectively. Rental income received during 2008 was
$249,664.
Oakwood Branch. The Oakwood Branch of the Bank is located in the
Oakwood Shopping Center at 197 Westbank Expressway, Gretna, Louisiana. The
premise consists 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 $13,066 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 2008 totaled $111,407.
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
6
building consists of approximately 44,500 total square feet of space in a
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 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 was submitted to the
district judge on cross motions for summary judgment and the court ruled
against the Bank, dismissing all claims. The case is on appeal. A loss of
$272,000 was charged to operations during 2004.
2. 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
with a verdict of $11,000 against the Bank. The matter is on appeal.
3. 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.
4. 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 and the court ruled against the Bank. The Court of
Appeals affirmed.
5. The Bank has sued the owner of a branch office that is leased for a
dispute in the lease agreement subsequent to Hurricane Katrina. The case is
in the preliminary stages and some discovery has taken place.
6. The Bank has sued its insurance carriers over Hurricane Katrina
damages in order to interrupt prescription. Negotiations have resulted in
settlement of the majority of the claims and it is unlikely that litigation
will continue.
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted, during the fourth quarter of fiscal
year 2008 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
Stock. The following table sets forth the range of high and low sales prices
of Company Common Stock since 2007, 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
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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, 2008, the Company had approximately 609
shareholders of record. There were no dividends declared on the Company
common stock for the years ended 2008 or 2007.
2008 2007
High Low High Low
First Quarter - - 31.00 29.75
Second Quarter - - - -
Third Quarter 36.60 33.00 - -
Fourth Quarter - - - -
No dividends were paid on shares of Company Common stock in 2008 or
2007.
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 14,
2009 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, 2008, 2007, and 2006. 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, Catastrophic
Events, and Future Growth
Management considers interest rate risk to be a market risk that could
have a significant effect on the financial condition of the Company.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition, and/or operating results. Difficult conditions
in the financial services markets may materially and adversely affect the
business and results of operations of the Bank and the Company.
Dramatic declines in the housing market during the past year, along with
falling home prices and increasing foreclosures and unemployment, have
resulted in significant write downs of asset values by financial institutions,
including government-sponsored entities and major commercial and investment
banks. These write-downs, initially of mortgage-backed securities by
spreading to credit default swaps and other derivative securities, have caused
8
many financial institutions to seek additional capital, to merge with larger
and stronger institutions, and, in some cases, to fail. Many lenders and
institutional investors have reduced, and in some cases, ceased to provide
funding to borrowers, including other financial institutions. This market
turmoil and tightening of credit have led to an increased level of commercial
and consumer delinquencies, lack of consumer confidence, increased market
volatility, and widespread reduction of business activity generally, which
could have a material adverse effect on our business and operations. A
worsening of these conditions would likely exacerbate any adverse effects of
these difficult market conditions on us and others in the financial
institutions industry. As a rule however, the majority of small community
banks, such as Bank of Louisiana, have strong reserve positions and are well
capitalized.
The occurrence of catastrophic events such as hurricanes, tropical
storms, earthquakes, windstorms, floods, severe winter weather, fires and
other catastrophes could adversely affect our consolidated financial condition
or results of operations. Unpredictable natural and other disasters could
have an adverse effect on us in that such events could materially disrupt our
operations or the ability or willingness of our customers to access financial
services offered by us. The incidence and severity of catastrophic events
could nevertheless reduce our earnings and cause volatility in our financial
results for any fiscal quarter or year and have a material adverse effect on
our financial condition or results of operation.
The Company is a customer-focused organization. Future growth is
expected to be driven in a large part by the relationships maintained with
customers. While the Company has assembled an experienced management team,
and has management development plans in place, the unexpected loss of key
employees could have a material adverse effect on the Company's business and
may result in lower revenues.
Hurricane Katrina Disclosure
Insurance proceeds received for storm damages caused by Hurricane
Katrina has covered the damages sustained to the Bank's branches. Ample
proceeds remain in the contingency account to cover the small percentage of
repairs remaining. Of the 7 branch locations that were affected by Hurricane
Katrina, only the Carrollton branch was not reopened. 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, 2008, the Company's total assets
were $95,506,000 as compared to $105,270,000 at December 31, 2007. This is
due to deposits shrinking back to their pre-Katrina levels absent of FEMA and
insurance proceeds.
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 $55,608,000, and $55,820,000 net
of unearned discount and Allowance for Loan Losses at December 31, 2008, and
2007. The Bank's net interest margin was 6.77% for the year ended December
31, 2008 as compared to 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, 2008,
credit card loans were $7,591,000 and represented 13.65% of the Bank's loan
portfolio of $55,608,000. 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.
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.
9
Results of Operations
Net Income - December 31, 2008 Compared to December 31, 2007
The Company's net income for the year 2008 was $724,000 or $4.04 per
share, a decrease of $752,000 or a decrease of $4.20 per share from the
Company's net income of $1,476,000 in 2007.
Net interest income which is total interest income (including fees) less
total interest expense was $6,358,000 in 2008 compared to $7,804,000 in 2007.
Interest on earning assets decreased $1,401,000 from $8,617,000 in 2007
to $7,216,000 in 2008. Interest income on federal funds sold decreased
$660,000 due to a decrease in the average interest rate from 4.99% in 2007 to
an average interest rate of 2.00% in 2008. The average balance of Federal
Funds sold increased $6,249,000 from $26,199,000 in 2007 to $32,448,000 in
2008. Interest income on investment securities decreased $335,000 from
$443,000 earning 3.58% in 2007 to $108,000 earning 2.72% in 2008 due to
average investment securities decrease of $8,413,000 from $12,370,000 in 2007
to $3,957,000 in 2008. Taxable-equivalent income on loans decreased $406,000
or 5.91% from $6,866,000 in 2007 to $6,460,000 in 2008. This decrease
primarily resulted from a decrease of $1,046,000 in the average balance of
loans from $58,502,000 in 2007 to $57,456,000 in 2008 and the average interest
rate decreased from 11.74% in 2007 to 11.24% in 2008.
Interest on deposits increased $45,000 from $700,000 in 2007 to $745,000
in 2008. This increase resulted primarily from an increase in the average
balance of interest bearing deposits from $46,173,000 in 2007 to $49,356,000
in 2008. The average interest rate paid on deposits was 1.52% in 2007 as
compared to 1.51% in 2008.
The provision for loan losses decreased $20,000 from $277,000 in 2007 to
$257,000 in 2008. Net charge-offs were $277,000 in 2007 compared to $257,000
in 2008.
Non-interest income increased $289,000. This increase was due mainly to
the sale of Visa stock for a gain of $578,000. This was offset by a decrease
in deposit related fees of $106,000 of which $47,000 was due to a decrease of
fees collected on overdrawn accounts and a decrease of $38,000 in the service
charge collected on commercial accounts. Cardholder and other credit card
fees decreased $50,000. Other real estate income decreased $88,000 due to the
gain of an OREO sale of $88,000 in 2007, as compared to $0 in 2008.
Miscellaneous income decreased $58,000 due mainly to the settlement of a
lawsuit $50,000 against another bank and $7,000 as a gain on the sale of
MasterCard stock, both of which occurred in 2007.
Non-interest expense decreased $102,000. The major components of this
decrease were a decrease of $52,000 in Salaries and Employee Benefits, and a
decrease of $52,000 in ORE expenses.
Income tax expense decreased $284,000 in 2008 compared to the same
period last year from $721,000 in 2007 to $437,000 in 2008 due to the decrease
in pretax net income of $1,036,000 from 2007 to 2008.
Net Income - December 31, 2007 Compared to December 31, 2006
The Company's net income for the year 2007 was $1,476,000 or $8.24 per
share, a decrease of $654,000 from the Company's net income of $2,130,000 in
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.
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
10
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.
The provision for loan losses decreased $287,000 from $564,000 in 2006
to $277,000 in 2007. Net charge-offs were $677,000 in 2006 compared to
$277,000 in 2007.
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.
11
The following table shows interest income on earning assets and related
average yields, as well as interest expense on interest bearing liabilities
and related average rates paid for the years 2008, 2007 and 2006.
TABLE 1 Average Balances, Interests and Yields
2008 2007 2006
Average Yield/ Average Yield/ Average Yield/
(Dollars in Thousands)
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST-EARNING ASSETS:
Loans, net of
Unearned income (1)(2)
57,456 6,460 11.24% 58,502 6,866 11.74% 57,718 6,731 11.66%
Investment securities
3,957 108 2.72% 12,370 443 3.58% 17,939 531 2.96%
Federal funds sold
32,448 648 2.00% 26,199 1,308 4.99% 36,360 1,775 4.88%
Total Interest-Earning Assets
93,861 7,216 7.69% 97,071 8,617 8.88% 112,017 9,037 8.07%
Cash and due from banks
3,431 3,946 6,084
Allowance for loan Losses
(1,813) (1,803) (1,804)
Premises and equipment
6,811 4,001 2,334
Other Real Estate
1,077 1,105 894
Other assets
1,311 1,284 1,517
TOTAL ASSETS
104,678 105,604 121,042
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Demand Deposits
15,802 150 0.95% 15,487 214 1.38% 18,313 158 0.86%
Savings deposits
22,918 215 0.94% 24,505 271 1.11% 30,273 177 0.58%
Time deposits
10,636 380 3.57% 6,181 215 3.48% 5,576 140 2.51%
Total Int-Bearing Deposits
49,356 745 1.51% 46,173 700 1.52% 54,162 475 0.88%
Long-Term debt
1,543 113 7.30% 1,544 113 7.32% 1,843 138 7.48%
Total Interest-Bearing
Liabilities
50,899 858 1.68% 47,717 813 1.70% 56,005 613 1.09%
Non-interest-bearing deposits
40,168 45,799 54,941
Other liabilities
2,185 2,199 1,783
Shareholders' equity
11,426 9,889 8,313
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
104,678 105,604 121,042
Net Interest Income
6,358 7,804 8,424
Net Interest Spread
6.00% 7.17% 6.97%
Net Interest Margin
6.77% 8.04% 7.52%
(1) Fee income relating to loans of $513,000 in 2008, $452,000 in 2007 and
$586,000 in 2006 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
The below table presents changes in interest income and interest expense, and
distinguishes between the changes related to increases or decreases in average
outstanding balances of interest-earning assets and interest-bearing
liabilities (volume), and the changes related to increases or decreases in
average interest rates on such assets and liabilities (rate)for the years
ended December 31.
Table 2 Rate/Volume Analyses (1
2008 vs 2007 Increase(Decrease) 2007 vs 2006 Increase(Decrease)
Due to Change in: Due to Change in:
(Dollars in Thousands) Rate Volume Total Rate Volume Total
Net Loans (283) (123) (406) 44 91 135
Investment Securities (34) (301) (335) 77 (165) (88)
Federal Funds Sold (972) 312 (660) 28 (495) (467)
Total Interest Income (1,289) (112) (1,401) 149 (569) (420)
Deposits:
Demand Deposits (68) 4 (64) 80 (24) 56
Savings Deposits (38) (18) (56) 128 (34) 94
Time Deposits 10 155 165 60 15 75
Total Int-Bearing Dep (96) 141 45 268 (43) 225
Long-Term Debt (0) (0) (0) (3) (22) (25)
Total Interest Expense (96) 141 45 265 (65) 200
Change in net interest
Income (1193) (253) (1446) (116) (504) (620)
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, 2008, has a net interest sensitive asset gap of 31.32%
when projecting out one year. In the near term, defined as 90 days, the
Company currently has a net interest sensitive liability gap of 1.50%. 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, 2008, as well as the cumulative position at December
31, 2008:
13
TABLE 3 Asset/Liability and Gap Analysis
December 31, 2008
1-30 31-60 61-90 91-365 1 Year- Over
Days Days Days Days 5 Years 5 Years Total
(Dollars in Thousands)
Earning Assets
Securities-HTM - - 2,001 - - - 2,001
Securities - AFS - - - - 823 - 823
Loans 9,482 2,731 2,303 32,095 8,528 469 55,608
Federal Funds sold 25,375 - - - - - 25,375
Total Earning Assets 34,857 2,731 4,304 32,095 9,351 469 83,807
Non Earning Assets - - - - - 11,699 11,699
TOTAL ASSETS 34,857 2,731 4,304 32,095 9,351 12,168 95,506
Interest-Bearing Liabilities
Savings & Now accounts 33,483 - - - - - 33,483
Money market 3,667 - - - - - 3,667
CD's < $100,000 1,832 669 309 2,661 1,547 - 7,018
CD's > $100,000 201 303 - 945 431 - 1,880
Notes payable - - - - - - -
Total Interest-
Bearing Liabilities 39,183 972 309 3,606 1,978 - 46,048
Non Costing Liabilities 724 - - - - 48,734 49,458
TOTAL LIABILITIES 39,907 972 309 3,606 1,978 48,734 95,506
Interest Sensitivity Gap
(4,326) 1,759 3,995 28,489 7,373 469 37,759
Cumulative Gap (4,326) (2,567) 1,428 29,917 37,290 37,759
Cumulative Gap/
Total Assets -4.53% -2.69% 1.50% 31.32% 39.04% 39.54%
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, 2008 and December 31, 2007 the allowance for possible
loan losses was $1,800,000. In 2008, the provision for loan losses was
$257,000 compared to $277,000 in 2007. Net charge-offs were $257,000 in 2008
14
compared to $277,000 in 2007. 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,
2008 2007
(Dollars in Thousands)
Balance at beginning of period $1,800 $1,800
Charge-Offs:
Commercial 0 32
Real estate 0 11
Consumer 4 15
Credit Cards 448 424
Total Charge-offs 452 482
Recoveries:
Commercial 20 3
Real estate 0 0
Consumer 7 7
Credit Cards 168 195
Total Recoveries 195 205
Net charge-offs 257 277
Provision for loan losses 257 277
Balance at end of period $1,800 $1,800
Ratio of net charge-offs during period
to average loans outstanding 0.45% 0.47%
Allowance for possible loan losses as a
percentage of loans 3.14% 3.12%
Non-interest Income
An important source of the Company's revenue is derived from non-
interest income.
For the year 2008 non-interest income increased $289,000. This
increase was due mainly to the sale of Visa stock for a gain of $578,000.
This was offset by a decrease in deposit related fees of $106,000 of which
$47,000 was due to a decrease of fees collected on overdrawn accounts and a
decrease of $38,000 in the service charge collected on commercial accounts.
Cardholder and other credit card fees decreased $50,000. Other real estate
income decreased $88,000 due to the gain of an OREO sale of $88,000 in 2007,
as compared to $0 in 2008. Miscellaneous income decreased $58,000 due mainly
to the settlement of a lawsuit $50,000 against another bank and $7,000 as a
gain on the sale of MasterCard stock, both of which occurred in 2007.
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.
The following table sets forth the major components of non-interest
income for the last two years.
15
TABLE 5 Non-interest Income
December 31,
2008 2007 $ Change
(Dollars in Thousands)
Service Charges 237 277 (40)
NSF Charges 268 315 (47)
Gain on Sale of Securities 0 0 0
Cardholder & Other Cr Card Inc 498 543 (45)
Other Comm. & Fees 73 65 8
ORE Income 0 0 0
Gain on Sale of ORE 0 88 (88)
Gain on Insurance Settlement 0 0 0
Other Income 640 139 501
Total Non-interest Income $1,716 $1,427 $289
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 2008 non-interest expense decreased $102,000. The major
components of this decrease were a decrease of $52,000 in Salaries and
Employee Benefits, and a decrease of $52,000 in ORE expenses.
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 following table sets forth the major components of non-interest
expense for the last two years:
16
TABLE 6 Non-interest Expenses
December 31,
2008 2007 $ Change
(Dollars in Thousands)
Salaries & Benefits 2,697 2,749 (52)
Occupancy Expense 1,144 1,058 86
Estimated Loss (Recovery) Contingency 0 (1) 1
Loan & Credit Card Expense 121 125 (4)
Communications 231 222 9
Outsourcing Fees 1,468 1,432 36
Stationery, Forms & Supply 96 111 (15)
Professional Fees 252 305 (53)
Insurance & Assessments 93 77 16
Advertising Expense 7 9 (2)
Misc. Losses (1) 5 (6)
Promotional Expenses 50 74 (24)
ORE Expenses 35 87 (52)
Other Operating Expense 463 505 (42)
Total Non-interest Expense $6,656 $6,758 ($102)
Provision for Income Taxes
Income tax expense for 2008 was $437,000 compared to $721,000 in 2007,
and an income tax expense of $938,000 in 2006. 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,
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.
17
Financing activity cash flows from deposits, which decreased 9.67% to
$80,977,000 in 2008 from $89,666,000 in 2007, or $8,689,000, 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 $4,400,000
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,
2008 2007
(Dollars in Thousands)
Real estate-mortgage 45,693 43,513
Commercial, financial, &
Agricultural 2,170 2,754
Consumer 1,848 2,175
Credit cards 7,591 9,064
Overdrafts 106 114
Loans 57,408 57,620
Less:
Allowance for possible loan losses 1,800 1,800
Loans, net $55,608 $55,820
At December 31, 2008 total loans outstanding were $55,608,000 and
$55,820,000 at December 31, 2007. Average total loans during 2008 decreased
$1,046,000 or 1.79%, to $57,456,000 from $58,502,000 at December 31, 2007.
The Bank experienced an increase of $2,180,000 in real estate loans from
$43,513,000 in 2007 to $45,693,000 in 2008, which was offset by a decrease in
credit card loans of $1,473,000, a decrease in commercial loans of $584,000,
and a decrease in personal loans of $327,000.
The following table shows the maturity distribution and interest rate
sensitivity of the Bank's loan portfolio at December 31, 2008:
18
TABLE 8 Loan Maturity and Interest Rate Sensitivity
December 31, 2008
Maturing
Within One To Over
One Year 5 Years 5 Years Total
(Dollars in Thousands)
Loan Maturity by Type
Real estate construction,
land & land dev. 40,012 4,910 771 45,693
Commercial, financial &
Agricultural 1,981 189 0 2,170
All other loans 1,810 7,735 0 9,545
Total $43,803 $12,834 $771 $57,408
Rate Sensitivity of Loans
Loans:
Fixed rate loans 41,091 12,834 771 54,696
Variable rate loans 1,463 0 0 1,463
Non-Accrual Loans 1,249 0 0 1,249
Total $43,803 $12,834 $771 $57,408
As of December 31, 2008 and 2007, the Bank's recorded investment in
loans that are considered impaired under SFAS 114 totaled $1,249,000 and
$417,000, 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
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, 2008 were $2,402,000 and
$1,453,000 at December 31, 2007. During 2008, non-accrual loans increased by
$832,000 and other real estate owned increased $117,000. At December 31,
2008, and 2007, there were no restructured loans.
Since December 31, 2007, the ratio of past due loans to total loans has
increased from .85% to .86% at December 31, 2008. During that time, the Bank
increased its ratio of non-performing assets to loans and other real estate
owned from a low of 2.48% at December 31, 2007, to a high of 4.10% at December
31, 2008. The allowance for possible loan losses as a percent of net period-
end loans increased to 3.14% at December 31, 2008, compared to 3.12% at
December 31, 2007. Management believes the allowance for possible loan losses
is adequate 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. The gross
amount of interest income that would have been recorded on non-accrual loans,
19
if all such loans had been accruing interest at the original contract rate, at
December 31, 2008 was $76,000 compared to December 31, 2007 was $31,000.
TABLE 9 Non-performing Assets
December 31,
2008 2007
(Dollars in Thousands)
Non-accrual Loans 1,249 417
Restructured Loans 0 0
Other Real Estate Owned 1,153 1,036
Total Non-performing Assets $2,402 $1,453
Loans past due 90 days or more 491 488
Ratio of past due loans to loans 0.86% 0.85%
Ratio of non-performing assets to loans
and other real estate owned 4.10% 2.48%
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
provision for credit card losses is included in the Bank's overall provision
for loan losses.
20
Table 10 Allocation of Allowance for Possible Loan Losses
December 31, 2008 December 31, 2007
Allowance % * Allowance % *
(Dollars in Thousands)
Non-accrual loans 168 2.18% 163 0.72%
Substandard/Impaired/Doubtful 769 21.37% 591 14.17%
Construction loans 76 8.23% 201 12.62%
Commercial, financial
and agricultural 163 47.33% 287 49.74%
Consumer loans 60 7.49% 48 6.82%
Credit Cards 564 13.22% 501 15.73%
Overdrafts - 0.18% 9 0.20%
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
$2,824,000 at December 31, 2008, and $8,740,000 at December 31, 2007. 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, 2008. At year-end 2008, $823,000 of the Company's investment securities
were classified as available-for-sale, compared to $740,000 at December 31,
2007. The gross unrealized holding gains on these securities at December 31,
2008 were $521,000 and $437,000 at December 31, 2007.
There were no investments and no obligations of any one state or
municipality at December 31, 2008, or 2007.
At December 31, 2008, and 2007 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,
2008 2007
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in Thousands)
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies 2,001 2,026 8,000 7,997
Other investments 302 823 302 740
Total $2,303 $2,849 $8,302 $8,737
TABLE 12 Securities Maturities and Yields
December 31, 2008
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 2,001 2,026 2.40%
Due 1-5 years
Total $2,001 $2,026 2.40%
(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 at fair value that are included
in Investment Securities at December 31, 2008 (dollars in thousands):
22
TABLE 13 Other Securities
Mississippi River Bank 710
Liberty Financial Services, Inc. 82
Business Resource Capital 20
MasterCard International 11
Total Other Securities $823
Deposits
Total deposits at December 31, 2008 were $80,977,000 which represented a
decrease of $8,689,000 or 9.69% from $89,666,000 at December 31, 2007. During
2008, interest bearing deposits decreased by $2,211,000. Core deposits, the
Bank's largest source of funding, consist 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 $4,042,000 or 4.45% to $86,826,000 from $90,868,000 in 2007.
Average market rate core deposits, primarily CD's of less than $100,000 and
money market accounts, increased $3,397,000 from $8,836,000 in 2007 to
$12,233,000 in 2008.
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 46.26% of
average core deposits in 2008 compared to 50.40% in 2007.
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,
2008 2007
Average Average
Amount Rate Amount Rate
(Dollars in Thousands)
Non-interest-bearing Deposits $40,168 N/A $45,799 N/A
Interest-bearing Demand Deposits 15,802 0.95% 15,487 1.38%
Savings Deposits 22,918 0.94% 24,505 1.11%
Time Deposits 10,636 3.57% 6,181 3.48%
Total Average Deposits $89,524 $91,972
The composition of average deposits for the last two years is presented
below:
23
TABLE 15 Deposit Composition
December 31,
2008 2007
(Dollars in Thousands)
Average % Of Average % Of
Balances Deposits Balances Deposits
Demand, non-interest-bearing 40,168 44.87% 45,799 49.80%
NOW accounts 11,506 12.85% 11,728 12.75%
Money market deposit accounts 4,296 4.80% 3,759 4.09%
Savings accounts 22,918 25.60% 24,505 26.64%
Other time deposits 7,938 8.87% 5,077 5.52%
Total core deposits 86,826 96.99% 90,868 98.80%
Certificates of deposit of
$100,000 or more 2,698 3.01% 1,104 1.20%
Total deposits $89,524 100.00% $91,972 100.00%
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,
2008 2007
(Dollars in Thousands)
Three months or less 504 1,000
After three months through one year 945 1,025
Over one year through three years 431 235
Total $1,880 $2,260
Other Assets and Other Liabilities
Other assets decreased $46,000. Other liabilities decreased $1,673,000
mainly due to insurance proceeds that were 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,
2008 2007
(Dollars in Thousands)
Interest Receivable 263 285
Prepaid Expenses 338 361
Accounts Receivable 84 69
Cash Surrender Value 193 209
Other Assets 0 0
Total Other Assets $878 $924
Other Liabilities December 31,
2008 2007
(Dollars in Thousands)
Accrued Expenses Payable 268 225
Deferred Membership Fees 17 17
Blanket Bond Fund 50 50
Other Liabilities 861 2,577
Total Other Liabilities 1,196 $2,869
Borrowings
The Company's long-term debt is comprised primarily of debentures which
will be due July 5, 2009 totaling $1,399,000. 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 $4,400,000 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, 2008 was $11,452,000, an increase
of $712,000 or 6.63% from $10,740,000 at December 31, 2007, and amounted to
11.99% of total assets. Realized shareholders' equity, which includes
preferred and common stock, capital in excess of par, and retained earnings,
increased $657,000 or 6.37% to $10,975,000 at December 31, 2008, from
$10,318,000 at December 31, 2007.
During 2008, the increase in shareholder's equity was primarily
attributable to net income of $724,000, a decrease in Preferred Stock of
$84,000, and an increase in capital in excess of par-retired Preferred Stock
of $17,000. 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
$55,000.
No dividends were paid on shares of Company Common Stock in 2008 or
2007.
Shareholders' equity at December 31, 2007, 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,
25
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 an 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
20065.
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 2008 was 6.34% compared to 14.93% in 2007. The
ratio of average shareholders' equity to average assets was 10.92% and 9.36%
in 2008 and 2007, respectively.
At December 31, 2008, the Company's primary capital ratio as defined by
the FRB was 12.97%, compared to 11.19% in 2007. The total capital ratio was
12.97% at December 31, 2008, and 11.19% in 2007, 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, 2008, was 11.78% compared to 10.31% at December 31, 2007, 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,
2008 2007
Amount Percent Amount Percent
(Dollars in Thousands)
Tier I capital
Actual 11,452 18.20% 10,740 15.84%
Minimum 2,520 4.00% 2,715 4.00%
Excess 8,932 14.20% 8,025 11.84%
Total risk-based capital
Actual 12,251 19.47% 11,599 17.11%
Minimum 5,035 8.00% 5,425 8.00%
Excess 7,216 11.47% 6,174 9.11%
Tier I capital leverage ratio
Actual 11,452 10.95% 10,740 10.17%
Minimum 4,180 4.00% 4,220 4.00%
Excess 7,272 6.95% 6,520 6.17%
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 rates,
29
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,
2008 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.
Temporary Liquidity Guarantee Program ("TLGP")
On October 13, 2008, the FDIC announced the TLGP to strengthen
confidence and encourage liquidity in the banking system. The TLGP consists
of two components: a temporary guarantee of newly-issued senior unsecured debt
(the Debt Guarantee Program) and a temporary unlimited guarantee of funds in
non-interest-bearing transaction and regular checking accounts at FDIC-insured
institutions (the Transaction Account Guarantee Program). The Bank chose not
to participate in the program.
Troubled Asset Relief Program ("TARP")
On October 14, 2008, the U.S. Department of Treasury announced the TARP
Capital Purchase Program. The TARP Capital Purchase Program contemplates the
U.S. Treasury purchasing senior preferred shares in qualified U.S. financial
institutions. The program is intended to encourage participating financial
institutions to build capital in order to increase the flow of financing to
U.S. businesses and consumers and to support the U.S. economy. Companies
participating in the program must accept standardized terms as outlined by the
U.S. Treasury and must adopt the Treasury Department's standards for executive
compensation and corporate governance. Additionally, participants must agree
31
to accept future program requirements as may be promulgated by the U.S.
Congress and regulatory authorities. The Bank chose not to participate in
TARP.
Emergency Economic Stabilization of 2008 ("EESA")
On October 3, 2008, the United States government passed the EESA, which
provides the United States Department of the Treasury with broad authority to
implement certain actions intended to help restore stability and liquidity to
the U.S. financial markets.
Deposit Insurance
As part of the EESA, the basic limit on federal deposit insurance
coverage was temporarily increased from $100,000 to $250,000 per depositor
through December 31, 2009 by the FIDC. Deposit insurance coverage for
retirement accounts was not changed and remains at $250,000.
The FDIC imposed an additional assessment against institutions for
deposit insurance. This assessment is based on the risk category of the
institution and ranges from 5 to 43 basis points of the institution's
deposits. In December, 2008, the FDIC adopted a rule that raises the current
deposit insurance assessment rates uniformly for all institutions by 7 basis
points (to a range from 12 to 50 basis points) for the first quarter of 2009.
The rule also gives the FDIC the authority to alter the way it calculates
federal deposit insurance assessment rates to adjust for an institution' risk
beginning in the second quarter of 2009 and thereafter, and as necessary to
implement emergency special assessments to maintain the deposit insurance
fund.
Item 7 Financial Statements
32
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, 2008 and 2007, and the related consolidated
statements of income, comprehensive income, changes in stockholders' equity,
and cash flows for the years ended December 31, 2008, 2007 and 2006. 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, 2008 and 2007, and the results of their operations and their cash
flows for the years ended December 31, 2008, 2007 and 2006, in conformity with
accounting principles generally accepted in the United States of America.
We were not engaged to examine management's assessment of the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2008, included in the Form 10-K and, accordingly, we do not
express an opinion thereon.
A Professional Accounting Corporation
/s/ Laport, Sehrt, Romig & Hand
Metairie, Louisiana
February 19, 2009
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
33
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2008 2007
Cash and Cash Equivalents
Non-Interest Bearing Balances and Cash $3,103,598 $4,161,408
Federal Funds Sold 25,375,000 27,490,000
Total Cash and Cash Equivalents 28,478,598 31,651,408
Investment Securities
Securities Held-to-Maturity (Fair Value of $2,025,724
in 2008 and $7,997,180 in 2007) 2,001,349 8,000,000
Securities Available-for-Sale, at Fair Value 822,977 739,676
Loans - Less Allowance for Loan Losses of
$1,800,000 in 2008 and 2007 55,608,039 55,819,935
Property, Equipment and Leasehold Improvements (Net
of Depreciation and Amortization) 6,516,361 6,923,048
Other Real Estate 1,152,924 1,035,924
Other Assets 877,558 924,281
Deferred Taxes - 80,645
Letters of Credit 48,620 94,934
Total Assets $95,506,426 $105,269,851
The accompanying notes are an integral part of these consolidated financial
statements.
34
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2008 2007
LIABILITIES
Deposits
Non-Interest Bearing $34,929,523 $41,407,597
Interest Bearing 46,047,786 48,258,817
Notes Payable 1,543,201 1,543,201
Other Liabilities 1,195,504 2,869,250
Deferred Taxes 127,612 -
Letters of Credit Outstanding 48,620 94,934
Accrued Interest 162,431 355,775
Total Liabilities 84,054,677 94,529,574
STOCKHOLDERS' EQUITY
Preferred Stock - Par Value $1
1,997,360 Shares Issued and Outstanding in 2008
2,081,857 Shares Issued and Outstanding in 2007
1,997,360 2,081,857
Common Stock - Par Value $1
179,145 Shares Issued and
Outstanding in 2008 and 2007 179,145 179,145
Accumulated Other Comprehensive Income 476,917 421,934
Capital in Excess of Par - Retired Stock 157,792 140,892
Retained Earnings 8,640,535 7,916,449
Total Stockholders' Equity 11,451,749 10,740,277
Total Liabilities and Stockholders' Equity $95,506,426 $105,269,851
The accompanying notes are an integral part of these consolidated financial
statements.
35
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended
December 31,
2008 2007 2006
INTEREST INCOME $7,215,507 $8,617,125 $9,036,957
INTEREST EXPENSE 857,525 812,904 612,641
Net Interest Income 6,357,982 7,804,221 8,424,316
PROVISION FOR LOAN LOSSES 256,622 276,704 563,587
Net Interest Income After
Provision for Loan Losses 6,101,360 7,527,517 7,860,729
OTHER INCOME
Service Charges on Deposit Accounts 505,009 610,691 607,063
Gain on Insurance Settlement - - 600,000
Other Non-Interest Income 1,211,079 816,557 733,917
Total Other Income 1,716,088 1,427,248 1,940,980
OTHER EXPENSES
Salaries and Employee Benefits 2,696,966 2,749,357 2,688,824
Occupancy Expense 1,143,742 1,058,482 1,080,441
Estimated Recovery Contingency - (1,200) (202,442)
Other Non-Interest Expense 2,815,263 2,950,938 3,167,473
Total Other Expenses 6,655,971 6,757,577 6,734,296
INCOME BEFORE INCOME
TAX EXPENSE 1,161,477 2,197,188 3,067,413
INCOME TAX EXPENSE 437,391 720,722 937,807
NET INCOME $724,086 $1,476,466 $2,129,606
EARNINGS PER SHARE OF
COMMON STOCK $4.04 $8.24 $11.89
The accompanying notes are an integral part of these consolidated financial
statements.
36
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended
December 31,
2008 2007 2006
NET INCOME $724,086 $1,476,466 $2,129,606
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized Holding Gains (Losses) on
Investment Securities Available-for-
Sale, Arising During the Period 54,983 144,975 (54,740)
OTHER COMPREHENSIVE INCOME (LOSS) 54,983 144,975 (54,740)
COMPREHENSIVE INCOME $779,069 $1,621,441 $2,074,866
The accompanying notes are an integral part of these consolidated financial
statements.
37
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 - 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 2,081,857 179,145 421,934 140,892 7,916,449 10,740,277
Preferred Stock Retired 84,497) - - 16,900 - (67,597)
Other Comprehensive Income,
Net of Applicable Deferred
Income Taxes - - 54,983 - - 54,983
Net Income for the Year 2008 - - - - 724,086 724,086
BALANCE - December 31,
2008 $1,997,360 $179,145 $476,917 $157,792 $8,640,535 11,451,749
The accompanying notes are an integral part of these consolidated financial
statements.
38
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2008 2007 2006
OPERATING ACTIVITIES
Net Income $724,086 $1,476,466 $2,129,606
Adjustments to Reconcile Net Income to Net
Cash (Used in) Provided by Operating Activities:
Provision for Loan Losses 256,622 276,704 563,587
Write Down of Other Real Estate - 24,493 265,000
Depreciation and Amortization Expense 425,495 351,653 296,109
Decrease (Increase) in Deferred
Income Taxes 179,939 (66,800) (24,584)
Gain on Sale or Disposal of Property
and Equipment - - (99,451)
Gain on Sale of Other Real Estate - (88,341) (683)
Decrease (Increase) in Other Assets 46,723 173,193 (56,655)
(Decrease) Increase in Other Liabilities
And Accrued Interest Payable (1,867,090) 2,352,412 (386,609)
Net Cash (Used in) Provided by
Operating Activities (234,225) 4,499,780 2,686,320
INVESTING ACTIVITIES
Proceeds from Held-to-Maturity Investment Securities
Released at Maturity 5,998,651 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
Purchases of Property and Equipment (18,808) (4,989,287) (403,618)
Proceeds from Sale of Other Real Estate - 300,000 380,000
Purchases of Loans - - (109,624)
Net (Increase) Decrease in Loans (161,726) 1,131,075 (1,671,256)
Net Cash Provided by Investing Activities
5,818,117 2,457,288 3,347,902
The accompanying notes are an integral part of these consolidated financial
statements.
39
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended
December 31,
2008 2007 2006
FINANCING ACTIVITIES
Net Decrease in Non-Interest Bearing
and Interest Bearing Deposits (8,689,105) (3,864,952) (21,883,923)
Preferred Stock Retired (67,597) (4,486) (16,237)
Proceeds from Issuance of Long-Term Debt - - 1,400,000
Principal Payments on Long-Term Debt - (1,000) (2,001,206)
Net Cash Used in Financing Activities
(8,756,702) (3,870,438) (22,501,366)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,172,810) 3,086,630 (16,467,144)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 31,651,408 28,564,778 45,031,922
CASH AND CASH EQUIVALENTS -
END OF YEAR $28,478,598 $31,651,408 $28,564,778
SUPPLEMENTAL DISCLOSURES:
Additions to Other Real Estate Through Foreclosure
$117,000 $106,836 $1,151,659
Cash Paid During the Year for Interest $1,050,869 $768,588 $909,350
Cash Paid During the Year for Income Taxes
$425,000 $783,704 $952,000
Market Value Adjustment for Unrealized Gain
on Securities Available-for-Sale $83,308 $219,659 $(82,939)
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 consolidated financial
statements.
40
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.
41
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. Deferred income tax assets
and liabilities are determined using the liability (or balance sheet) method.
Under this method, the net deferred tax asset or liability is determined based
on the tax effects of the temporary differences between the book and tax bases
of the various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
When tax returns are filed, it is highly certain that some positions
taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the
amount of the position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the period during
which, based on all available evidence, management believes it is more likely
than not that the position will be sustained upon examination, including the
resolution of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount
of tax benefit that is more than 50% likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above
would be reflected as a liability for unrecognized tax benefits in the
consolidated balance sheet along with any associated interest and penalties
that would be payable to the taxing authorities upon examination. Interest
and penalties associated with unrecognized tax benefits would be classified as
additional income taxes in the statement of operations.
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 $1,924,192 and $2,168,500 for the
years ended December 31, 2008 and 2007, respectively.
NON-DIRECT RESPONSE ADVERTISING
The Bank expenses advertising costs as incurred.
42
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
NEW ACCOUNTING STANDARDS
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. During 2008, FASB deferred the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), to fiscal years beginning after November
15, 2008, and interim periods within the fiscal year. Adoption of this
pronouncement did not have a monetary effect on the financial position and
results of operations of the Company, but resulted in expanded disclosures
(Note Z).
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities which included an amendment of
FASB No. 115. This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is
to improve financial reporting by providing 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 expected to expand the use of fair value
measurement. This Statement is effective as of the beginning of an entity's
first fiscal year that begins after November 15, 2007. The Company did not
make an early adoption election nor has it chosen to measure the financial
instruments identified under SFAS No. 159 at fair value.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 amends Accounting Research
Bulletin 51, Consolidated Financial Statements, to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 is effective for fiscal periods, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Management believes the adoption of this pronouncement will not have a
material impact on the financial statements.
43
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING STANDARDS (Continued)
In December 2007, the FASB revised SFAS No. 141(R) Business Combinations
to improve the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial reports about
a business combination and its effects. To accomplish that, SFAS No. 141(R)
establishes principles and requirements for how the acquirer: 1) Recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; 2)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and 3) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. This standard will change the accounting treatment for business
combinations on a prospective basis.
In May 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company does not expect that the adoption of SFAS
No. 161 will have a material impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles. This statement identifies the sources of
accounting principles and the framework for selecting the accounting principles
to be used in the preparation of financial statements prepared in conformity
with generally accepted accounting principles (GAAP) in the United States. The
statement is effective November 15, 2008, and is not expected to result in
changes to current practices nor have a material effect on the Company.
In September 2008, FASB issued FASB Staff Position (FSP) FAS 133-1 and
FASB Interpretation Number (FIN) 45-4, Disclosures about Credit Derivatives and
Financial Guarantees. The FSP requires companies that sell credit derivatives
to disclose information that will enable financial statement users to assess
the potential effect of the credit derivatives on the seller's financial
position, financial performance, and cash flows. FSP FAS 133-1 and FIN 45-4 is
effective for interim and annual periods ending after November 15, 2008. This
pronouncement is not expected to have an effect on the financial position and
results of operations of the Company.
44
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING STANDARDS (Continued)
In February 2008, FASB issued FSP FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions, which provides guidance
on accounting for a transfer of a financial asset and a repurchase financing.
The FSP presumes that an initial transfer of a financial asset and a repurchase
financing are considered part of the same arrangement under FASB Statement No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. However, if certain criteria are met, the
initial transfer and repurchase shall not be evaluated as a linked transaction
and therefore evaluated separately under FASB 140. The FSP is effective for
repurchase financing in which the initial transfer is entered in fiscal years
beginning after November 15, 2008. The Company does not anticipate a material
impact on its consolidated financial statements as a result of this statement.
In April 2008, FASB issued FSP 142-3 which amends the list of factors an
entity should consider in developing renewal of extension assumptions used in
determining the useful life of recognized intangible assets under SFAS No. 142,
Goodwill and Other Intangibles. The new guidance applies to intangible assets
that are acquired individually or with a group of other assets and to
intangible assets acquired in both business combinations and asset
acquisitions. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and interim periods within those fiscal
years. The guidance must be applied prospectively only to intangible assets
acquired after the FSP's effective date.
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 ($34,500)
in 2008, $1,014 in 2007, and ($387,931) in 2006, respectively. During the year
ended December 31, 2007, 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.
45
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C
LOANS
Major classification of loans is as follows:
December 31,
2008 2007
Real Estate Mortgages:
Residential 1-4 Family $12,011,976 $6,964,793
Commercial 22,082,814 23,032,682
Construction 8,322,770 9,789,755
Second Mortgages 1,300,210 1,623,948
Other 1,975,493 2,101,669
45,693,263 43,512,847
Commercial 2,169,871 2,754,150
Personal 1,847,729 2,175,194
Credit Cards 7,590,676 9,063,742
Overdrafts 106,500 114,002
57,408,039 57,619,935
Allowance for Loan Losses 1,800,000 1,800,000
$55,608,039 $55,819,935
The following is a classification of loans by rate and maturity:
(Dollar amounts in thousands)
December 31,
2008 2007
Fixed Rate Loans:
Maturing in 3 Months or Less $9,307 $11,644
Maturing Between 3 and 12 Months 31,784 26,570
Maturing Between 1 and 5 Years 12,834 14,978
Maturing After 5 Years 771 611
54,696 53,803
Variable Rate Loans:
Maturing Quarterly or More Frequently 1,463 3,400
Maturing Between 3 and 12 Months - -
Non-Accrual Loans 1,249 417
57,408 57,620
Less: Allowance for Loan Losses 1,800 1,800
Net Loans $55,608 $55,820
46
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C
LOANS (Continued)
As of December 31, 2008 and 2007, the Bank's recorded investment in loans
that are considered impaired under SFAS No. 114 totaled $1,249,309 and
$417,382, respectively. Specific allowances pertaining to impaired loans
totaled $168,403 and $162,607 at December 31, 2008 and 2007, 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, 2008 and 2007, 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 $1,152,924 at December 31, 2008, and $1,035,924 at
December 31, 2007.
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.
At December 31, 2008, $1,249,309 of loans were in non-accrual status and
$76,421 of interest was foregone in the year then ended. 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. Interest income recognized on non-accrual
loans totaled $-0- during the years ended December 31, 2008, 2007 and 2006.
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, 2008:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Agency Securities $2,001,349 $24,375 $- $2,025,724
47
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, 2008:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity Securities $302,180 $520,797 $- $822,977
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
At December 31, 2007, the Company's investment in U.S. Agency Securities
had been in a continuous unrealized loss position in excess of twelve months.
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 of the Company's ability and intent to hold
these investments until maturity, the Company did not consider these
investments to be other-than-temporarily impaired at December 31, 2007.
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
48
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E
INVESTMENT SECURITIES (Continued)
The maturities of debt securities at December 31, 2008, are as
follows:
Securities Held-to-Maturity
Amortized Market
Cost Value
Amounts Maturing in:
One Year or Less $2,001,349 $2,025,724
After One Year
Through Five
Years - -
$2,001,349 $2,025,724
A summary of the Bank's pledged securities as of December 31, are as
follows:
2008 2007
Pledged to secure public funds $500,000 $500,000
Pledged to secure treasury tax and loan accounts 500,000 500,000
Pledged to secure VISA USA - 500,000
NOTE F
INCOME TAXES
The components of the provision for income tax expense (benefit)
are:
2008 2007 2006
Current $257,189 $787,522 $962,391
Deferred 180,202 (66,800) (24,584)
Total Provision for Income Tax $437,391 $720,722 $937,807
A reconciliation of income tax at the statutory rate to income tax
expense at the Company's effective rate is as follows:
2008 2007 2006
Computed Tax Expense (Benefit)
at the Expected Statutory Rate $394,902 $747,044 $1,042,920
Katrina Tax Credits (63,060) (58,105) (70,569)
Other Adjustments 105,549 31,783 (34,544)
Income Tax Expense
for Operations $437,391 $720,722 $937,807
49
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F
INCOME TAXES (Continued)
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 was a net deferred tax (liability) asset of $(127,612) and $80,645
as of December 31, 2008 and 2007, respectively. The major temporary
differences, which created deferred tax assets and liabilities, are as follows:
2008 2007
Deferred Tax Assets:
Other Real Estate $235,711 $235,711
Allowance for Loan Loss 195,757 276,996
Total Deferred Tax Assets 431,468 512,707
Deferred Tax Liabilities:
Section 481A Adjustment - Prepaid Expenses (84,961) (102,568)
Unrealized Gain on Securities (226,767) (198,447)
Fixed Assets (247,352) (131,047)
Total Deferred Tax Liabilities (559,080) (432,062)
Net Deferred Tax (Liability) Asset $(127,612) $80,645
The Bank had no amount of interest and penalties recognized in the
consolidated statements of operations for the years ended December 31, 2008 and
2007, respectively, nor any amount of interest and penalties recognized in the
consolidated balance sheets as of December 31, 2008 and 2007, respectively.
As of December 31, 2008, the tax years that remain open for examination
by tax jurisdictions include 2005, 2006, and 2007.
50
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
December 31,
2008 2007
Furniture and Equipment $2,659,986 $2,610,160
Bank Owned Vehicles 62,491 42,354
Leasehold Improvements 439,689 490,843
Land 1,092,425 1,092,425
Buildings 5,859,133 5,859,133
10,113,724 10,094,915
Less: Accumulated Depreciation and
Amortization 3,597,363 3,171,867
Total Property, Equipment and Leasehold
Improvements, Net $6,516,361 $6,923,048
Depreciation and amortization expense aggregated $425,495 in 2008,
$351,653 in 2007, and $296,109 in 2006.
NOTE H
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
For the Years Ended
December 31,
2008 2007
Balance - January 1 $1,800,000 $1,800,000
Provision Charged to Operations 256,622 276,704
Loans Charged Off (452,034) (482,510)
Recoveries 195,412 205,806
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, 1,997,360 shares issued and outstanding in
2008, and 3,000,000 shares authorized, 2,081,857 shares issued and outstanding
in 2007. 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 2008 and 2007.
51
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 2008, 2007 and 2006. There was no
provision for dividends for the years ended December 31, 2008, 2007 or 2006.
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:
2008 2007
Credit Card Arrangements $28,599,000 $44,190,000
Commitments to Extend Credit 3,763,000 3,448,000
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 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. This matter was submitted to the
district judge in 2008 and all claims were dismissed. This case is currently
on appeal.
52
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K
CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
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 verdict of $11,000 was issued against the Bank. This
matter is currently on appeal.
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 2008, 2007 and 2006, the Bank recognized a recovery from
this contingency of $-0-, $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:
2008 2007
Balance - January 1 $484,196 $367,315
New Loans Made 614,776 448,973
Repayments (26,521) (332,092)
Balance - December 31 $1,072,451 $484,196
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 and 2006, totaled
$247,407 and $381,386, respectively.
53
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L
RELATED PARTY TRANSACTIONS (Continued)
During the years ended December 31, 2008, 2007, and 2006, legal fees paid
to a director totaled $55,754, $34,407 and $54,216, respectively.
At December 31, 2008 and 2007, amounts due to Directors of the Company,
including accrued interest, totaled $158,661 and $367,483, 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, 2008 and
2007, $38,500 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. In addition, the Bank rents office space on a
month-to-month basis from non-related groups.
The total minimum rental commitment at December 31, 2008, under the
leases is due as follows:
December 31,
2009 $173,821
2010 175,686
2011 177,551
2012 179,416
2013 181,281
Thereafter 527,292
$1,415,047
For the years ended December 31, 2008, 2007 and 2006, $233,635, $374,970
and $428,186 was charged to rent expense, respectively.
The Bank is the lessor of office space under operating leases
expiring in various years through 2018.
54
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M
LEASES (Continued)
Minimum future rentals to be received on non-cancelable leases as
of December 31, 2008, are:
December 31,
2009 $176,848
2010 119,899
2011 47,670
2012 43,383
2013 30,522
Thereafter 151,337
$569,659
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 $48,620
and $94,934 as of December 31, 2008 and 2007, respectively. Of the $48,620 in
letters of credit at December 31, 2008, $17,420 was secured by real property,
and $31,200 was unsecured. All of the letters of credit are scheduled to
mature in 2009.
NOTE O
INTEREST BEARING DEPOSITS
Major classifications of interest bearing deposits are as follows:
December 31,
2008 2007
NOW Accounts $10,765,565 $12,143,180
Money Market Accounts 3,666,985 4,247,728
Savings Accounts 22,717,473 23,789,080
Certificates of Deposit Greater
Than $100,000 1,880,127 2,259,884
Other Certificates of Deposit 7,017,636 5,818,945
$46,047,786 $48,258,817
55
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O
INTEREST BEARING DEPOSITS (Continued)
The maturities of Certificates of Deposit Greater than $100,000 at
December 31, 2008 follows: (Dollar amounts in thousands)
Three Months or Less $504
After Three Months Through One Year 945
Over One Year Through Three Years 431
$1,880
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, 2008 and 2007, the Bank paid BOL
Bancshares, Inc. dividends totaling $-0- and $643,500, 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, 2008, 2007 or 2006.
56
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S
NOTES PAYABLE
The following is a summary of notes payable at December 31, 2008
and 2007:
December 31,
2008 2007
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 1,399,000
$1,543,201 $1,543,201
Following are maturities of long-term debt:
December 31,
2009 $1,543,201
57
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T
INTEREST INCOME AND INTEREST EXPENSE
Major categories of interest income and interest expense are as follows:
December 31,
2008 2007 2006
INTEREST INCOME
Interest and Fees on Loans:
Real Estate Loans $3,584,393 $3,678,857 $3,105,702
Installment Loans 135,124 149,420 164,472
Credit Cards and Related Plans 2,490,538 2,744,183 3,017,998
Commercial and All
Other Loans 249,774 293,519 442,563
Interest on Investment Securities -
U.S. Treasury and Other
Securities 107,507 443,302 531,038
Interest on Federal Funds Sold 648,171 1,307,844 1,775,184
$7,215,507 $8,617,125 $9,036,957
INTEREST EXPENSE
Interest on Time Deposits
of $100,000 or More $101,709 $49,009 $10,710
Interest on Other Deposits 643,158 651,236 464,101
Interest on Notes Payable 112,658 112,659 137,830
$857,525 $812,904 $612,641
58
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2008 2007 2006
OTHER NON-INTEREST INCOME
Cardholder and Other Charge Card
Income $498,265 $547,641 $607,878
Other Commission and Fees 72,342 62,253 59,864
Other Real Estate Income 300 88,491 683
Other Income 640,172 118,172 65,492
$1,211,079 $816,557 $733,917
OTHER NON-INTEREST EXPENSES
Loan and Charge Card Expenses $120,575 $125,011 $132,441
Communications 230,858 221,459 237,171
Outsourcing Fees 1,468,480 1,431,830 1,406,282
Stationery, Forms and Supplies 96,491 110,869 142,522
Professional Fees 251,802 304,946 291,550
Insurance and Assessments 93,346 76,404 83,027
Advertising 6,670 9,090 5,110
Miscellaneous Losses (546) 4,477 4,538
Promotional Expenses 50,010 73,911 68,283
Other Real Estate Expenses 34,800 87,477 388,614
Other Expenses 462,777 505,464 407,935
$2,815,263 $2,950,938 $3,167,473
59
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
BOL BANCSHARES, INC.
CONDENSED BALANCE SHEETS
December 31,
2008 2007
ASSETS
Due from Banks $766,141 $1,054,614
Securities Available-for-Sale, at Fair Value 792,197 708,896
Other Assets 367 1,104
Due from Subsidiary Bank 27,654 56,653
Investment in Bank of Louisiana 11,709,783 10,943,907
$13,296,142 $12,765,174
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes Payable $1,543,201 $1,543,201
Deferred Taxes 177,071 148,749
Accrued Interest 55,510 264,332
Shareholders' Equity 11,520,360 10,808,892
$13,296,142 $12,765,174
60
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC.
STATEMENTS OF INCOME
December 31,
2008 2007 2006
INCOME
Dividend Income - Bank of Louisiana $- $643,500 $1,001,000
Interest Income 7,828 5,544 2,329
Miscellaneous Income 41,003 40,323 38,278
48,831 689,367 1,041,607
EXPENSES
Interest 112,658 112,659 137,830
Other Expenses 5,617 5,226 4,325
118,275 117,885 142,155
(LOSS) INCOME BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY (69,444) 571,482 899,452
Equity in Undistributed
Earnings of Subsidiary 765,876 872,032 1,176,974
INCOME BEFORE
INCOME TAX BENEFIT 696,432 1,443,514 2,076,426
INCOME TAX BENEFIT 27,654 32,952 53,180
NET INCOME $724,086 $1,476,466 $2,129,606
61
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
December 31,
2008 2007 2006
OPERATING ACTIVITIES
Net Income $724,086 $1,476,466 $2,129,606
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Equity in Undistributed Earnings
of Subsidiary (765,876) (872,032) (1,176,974)
Net Decrease in Other Assets 737 24,438 17,365
Net (Decrease) Increase in Other
Liabilities (208,822) 7,678 (303,012)
Net Cash (Used in) Provided by
Operating Activities (249,875) 636,550 666,985
FINANCING ACTIVITIES
Preferred Stock Retired (67,597) (4,486) (16,237)
Decrease in Due to/from Subsidiary 28,999 6,918 33,367
Proceeds from Issuance of Long-Term Debt - - 1,400,000
Repayment of Long-Term Debt - (1,000) (2,001,206)
Net Cash (Used in) Provided by
Financing Activities (38,598) 1,432 (584,076)
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (288,473) 637,982 82,909
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 1,054,614 416,632 333,723
CASH AND CASH EQUIVALENTS -
END OF YEAR $766,141 $1,054,614 $416,632
62
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2008, 2007 and 2006. The following represents the tax effects associated with
the components of comprehensive income:
December 31,
2008 2007 2006
Gross Unrealized Holding Gains (Losses)
Arising During the Period $83,308 $219,659 $(82,939)
Tax (Expense) Benefit (28,325) (74,684) 28,199
54,983 144,975 (54,740)
Reclassification Adjustment for
Gains Included in Net Income - - -
Tax Benefit - - -
- - -
Net Unrealized Holding Gains (Losses)
Arising During the Period $54,983 $144,975 $(54,740)
NOTE X
REGULATORY MATTERS
As of December 31, 2008, 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.
63
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE X
REGULATORY MATTERS (Continued)
The Bank's actual capital amounts and ratios are also presented in
the table. (Dollars in thousands.)
December 31, 2008
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) $11,710 11.78% $3,975 4.00% $4,969 5.00%
Tier I Capital (to Risk-
Weighted Assets) $11,710 18.53% $2,528 4.00% $3,792 6.00%
Total Capital (to
Risk-Weighted
Assets) $12,512 19.80% $5,055 8.00% $6,319 10.00%
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%
64
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2008
Carrying Fair
Amount Value
Financial Assets:
Cash and Short-Term Investments $3,103,598 $3,103,598
Investment Securities 2,824,326 2,848,701
Loans 57,408,039 57,540,095
Less: Allowance for Loan Losses (1,800,000) (1,800,000)
$61,535,963 $61,692,394
Financial Liabilities:
Deposits $80,977,309 $81,132,605
Unrecognized Financial Instruments:
Commitments to Extend Credit $3,763,000 $3,763,000
Credit Card Arrangements 28,599,000 28,599,000
$32,362,000 $32,362,000
65
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Y
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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
NOTE Z
FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 157 on January 1, 2008 for all financial
assets and liabilities and nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements.
SFAS No. 157 defines fair value as the price that would be received upon
sale of an asset or paid upon transfer of a liability in an orderly transaction
between market participants at the measurement date and in the principal or
most advantageous market for that asset or liability. The fair value should be
calculated based on assumptions that market participants would use in pricing
the asset or liability, not on assumptions specific to the entity. In
addition, the fair value of liabilities should include consideration of non-
performance risk including our own credit risk.
66
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Z
FINANCIAL INSTRUMENTS (Continued)
In addition to defining fair value, SFAS No. 157 expands the disclosure
requirements around fair value and establishes a fair value hierarchy for
valuation inputs. The hierarchy prioritizes the inputs into three levels based
on the extent to which inputs used in measuring fair value are observable in
the market. Each fair value measurement is reported in one of the three levels
which is determined by the lowest level input that is significant to the fair
value measurement in its entirety. These levels are:
* Level 1 - Inputs are based upon unadjusted quoted prices for identical
instruments traded in active markets
* Level 2 - Inputs are based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by
observable market date for substantially the full term of the assets or
liabilities
* Level 3 - Inputs are generally unobservable and typically reflect
management's estimates of assumptions that market participants would use in
pricing the asset or liability. The fair values are therefore determined using
model-based techniques that include option pricing models, discounted cash flow
models, and similar techniques.
The following table presents the Company's assets and liabilities measured at
fair value on a recurring basis at December 31, 2008:
Level 1 Level 2 Level 3 Net Balance
Assets
Equity Securities $- $822,977 $- $822,977
Total $- $822,977 $- $822,977
67
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, 2008 and 2007, 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.
A Professional Accounting Corporation
/s/ Laport, Sehrt, Romig & Hand
Metairie, Louisiana
February 19, 2009
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
68
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE I
BALANCE SHEETS
UNCONSOLIDATED
ASSETS
December 31,
2008 2007
Cash and Due from Banks
Non-Interest Bearing Balances and Cash $3,103,598 $4,161,408
Federal Funds Sold 25,375,000 27,490,000
Investment Securities
Securities Held-to-Maturity (Fair Value of $2,025,724 in 2008
and $7,997,180 in 2007) 2,001,349 8,000,000
Securities Available-for-Sale, at Fair Value 30,780 30,780
Loans: Less Allowance for Loan Losses of $1,800,000
in 2008 and 2007 55,608,039 55,819,935
Property, Equipment and Leasehold Improvements (Net
of Depreciation and Amortization) 6,516,361 6,923,048
Other Real Estate 1,152,924 1,035,924
Other Assets 878,503 928,536
Deferred Taxes 118,071 298,006
Letters of Credit 48,620 94,934
Total Assets $94,833,245 $104,782,571
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-Interest Bearing $34,936,718 $41,408,938
Interest Bearing 46,813,791 49,313,135
Other Liabilities 1,219,114 2,925,903
Letters of Credit Outstanding 48,620 94,934
Accrued Interest 106,921 91,443
Total Liabilities 83,125,164 93,834,353
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 5,661,285 4,901,422
Total Stockholders' Equity 11,708,081 10,948,218
Total Liabilities and Stockholders' Equity $94,833,245 $104,782,571
See independent registered public accounting firm report on supplementary
information.
69
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE II
STATEMENTS OF INCOME
UNCONSOLIDATED
For the Years Ended
December 31,
2008 2007 2006
INTEREST INCOME $7,215,507 $8,617,125 $9,036,957
INTEREST EXPENSE 752,695 705,790 477,140
Net Interest Income 6,462,812 7,911,335 8,559,817
PROVISION FOR LOAN LOSSES 256,622 276,704 563,587
Net Interest Income After Provision
for Loan Losses 6,206,190 7,634,631 7,996,230
OTHER INCOME
Service Charges on Deposit Accounts 505,009 610,691 607,063
Other Non-Interest Income 1,163,169 776,234 1,295,637
1,668,178 1,386,925 1,902,700
OTHER EXPENSES
Salaries and Employee Benefits 2,696,966 2,749,357 2,688,824
Occupancy Expense 1,143,742 1,058,482 1,080,441
Estimated Loss Contingency - (1,200) (202,442)
Other Non-Interest Expense 2,808,752 2,943,116 3,160,969
6,649,460 6,749,755 6,727,792
INCOME BEFORE INCOME
TAX EXPENSE 1,224,908 2,271,801 3,171,138
INCOME TAX EXPENSE 465,045 753,674 990,987
NET INCOME $759,863 $1,518,127 $2,180,151
See independent registered public accounting firm report on supplementary
information.
70
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNCONSOLIDATED
Common Retained
Stock Surplus Earnings Total
BALANCE - December 31, 2005 $1,430,000 $4,616,796 $2,847,644 $8,894,440
Dividends Paid - - (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 - - (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
Dividends Paid - - - -
Net Income for the Year 2008 - - 759,863 759,863
BALANCE - December 31, 2008 $1,430,000 $4,616,796 $5,661,285 $11,708,081
See independent registered public accounting firm report on supplementary
information.
71
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, 2008. 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, 2008, 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
72
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 85 Director; Chairman of the Board of 1981
the Company and the Bank, and President
of the Company and the Bank.
Franck F. LaBiche 63 Director of the Company and the Bank. 2004
President, Executone Systems Co. of La. Inc.
Henry L. Klein 64 Director of the Company and the Bank, 2004
and Secretary of the Company.
Attorney at Law
Johnny C. Crow 58 Director of the Company and the Bank. 2005
Insurance Agent, New York Life Ins. Co.
Sharry R. Scott 38 Director of the Company and the Bank. 2005
Assistant Attorney General, Louisiana
Department of Justice
A. Earle Cefalu, Jr. 71 Director of the Company and the Bank. 2009
General Manager, Hood Automotive
Non-Director Executive Officer
Position with the Company and the
Name Age Bank and Principal Occupation
Peggy L. Schaefer 57 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.
73
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. During the year 2008, the Company paid one current director
$223,282. As of December 31, 2008, the balance due was $158,661, including
accrued and unpaid interest at the rate of 10% per annum. At this time, there
is no maturity date on these loans.
The following table sets forth compensation for the Bank's executive
officer for the calendar years 2008, 2007, and 2006. No other executive
officer received total compensation in excess of $100,000 during 2008.
Annual Compensation Long Term Compensation
Awards Payouts
Other Annual Restricted Stock Options/ LTIP All Other
Name and
Principal Year Salary Bonus Compensation Award(s)SARs Payouts Compensation
Position ($) ($) ($) ($) (#) ($) ($)
G. Harrison Scott,
2008 91,978 0 82,000 0 0 0 18,000
Chairman of the
2007 89,800 0 82,000 0 0 0 -
Board & President
2006 89,800 0 82,000 0 0 0 12,837
of the Bank
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 2008, 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 2008, the Board of Directors of the Bank held a total
of 14 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 2008 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 2008.
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 also
reviews capital expenditures in excess of $5,000; analyzes the Loan Loss
74
Reserve adequacy; and approves charged off loans. The Audit and Finance
Committee met 10 times in 2008.
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, 2008, 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, 2008 (1)
Common Preferred
Name of Beneficial Owner Number Percent Number Percent
Directors:
G. Harrison Scott (Direct) 43,709 24.40% 157,673 7.89%
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 - - (2) - -
All Directors & Executive Officers 102,473 57.20% 160,445 8.03%
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.
75
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,
2008, two directors had aggregate loan balances in excess of $60,000, which
amounted to approximately $793,000 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, 2008 was 48.24%.
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), and 2006 totaled
$247,407, and $381,386 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 2008 and for its
reviews of the Company's unaudited interim financial statements included in
Form 10-Q filed by the Company and other related audit fees during 2008 was
$81,745. The fees billed for 2007 were $79,803.
Tax Fees
The aggregate fees billed by LaPorte, Sehrt, Romig and Hand for tax
compliance, tax preparation, and tax review for 2008 were $34,530. The fees
billed for 2007 were $27,241.
All Other Fees
The aggregate fees billed by LaPorte, Sehrt, Romig & Hand for other
accounting services for 2008 were $3,944. The fees billed for 2007 were
$3,185.
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BOL BANCSHARES, INC.
/s/ G. Harrison Scott
March 24, 2009 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)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 2009.
/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 /s/ A. Earle Cefalu, Jr.
Henry L. Klein - Director A. Earle Cefalu, Jr. - Director
77