UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
Commission file Number 01-16934
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)
Registrant's telephone number, including area code: (504) 889-9400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 preceding 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. [ ].
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 1997.
Approximately $912,000 (a)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practical date.
Common Stock: $1.00 par value; 179,145 shares outstanding as of February
28, 1998.
(a) For the purposes of this computation, shares owned by directors and
executive officers have been excluded.
Cross Reference Index
Page
Part I
Item 1: Business 3
Item 2: Properties 7
Item 3: Legal Proceedings 8
Item 4: Submission of Matters to a Vote of Security Holders 9
Part II
Item 5: Market for Registrant's Common Equity and Related Stockholder
Matters 9
Item 6: Selected Financial Data 11
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation 12
Item 8: Financial Statements and Supplementary Data 41
Item 9: Changes in and Disagreements with Accountants and Financial
Disclosure 34
Part III
Item 10: Directors and Executive Officers of the Registrant 34
Item 11: Executive Compensation 36
Item 12: Security Ownership of Certain Beneficial Owners and
Management 37
Item 13: Certain Relationships and Related Transactions 37
Part IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)Financial Statements
Independent Auditor's Report Consolidated Balance Sheets 41
Consolidated Statements of Income 43
Consolidated Statements of Changes in Stockholder's
Equity 44
Consolidated Statements of Cash Flow 45
Notes to Consolidated Financial Statements 47
Independent Auditor's Report on Supplementary Information
Schedules I, II, III 62
(b) Reports on Form 8-K NONE
(c) Schedules and Exhibits
Article 9 67
Item 1
Business of the Company and the Bank
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". 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 Company has not conducted, and has no present intent to
conduct, negotiations for the acquisition or formation of any entities to
engage in other permissible activities. There can be no assurance,
however, that the Company will not form or acquire any other entity.
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 "Business of the Company and the Bank--Territory Served and
Competition".
Banking Industry
The Company derives its revenues largely from dividends from the Bank.
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 "Business of the
Company and the Bank", "Supervision and Regulation", and "Management's
Discussion and Analysis of the Financial Condition and Results of
Operations of the Company and the Bank".
Banking Products and Services
The Bank is a full service commercial bank that provides a wide range
of banking services for its customers. Some of the major services that it
offers include checking accounts, negotiable order of withdrawal ("NOW")
accounts, individual retirement accounts ("IRAs"), savings and other time
deposits of various types, and business, real-estate, personal use, home
improvement, automobile, and a variety of other loans, as discussed more
fully below. Other services include letters of credit, safe deposit boxes,
money orders, traveler's checks, credit cards, wire transfer, electronic
banking, night deposit, and drive-in facilities. Prices and rates charged
for services offered are competitive with the area's existing financial
institutions.
The Company 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 Company'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 and government-sponsored student loans.
Real Estate Loans. The Company's real estate loans consist of
residential first and second mortgage loans on one-to-four family homes;
construction and development loans; multiple dwelling unit loans; housing
rehabilitation loans; loans to purchase developed real property; and
commercial real estate loans.
Commercial Loans (Secured and Unsecured). The Company's commercial
loans consist of working capital loans, accounts receivable loans, and
inventory loans to small businesses.
Credit Cards. The Company offers a variety of nationally recognized
credits 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, 1997, the Company held $20,301,714 in credit card receivables.
Proprietary Accounts. The Company has a number of proprietary
accounts it services. The Company's proprietary accounts consist largely of
small to medium sized merchants who have issued their own private-label
credit cards. The Company acquires these credit card accounts at a
discount, typically with reserves posted, and requires the merchant to
repurchase accounts 180 days or more past due. As of December 31, 1997,
the Company held $2,930,709 in proprietary accounts.
Mortgage Lending. The Company offers 15- and 30-year fixed and
adjustable rate conventional and jumbo home mortgages. The Company sells
all mortgage loans in the secondary market and does not retain the
servicing rights thereon.
Lending Policy of The Company
Lending authority is delegated by the Board of Directors of the
Company to loan officers, each of whom is limited as to the amount of
secured and unsecured loans that he or she can make to a single borrower or
related group of borrowers. The Company provides written guidelines for
lending activities. Secured loans are made to persons who are well
established and have net worth, collateral, and cash flow to support the
loan. Real estate loans usually are made only when such loans are secured
by real property located in the Company's primary market area. Unsecured
loans, except credit card loans and proprietary accounts, are normally made
by the Company only to persons who maintain depository relationships with
the Company.
Under certain circumstances the Company takes investment securities as
collateral for loans. If the purpose of the loan is to purchase or carry
margin stock, the Company will not advance loan proceeds of more that 10%
of the market value of the stock serving as collateral; provided that the
stock is considered "Blue Chip". To the extent the issuing company is not
considered "Blue Chip", the percentage of loan to value decreases. If the
loan proceeds will be used for purposes other than purchasing or carrying
margin stock, the Company generally will lend up to 70% of the current
market value of the stock serving as collateral.
Making loans to businesses for working capital is a traditional
function of commercial banks. Such loans are expected to be repaid out of
the current earnings of the commercial entity, and the ability of the
borrower to service its debt is dependent upon the success of the
commercial enterprise. It is the Company's policy to secure these loans.
The Company does not generally make commercial loans secured by inventory,
furniture, fixtures, equipment, or accounts receivable.
The great majority of the Company's commercial loans are secured by
real estate (and thus are categorized as real estate mortgage loans),
because such collateral may be superior to other types of collateral owned
by small businesses. Loans secured by commercial real estate, however, are
subject to certain inherent risks. Commercial real estate may be
substantially illiquid, and commercial values are difficult to ascertain
and are subject to wide fluctuations depending upon economic conditions.
The Company requires that qualified outside appraisers determine the value
of any real estate taken as collateral, and the Company will generally lend
75% of the appraised value or the purchase price of the real estate,
whichever is less.
The Company originates short-term residential construction loans for
detached housing and a limited number of residential acquisition and
development loans in the primary market area. Residential construction
loans are made pursuant to Loan Policy guidelines, which are approved by
the Company's Loan Committee. Specific maximum loan commitment and numbers
of unsold houses allowed are clearly identified for each of the
approximately five builders in the Loan Policy guidelines. Each loan is
individually reviewed and approved by the loan officer and is subject to a
third-party appraisal, and a maximum 100% of the builder's cost, but in no
event to exceed 80% of the appraised value loan-to-value ratio.
These guidelines are approved for established builders with track
records and adequate financial strength to support the credit being
requested. Loans may be for speculative starts or for pre-sold residential
property to specific purchasers. As of December 31, 1997, approximately
$773,000 (1.34% of net loans) was outstanding on total residential
construction loans, of which none was for acquisition and development
loans.
The Company does not have a rollover policy. Any loan renewal request
is reviewed in the same manner as an application for a new loan.
Inter-agency guidelines adopted by federal bank regulators including
the FDIC went into effect, mandating that financial institutions establish
real estate lending policies. The guidelines also established certain
maximum allowable real estate loan-to-value standards. The Company has
adopted the federal standards as its maximum allowable standards, but has
had in the past and now has in place loan policies which are, in some
cases, more conservative than the FDIC guidelines. The FDIC standards
require maximum allowable loan-to-value ratios for various types of real
estate loans as set forth below:
Maximum Allowable
Loan Category Loan-to-Value Percent
Land 65%
Land development 75%
Construction:
Commercial, multifamily (1) and other nonresidential 80%
One-to-four family residential 85%
Improved property 85%
Owner-occupied one-to-four family and home equity (2) N/A
_____________
(1) Multifamily construction includes condominiums and cooperatives.
(2) A loan-to-value limit has not been established for permanent mortgage
or home equity loans or owner-occupied, one-to-four family residential
property. However, for any such loan with a loan-to-value ratio that
equals or exceeds 90% at origination, appropriate credit enhancement in the
form of either mortgage insurance or readily marketable collateral should
be required.
Potential specific risk elements associated with each of the Company's
lending categories are as follows:
Credit cards Employment status, changes in local economy, unsecured
credit risks
Installment loans to individuals
Employment status, changes in local economy, difficulty in monitoring
collateral (vehicle, boats, mobile homes) and limited personal contact
as a result of indirect lending through dealers
Commercial, financial and agricultural
Industry concentrations, difficulty in monitoring the valuation of
collateral (inventory, accounts receivable and vehicles), borrower
management expertise, increased competition, and specialized or obsolete
equipment as collateral
Real Estate-construction
Inadequate collateral and long-term financing agreements
Real Estate-residential
Changes in local economy and caps on variable rate loans
Management believes that the outstanding loans included in each of
these categories do not represent more than the normal risks associated
with these categories, as described above. The Company's underwriting and
asset quality monitoring systems focus on minimizing the risks outlined
above.
Loan Review and Nonperforming Assets
The Company's Loan Committee reviews its loan portfolio to determine
deficiencies and corrective action to be taken. The Loan Committee
attempts to review 100% of its loan portfolio annually, excluding credit
cards and consumer installment loans. The results of the reviews are
presented to the Company's Board of Directors on a monthly basis. Loan
reviews are performed on credits that are selected according to their risk.
Past due loans are reviewed weekly by each lending officer and by the Loan
Committee. A summary report is reviewed monthly by the Company's Executive
Committee of the Board of Directors.
In late 1994, and early 1995, the Company undertook a mass
solicitation to generate new credit card accounts at which time the
approval criteria for issuing a credit card was obviated by the credit card
department. Once this inadequacy was discovered in late 1995, and early
1996, senior executive management immediately took steps to remedy the
situation by reinforcing the credit card approval criteria and forming a
credit card committee comprised of various officers who meet weekly and
report directly to the management committee of the Company consisting of
Messrs. Scott and Comiskey and certain other executive officers.
New credit card accounts are now reviewed on a daily basis for
compliance with Company credit policy. Review procedures include a
determination of whether the appropriate review of employment, residence,
and other information has been completed, calculation of the borrower's
debt coverage ratio, and analysis of the borrower's credit history to
determine if it meets established Company criteria. Policy exceptions are
analyzed daily. Delinquencies are monitored daily. Credit card accounts
and proprietary accounts without reserves are charged off after 180 days
past due in accordance with industry norms and FDIC regulations.
Proprietary accounts with reserves are charged back against the proprietor
after six consecutive no payments.
A provision for loan losses and a corresponding increase in the
allowance for possible loan losses are recorded monthly, taking into
consideration the historical charge-off experience, delinquency, and
current economic conditions.
Asset/Liability Management
The Company's Asset/Liability Committee is composed of officers of the
Company who are charged with managing the assets and liabilities of the
Company. The Committee attempts to manage asset growth, liquidity, and
capital in order to maximize income and reduce interest rate risk. The
Committee directs the Company's overall acquisition and allocation of
funds. At its monthly meetings, the Committee reviews and discusses the
monthly asset and liability funds budget in relation to the actual flow of
funds. The Committee also reviews and discusses peer group comparisons,
the ratio of the amount of rate sensitive assets to the amount of rate
sensitive liabilities, the ratio of allowance for loan losses to
outstanding and nonperforming loans, and other variables, such as expected
loan demand, investment opportunities, core deposit growth within specific
categories, regulatory changes, monetary policy adjustments, and the
overall state of the economy.
Investment Policy
The Company's investment portfolio policy is to maximize income
consistent with liquidity, asset quality, regulatory constraints, and
asset/liability objectives. The policy is reviewed at least annually by
the Company's Board of Directors. The Board of Directors of the Company is
provided information monthly concerning sales, purchases, resulting gains
or losses, average maturity, federal taxable equivalent yields and
appreciation or depreciation by investment categories.
Territory Served and Competition
Market Area. The market area for the Company is defined in the
Company'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 Company has branch offices in Orleans, Jefferson
and St. Tammany Parishes.
Population. From 1980 to 1990, the population of New Orleans remained
constant with approximately 500,000 persons. The population of Jefferson
and St. Tammany Parishes were approximately 650,000 as of December 31,
1990.
Competition. The Company competes with other commercial banks in New
Orleans and with savings and loan associations, credit unions, and other
types of financial services providers. The Company is one of the smallest
commercial banks in New Orleans in terms of assets and deposits.
Economy. The economy of New Orleans is supported by the tourism,
shipping and energy industries. The Company has no material concentration
of deposits from any single customer or group of customers, nor is a
significant portion of its loans concentrated in a single industry or group
of related industries. There are no material seasonal factors that have
any adverse effect on the Company. The Company does not rely on foreign
sources of funds or income, and the Company does not expend any material
percentage of its income in complying with applicable environmental laws.
Employees
As of December 31, 1997, the Company had approximately 152 full-time
and approximately 13 part-time employees. The Company considers its
relationship with its employees to be very good. The employee benefit
programs provided by the Company include group life and health insurance,
paid vacations, and sick leave. The Company has no employees who are not
employees of the Company. See "Item 11, Executive Compensation".
Item 2
Property
In addition to its main office, the Company has six branch locations
and an operations center. Set forth below is a description of the offices
of the Company.
Main Office. The main office of the Company is located at 300 St.
Charles Avenue in the central business district of New Orleans, Louisiana.
On September 30, 1991, the Company purchased a four-story building located
at 300 St. Charles Avenue from the Resolution Trust Corporation (the "RTC")
for the price of $402,500. The purchase was financed by a loan from
director Edward J. Soniat to the Company. As of December 31, 1997, there is
a balance of $79,754 in principal and accrued but unpaid interest
outstanding on the loan from Mr. Soniat to the Company. See "Management--
Certain Transactions". The building consists of approximately 13,100
square feet of office space, and parking is provided on the streets and
commercial lots nearby. The Company occupies the ground floor and the
fourth floor. The second and third floors are leased to the LeMoyne
Bienville Club. Rental income received from the club is $2,165 per month.
The initial term of the club's lease is for 25 years, expiring on December
15, 2003.
Carrollton Branch. The Carrollton Branch of the Company is located in
the Carrollton Shopping Center at 3846 Dublin Street, New Orleans,
Louisiana. The premises consist of approximately 4,700 total square feet
of office space, and parking is provided by the shopping center. The
Company leases the office space on a month-to-month basis from Carrollton
Central Plaza. The Company pays $2,866 per month in lease payments. The
Company is planning to close this branch and relocate to 3401 South
Carrollton Avenue, New Orleans, Louisiana. In mid-1995, the Company
applied for building and zoning permits with the city of New Orleans, which
are currently pending approval. If such permits are not attained the
Company will remain at the Dublin Street location. This branch will be a
full service branch office of the Company. The new branch will be leased
for $1,400 per month which is set through the year 2000, with an increase
to $1,500 per month from the year 2001 through 2003. Adjoining this branch
location is a vacant lot, under long-term lease to the Company, that will
be used as a parking lot. Both properties are leased from Nelly Romero.
Management anticipates expending approximately $185,000 for renovations at
this location, if the appropriate permits are obtained.
Severn Branch. The Severn Branch of the Company 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. The Company leases the
office space from Severn South Partnership, an affiliate of the Company.
See "Certain Relationships and Related Transactions." Pursuant to an
Amendment to Lease dated August 14, 1992, the lease commenced on May 1,
1991, and terminates on May 31, 1999. The lease payments are $12,386, plus
a percentage of operating costs, per month.
Oakwood Branch. The Oakwood Branch of the Company is located in the
Oakwood Shopping Center at 197 Westbank Expressway, Gretna, Louisiana. The
premises consist of approximately 4,160 total square feet of office space
which includes 1,560 square feet of drive-in facility and parking is
provided by the shopping center. The Company leases the building from
Oakwood Shopping Center, Ltd. The lease commenced on June 1, 1991, and
terminates on May 31, 2001. The lease payments are $9,343 per month.
Lapalco Branch. The Lapalco Branch of the Company 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 Company leases the building from Belle Meade
Developers. The lease commenced on January 1, 1996, and terminates on
January 1, 2001. The lease payments are $5,508 per month.
Gause Branch. The Gause Branch of the Company is located in the
central business district of Slidell at 636 Gause Boulevard, Slidell,
Louisiana. The premises consist 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 Company owns the building and underlying
land upon which this branch is situated. The Company 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 1996 totaled $79,843.
Tammany Mall Branch. The Tammany Mall Branch of the Company 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 Company leases the building on a
month-to-month basis from Tammany Mall Partnership, an affiliate of the
Company. See Item 13, Certain Relationships and Related Transactions. The
lease payments are $6,200 per month.
Operations Center. The Company's operations center, housing its data
processing, credit card, bookkeeping, and marketing departments, is located
at 3340 Severn Avenue, Metairie, Louisiana. The building consists of
approximately 44,500 total square feet of space in a four-story office
building, and parking is provided for approximately 200 cars. The Company
leases 20,770 square feet from Severn South Partnership, an affiliate of
the Company, under two separate leases. See "Certain Relationships and
Related Transactions." Pursuant to an Amendment to Lease dated June 1,
1995, amending both leases, the leases commenced on May 1, 1991, and will
terminate on May 31, 1999. The lease payments total $27,421, plus a
percentage of operating costs, per month.
Item 3
Legal Proceedings
Because of the nature of the banking industry in general, the Company
and the Bank are each parties 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.
Other than the lawsuits described below, the Company has either (i)
posted reserves adequate to pay any judgments that may be rendered against
the Company and such posting is reflected in the Company's consolidated
financial statements for the period ending December 31, 1997, or (ii)
believes the lawsuit is without sufficient merit or monetary exposure to
require the posting of a reserve. Indeed, should the Company be successful
in any of those lawsuits in which it has posted reserves, recoveries would
be realized and the Company's consolidated net income would be positively
impacted.
The following actions, however, have been brought against the Company
and, if the claimants were wholly successful on the merits, could result in
significant exposure to the Bank:
1. The Company is a defendant in a lawsuit filed by a proprietary
merchant alleging that the Company mishandled the Plaintiff's proprietary
credit card portfolio. The Plaintiff seeks to recover in excess of
$1,800,000. The Bankruptcy Court has established an escrow account, in
which $270,404 was on deposit as of October 31, 1996, for the protection of
the Company. This amount would significantly reduce any losses incurred by
the Company in the event the Plaintiff is wholly successful on the merits.
During 1997, a judgment was rendered against the Bank, and accordingly, a
provision for loss of $150,000 has been charged to operation. The Bank has
countersued and is presently appealing the judgment.
Expected Results: Outside counsel advises that the Plaintiff will not
prevail at all against the Company and that the Company will be able to
fully recover all of its losses in this matter.
2. The Company is a defendant in a lawsuit filed by another bank
alleging the Company improperly dishonored checks totaling $979,000. The
Company claims that such checks were properly returned "nonsufficient
funds". When these checks were returned to the Plaintiff, of the $979,000,
one check for $110,000 was misplaced by the FRB and therefore returned late
to the Plaintiff. The Company was forced to cover the amount of the check.
The Company filed a countersuit against the Plaintiffs for contribution on
the $110,000 loss and for tortious interference. The Plaintiff filed
exceptions to the countersuit. These exceptions were heard in the district
court and the Company's right to contribution was maintained, however the
Company's suit for tortious interference was dismissed. On appeal, the
appellate court sustained the Company's right to contribution and overruled
the lower court's decision on tortious interference, finding that the
Company could maintain such a cause of action. The Louisiana Supreme Court
denied writs filed by the Plaintiff. The case is currently awaiting trial.
The Company is vigorously defending all claims asserted in this suit.
Expected Results: Outside counsel advises that the Company will not
pay any damages in this matter and the likelihood is reasonably high that
the Company will obtain some recovery from the Plaintiff.
3a. Another proprietor filed a separate lawsuit on the same day that
the Company initiated proceedings against this proprietor in Louisiana.
The proprietor's suit was filed in the Southern District of New York and
alleges that the Company mismanaged the proprietary credit card portfolio.
It is known that the principal of the proprietor mentioned in 1. above has
assisted in the preparation of this lawsuit and this litigation parrots the
lawsuit mentioned in 1. above. The Company has filed a motion to dismiss
the suit on the grounds that the parties agreed to litigate in Louisiana
and on the further grounds that the Company is not subject to that Court's
jurisdiction. The Company also moved to have the matter transferred by the
judicial panel on multidistrict litigation.
These rights were granted and consolidated.
3b. The new owners of the company mentioned in 3a. above filed a
lawsuit in New York, claiming that it had security interest which primed
the Company. The present principals came into existence on July 31, 1996
for the sole purposes of taking over the failing company and managing the
operations. The new owners filed UCC-1 Statement to protect a consignment
agreement it had with the failing company in August, 1996. The Company, on
the other hand, filed UCC-1 Statements to protect its credit card portfolio
in November and December of 1995. Just prior to the new principals filing
in New York, the Company filed suit for declaratory judgment regarding the
ranking of the liens in the Eastern District of Louisiana.
3c. The Company's suit centers around the proprietor sequestering
payments which they received from the Company's credit card holders, but
never forwarded to the Company. That amount exceeds $462,000.
On October 1, 1997 the matters were transferred by the judicial panel
on multidistrict litigation to the Eastern District of Louisiana and
consolidated with the other cases. Hence 3a, 3b, and 3c have become one
case.
The Company sought injunction relief, requiring the proprietor to
disclose where the payments were held and to either pay the funds to the
Company or deposit the money in the Registry of the Court. On October 2,
1997 in order to avoid a hearing on the preliminary injunction which would
have required the proprietor to disclose the location of the sequestered
funds, the proprietor agreed to post bond with the Louisiana Federal Court,
while drafts were being prepared. On October 15, 1997 the proprietor filed
for Chapter 11. The Company requested that the stay be lifted in order to
allow its claim against the proprietor to be liquidated and to recoup all
of its losses and damages suffered from the proprietor.
Expected Results: The Company filed its UCC-1 Statements first.
There is little doubt that the Company primes the proprietor. The Company
anticipates a quick resolution of this issue by way of declaratory
judgment.
4. The Bank was a defendant in a lawsuit filed by a party owning land
that Other Real Estate is built on, for back lease payments. In 1994, an
unfavorable outcome was reached and a provision of $390,000 was charged to
operations. During the year ended December 31, 1997, this judgment was
reversed and accordingly, a $390,000 reversal from the litigation
settlement is included in income.
Item 4
Submission of Matters to a Vote of Security Holders
There were no matters submitted, during the fourth quarter of fiscal
year 1997, 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 1996, as determined by the
Company based on trading records of Dorsey & Company. The following table
does not purport to be a listing of all trades in Company Common Stock
during the time periods indicated, but only those trades of which Dorsey
and Company has informed the Company. The prices indicated below do not
reflect mark-ups, mark-downs, or commissions, but do represent actual
transactions. Finally, the prices listed below are not necessarily
indicative of the prices at which shares of Bank Stock would trade. As of
December 31, 1997, the Company had approximately 680 shareholders of
record.
1997
High Low
First Quarter $7.00 $5.00
Second Quarter 7.00 5.00
Third Quarter 7.00 5.00
Fourth Quarter 7.00 5.00
1996
High Low
First Quarter $7.00 $5.00
Second Quarter 7.00 5.00
Third Quarter 7.00 5.00
Fourth Quarter 7.00 5.00
Principal Shareholders
Other than directors, officers, and directors and officers as a group
identified in the table in Directors and Executive Officers of the Company,
there were no persons who, to the knowledge of management of the Company,
beneficially owned 5% or more of the Company Common Stock as of December
31, 1997.
Item 6
Selected Consolidated Financial Data of the Company
The following selected financial data should be read in conjunction
with Management's Discussions and Analysis of Financial Condition and
Results of Operations of the Company which follows and the Company's
financial statements and related notes included elsewhere herein.
For The Years Ended
December 31,
1997 1996 1995 1994 1993
(dollars in thousands, except per share data)
Operations:
Net Interest Income $8,189 $10,133 $9,061 $8,190 $9,668
Provision for Loan Losses 3,630 2,040 1,749 805 1,212
Non-Interest Income 2938 2,440 2,703 3,513 3,340
Non-Interest Expense 10,643 10,647 9,729 10,045 10,386
Income Tax Expense (1,171) (20) 141 205 436
(Benefit)
Net Income(Loss) (1,975) (94) 145 648 974
Per Share:
Common Shares Outstanding
179,145 179,145 179,145 179,258 179,599
Net Income (Loss) (11.03) (0.52) 0.81 3.61 5.41
Cash Dividends - Common 0.00 0.00 0.00 0.00 0.00
Book Value at End of 16.62 27.64 28.30 27.64 24.58
Period
Preferred Shares
Outstanding 2,302,811 2,302,811 2,302,811 2,309,103 2,324,737
Cash Dividends - Preferred 0.00 0.00 0.00 0.08 0.00
Stock
Balances at End of Period:
Investment Securities 10,567 9,060 11,136 15,188 7,078
Fed Funds Sold 21,150 14,400 10,725 6,075 20,000
Loans, Net of Unearned 57,619 69,298 74,943 67,802 65,066
Interest
Allowance for Loan Losses 1,800 1,500 1,500 935 934
Other Real Estate Owned 1,473 2,273 1,994 2,771 3,616
Total Assets 102,709 106,091 108,589 103,102 105,867
Total Deposits 93,941 95,141 97,386 91,764 95,488
Shareholders' Equity 5,280 7,251 7,368 7,257 6,749
Ratios:
Return on Average Assets -1.95% -0.09% 0.14% 0.61% 0.94%
Return on Average Equity -34.49% -1.27% 1.87% 9.34% 15.37%
Primary Capital to Total
Assets and Allowance for
Possible Loan Losses 5.23% 6.93% 6.68% 6.93% 6.32%
Allowance for Possible Loan
Losses as a Percentage
of Loans, Net 3.12% 2.61% 2.00% 1.38% 1.44%
Non-Performing Loans as a
Percentage of Loans, Net(1) 0.15% 0.47% 0.32% 0.36% 1.04%
Non-Performing Loans as a
Percentage of Total Assets(2) 1.51% 2.44% 2.05% 2.92% 4.04%
Capital Ratios: Bank
Tier 1 Risk Based Capital 10.61% 12.32% 11.46% 11.87% 11.25%
Ratio
Risk Based Capital Ratio 11.88% 13.58% 12.72% 13.12% 12.50%
Tier 1 Leverage Ratio 6.84% 8.60% 8.54% 9.43% 8.68%
(1) Non-performing loans are comprised of non-accrual loans and
restructured loans. As of dates reported, the Company did not have any
restructured loans.
(2) Non-performing assets are comprised of non-performing loans, ORE and
other repossessed assets.
Item 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion and analysis presents the more significant
factors affecting the financial condition and results of operations for the
years ending December 31, 1997, 1996 and 1995. The consolidated financial
statements and related notes should be read in conjunction with this
review.
Overview
The Company has declined in total assets in the past five years. This
has primarily been due to the loss of proprietary retail accounts which
have gone out of business. The Company had total assets of $102,709,000 at
December 31, 1997, and $105,867,000 at December 31, 1993. The Company
currently operates through five locations in the metropolitan New Orleans
area and two locations in St. Tammany Parish.
Historically, credit card loans have been an important part of the
Company's total loan portfolio. At December 31, 1993, credit card loans
were $36,278,000 which was 55.30% of the Company's loan portfolio of
$65,605,000. At December 31, 1997, credit card loans totaled $23,232,000,
or 40.32% of the Company's total loans. The decrease in the Company's
credit card loans is largely attributable to competition from other banks
and nontraditional credit card issuers (e.g. AT&T and GMAC), and the loss
of proprietary business.
The Company's current strategy is to continue to grow its traditional
banking operations primarily in the metropolitan New Orleans area and to
expand its credit card lending and proprietary accounts. This will be
accomplished through an aggressive Marketing campaign and the acquisition
of several Visa & MasterCard portfolios. The Company focuses on providing
its customers with the financial sophistication and breadth of products of
a regional bank while successfully retaining the local appeal and level of
service of a community bank.
Results of Operations
Net Income
The Company's net loss was $1,975,000, or $(11.03) per share in 1997,
compared to net loss of $94,000 or $(0.52) per share in 1996, a significant
decrease. This $1,881,000 decrease was primarily due to the increase in
losses suffered by the Company from its credit card portfolio. The Reserve
for Loan Losses increased to $1,800,000 in 1997 from $1,500,000 in 1996 due
to $300,000 charged to operations in order to comply with FDIC regulations
with respect to charge-offs in the credit card portfolio. Net charge-offs
totaled $3,330,000 in 1997 as compared to $2,040,000 in 1996. This
$1,290,000 increase in net charge-offs occurred mainly in the Company's
credit card portfolio and is a result of the economy and overburdened
credit card debt of consumers. These losses are, however, consistent with
the experience of many banks nationwide with respect to their credit card
portfolios.
The Company's net loss was $94,000, or $(0.52) per share in 1996,
compared to net income of $144,000 or $.80 per share in 1995, a significant
decrease. This $238,000 decrease was primarily due to the increase in
losses suffered by the Company from its credit card portfolio. Net charge-
offs totaled $2,040,000 in 1996 as compared to $1,183,000 in 1995. This
$857,000 increase in net charge-offs occurred mainly in the Company's
credit card portfolio and is a result of the economy and overburdened
credit card debt of consumers. These losses are, however, consistent with
the experience of many banks nationwide with respect to their credit card
portfolios.
Net Interest Income Margin
Interest income decreased $2,028,000 or 16.46% to $10,298,000 in 1997
from $12,326,000 in 1996. This decrease is mainly due to a 55.72% decrease
in interest income on proprietary credit card loans.
Total interest expense decreased $85,000 or 3.83% to $2,108,000 in
1997, from $2,193,000 in 1996.
Interest income increased $836,000 or 7.28% to $12,326,000 in 1996
from $11,490,000 in 1995. This increase is mainly due to a 56.24% increase
in interest income on proprietary credit card loans and the continued
growth in the credit card portfolio.
Total interest expense decreased $236,000 or 9.72% to $2,193,000 in
1996, from $2,429,000 in 1995. This decrease is mainly due to a 17.10%
decrease in interest paid on deposits due to an average interest rate paid
of 3.27% in 1996 as compared to 3.60% in 1995.
Interest earned on Federal Funds Sold increased 72.81% in 1997, to
$1,004,000 from $581,000 in 1996, due to an average interest rate earned of
5.47% as compared to 5.28% in 1996. The average Federal Funds Sold for
1997, was $18,372,000 and $10,997,000 in 1996. Interest earned on
investment securities increased 15.46% due to a increase in the average
balance to $10,232,000 in 1997, from $9,353,000 in 1996, with an average
rate earned of 5.78% in 1997, and 5.47% in 1996.
Commercial loans average balance increased $2,262,000 or 8.42% to
$29,121,000 on December 31, 1996, from $26,859,000 on December 31, 1995 due
to the Company's continued positive experiences in generating new
commercial loans. Interest income on commercial loans increased $212,000 to
$2,807,000 in 1996, from $2,595,000 in 1995. The average interest rate
charged on commercial loans in 1996, was 9.64% as opposed to 9.66% in 1995.
Interest earned on Federal Funds Sold increased 1.96% in 1996, to $581,000
from $570,000 in 1995, due to an average interest rate earned of 5.29% as
compared to 5.80% in 1995. The average Federal Funds Sold for 1996, was
$10,997,000 and $9,830,000 in 1995. Interest earned on investment
securities decreased 26.84% due to a decrease in the average balance to
$9,353,000 in 1996, from $13,336,000 in 1995, with an average rate earned
of 5.62% in 1996, and 5.39% in 1995.
Accounting for Year 2000 Costs
The Company's Board of Directors has formulated a policy and has
dedicated sufficient funds for the modification and replacement of software
and hardware to ensure Year 2000 compliance.
The Company began its replacement and modification of its software and
hardware in late 1995, to ensure that operations would not be impaired by
the date change. The related costs are capitalized and depreciated over
the useful life of the asset.
Certification has been received from the Company's vendors to confirm
compliance on the respective equipment and software. All critical
applications have already been modified and replaced, with one application
presently in the migration process. This final replacement will be
implemented and fully tested by year end 1998.
Average Balances, Interests and Yields
1997 1996
Average Average
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST-EARNING ASSETS:
Loans net of unearned income(1)(2)
Taxable 62,249 8,702 13.98% 73,593 11,233 15.26%
Tax-exempt - -
Investment securities
Taxable 10,232 591 5.78% 9,353 512 5.47%
Tax-exempt - -
Interest-bearing deposits - - - -
Federal funds sold 18,372 1,004 5.47% 10,997 581 5.28%
Total Interest-Earning 90,853 10,298 11.33% 93,943 12,326 13.12%
Assets
Cash and due from banks 5,314 5,826
Allowance for loan Losses (1,599) (1,411)
Premises and equipment 2,703 2,659
Other Real Estate 1,516 1,827
Other assets 2,433 1,951
TOTAL ASSETS 101,220 104,795
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Demand Deposits 18,185 396 2.18% 19,578 442 2.26%
Savings deposits 26,980 829 3.07% 25,317 768 3.03%
Time deposits 13,174 664 5.04% 15,204 759 4.99%
Total Interest-Bearing 58,339 1,889 3.24% 60,099 1,969 3.28%
Deposits
Federal Funds Purchased
Securities sold under
agreements to repurchase
Other Short-term
borrowings - -
Long-Term debt 2,333 219 9.40% 2,386 224 9.19%
Total Int-Bearing 60,673 2,108 3.47% 62,485 2,193 3.51%
Liabilities
Noninterest-bearing 33,388 33,385
deposits
Other liabilities 1,432 1,529
Shareholders' equity 5,727 7,396
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 101,220 104,795
Net Interest income/spread 7.86% 9.61%
Net Interest Margin 9.01% 10.79%
(1) Fee income relating to loans of $231,000 in 1997, $368,000 in 1996 and
$256,000 in 1995 is included in interest income.
(2) Nonaccrual loans are included in average balances and income on such
loans, if recognized, is recognized on the cash basis.
(3) Interest income does not include the effects of taxable-equivalent
adjustments for the three years ended December 31, 1997, 1996, and 1995
using a federal tax rate of 34%.
Average Balances,Interests and Yields
1996 1995
Average Average
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST-EARNING ASSETS:
Loans, net of unearned income(1)(2)
Taxable 73,593 11,233 15.26% 70,318 10,197 14.50%
Tax-exempt
Investment securities
Taxable 9,353 512 5.47% 13,336 719 5.39%
Tax-exempt - - - -
Interest-bearing deposits - - - 75 4 5.33%
Federal funds sold 10,997 581 5.28% 9,830 570 5.80%
Total Interest-Earning 93,943 12,326 13.12% 93,559 11,490 12.28%
Assets
Cash and due from banks 5,826 5,832
Allowance for loan Losses (1,411) (975)
Premises and equipment 2,659 2,270
Other Real Estate 1,827 2,451
Other assets 1,951 1,860
TOTAL ASSETS 104,795 104,997
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING
LIABILITIES:
Deposits:
Demand Deposits 19,578 442 2.26% 19,203 528 2.75%
Savings deposits 25,317 768 3.03% 25,160 740 2.94%
Time deposits 15,204 759 4.99% 16,692 932 5.50%
Total Interest-Bearing 60,099 2,200 3.66% 61,055 2,200 3.68%
Deposits
Federal Funds Purchased
Securities sold under
agreements to repurchase
Other Short-term
borrowings - -
Long-Term debt 2,386 224 9.19% 2,394 229 9.57%
Total Int-Bearing 62,485 2,424 3.88% 63,449 2,429 3.83%
Liabilities
Noninterest-bearing
deposits 33,385 32,350
Other liabilities 1,529 1,515
Shareholders' equity 7,396 7,683
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 104,795 104,997
Net Interest income/spread 9.24% 8.45%
Net Interest Margin 10.54% 9.68%
(1) Fee income relating to loans of $231,000 in 1997, $368,000 in 1996 and
$256,000 in 1995 is included in interest income.
(2) Nonaccrual loans are included in average balances and income on such
loans, if recognized, is recognized on the cash basis.
(3) Interest income does not include the effects of taxable-equivalent
adjustments for the three years ended December 31, 1997, 1996, and 1995
using a federal tax rate of 34%.
Rate/Volume Analysis
1997 1996 Compared to 1995
Compared to 1996
Variance Variance Attributed to
(1)
Attributed to
(1)
Net Net
(Dollars in Thousands) Volume Rate Change Volume Rate Change
Net Loans:
Taxable (11,344) -1.28% (2,531) 3,275 0.76% 1,036
Tax-exempt(2) - - - -
Investment Securities - - - -
Taxable 879 0.31% 79 (3,983) 0.08% (207)
Tax-exempt(2) - - - -
Interest-bearing deposits - - (75) -5.33% (4)
Federal funds sold 7,375 0.18% 423 1,167 -0.52% 11
Total Interest-Earning (3,090) -1.79% (2,028) 384 0.84% 836
Assets
Deposits:
Demand Deposits (1,393) -0.08% (46) 375 -0.49% (86)
Savings deposits 1,663 0.04% 61 157 0.09% 28
Time deposits (2,030) 0.05% (95) (1,488) -0.59% (173)
Total interest-bearing (1,760) -0.04% (80) (956) 0.06% -
deposits
Federal Funds Purchased - - - -
Securities sold under
agreements to repurchase - - -
Other Short-term
borrowings - - - -
Long-Term debt (53) 0.21% (5) (8) -0.37% (5)
Total Interest-Bearing
Liabilities (1,812) -0.03% (85) (964) 0.05% (5)
(1) The change in interest due to both rate and volume has been allocated
to the components in proportion to the relationship of the dollar amounts of
the change in each.
(2) Reflects fully taxable equivalent adjustments using a federal tax rate
of 34%.
Net Interest Income
Net interest income, the difference between interest income and
interest expense, is a significant component of the performance of a
banking organization. Data used in the analysis of net interest income are
derived from the daily average levels of earnings assets and interest-
bearing deposits as well as from the related income and expense. Net
interest income is not developed on a taxable equivalent basis because the
level of tax exempt income is not material. The primary factors that
affect net interest income are the changes in volume and mix of earning
assets and interest-bearing liabilities, along with the change in market
rates.
Net interest income for 1997 was $8,189,000 compared to $10,133,000 in
1996 and compared to $9,061,000 in 1995.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to expenses. Management's policy is to maintain the
allowance for possible loan losses at a level sufficient to absorb 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. Loans are
charged against the allowance for loan losses when management believes that
the collectibility of the principal is unlikely. 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 borrower's financial condition is such that collection of
interest is doubtful. Ultimate losses may vary from the current estimates.
These estimates are reviewed periodically and, as adjustments become
necessary, they are reflected in current operations.
Provisions for loan losses increased 77.94% to $3,630,000 in 1997,
from $2,040,000 in 1996. The provisions for loan losses increased due an
increase in the amount of the Company's charge-offs to $4,132,000 in 1997,
from $2,822,000 in 1996 and an FDIC requirement that the Company charge-off
an additional $300,000 to operations to bring the provision for loan losses
up to $1,800,000. The higher level of charge-offs in the Company's credit
card portfolio compared to other loans is consistent with industry norms
and is reflective of the higher credit risk associated with such loans.
Additionally, one proprietary merchant was accepting payments but not
remitting same to the Bank, which resulted in a total charge-off for this
proprietor in the amount of $1,504,000 which is included in the charge-off
amount for 1997. See "Legal Proceedings".
Provisions for loan losses increased 16.64% to $2,040,000 in 1996,
from $1,749,000 in 1995. The provisions for loan losses increased due an
increase in the amount of the Company's charge-offs to $2,822,000 in 1996,
from $1,621,000 in 1995. The higher level of charge-offs in the Company's
credit card portfolio compared to other loans is consistent with industry
norms and is reflective of the higher credit risk associated with such
loans.
The provisions for loan losses increased 117.27% to $1,749,000 in 1995
from $805,000 in 1994. The provisions for loan losses increased due to:
(i) the change in methodology of credit card charge-offs from six
consecutive no payments to six cumulative no payments; (ii) an increase in
the amount of the Company's charge-offs to $1,621,000 in 1995, from
$1,218,000 in 1994; and (iii) an FDIC requirement that the Company charge-
off an additional $566,000 to operations to bring the provision for loan
losses up to $1,500,000.
Beginning December 1, 1994 a new proprietary merchant began submitting
credit card deposits and based upon their contract, the Bank began
withholding a percentage of their deposits to set aside for any possible
charge offs. This is a non recourse proprietor. This reserve amount is
reflected in the below schedule, listed as Additional Reserve from
Proprietor. This amount has been excluded from the income statement as
this money has been received from the proprietor by deducting a certain
percentage from their daily sales. As of December 31, 1995, these amounts
have been reclassified and have been removed from this category.
The provision for loan losses totaled $805,000 in 1994 compared to
$1,212,000 in 1993. The allowance for loan losses as a percentage of loans
was 1.38% in 1994, and 1.44% in 1993. The decrease of 33.58% in provisions
for loan losses in 1994 was because of the decrease in proprietary account
losses as a result of the Company's loss of the four large proprietary
accounts.
Summary of Loan Loss Experience
December 31,
1997 1996 1995 1994 1993
(Dollars in Thousands)
Balance at beginning of
period 1,500 1,500 935 934 934
Charge-Offs:
Commercial 22 51 31 10 51
Real estate 20 - 3 14 9
Installment 94 43 34 47 40
Credit Cards 3,996 2,728 1,553 1,147 1,323
Total Charge-offs 4,132 2,822 1,621 1,218 1,423
Recoveries:
Commercial 100 135 5 80 11
Real estate 14 6 45 6 43
Installment 24 27 23 29 28
Credit Cards 665 614 365 298 129
Total Recoveries 802 782 438 413 211
Net charge-offs 3,330 2,040 1,183 805 1,212
Provision for loan losses 3,630 2,040 1,749 805 1,212
Balance 1,800 1,500 1,501 934 934
Additional Reserve from
Proprietor - - (1) 1 -
Balance at end of period 1,800 1,500 1,500 935 934
Ratio of net charge-offs
during period to
average loans outstanding 5.35% 2.77% 1.68% 1.33% 1.73%
Allowance for possible loan
losses as a
percentage of loans 3.12% 2.16% 2.00% 1.38% 1.44%
Noninterest Income and Expense
The amount of noninterest income and noninterest expenses of a banking
organization relate closely to the size of the total assets and deposits
and the number of deposit accounts. The amount of noninterest expense
represents the cost of operating the banking organization.
The major components of noninterest income are service charges related
to deposit accounts, cardholder and other credit card fees, Ore income,
gain on sale of ORE and other noninterest income as reflected in the below
table.
Total noninterest income increased to $2,938,000 in 1997 from
$2,441,000 in 1996 or a 20.36% increase. A judgment rendered against the
Bank in 1994, for $390,000 was reversed. The gain on sale of ORE income
increased to $61,000 in 1997 from $7,000 in 1996.
Total noninterest income decreased to $2,440,000 in 1996 from
$2,703,000 in 1995 or a 9.73% decrease. Ore income decreased to $24,000 in
1996 from $45,000 in 1995. The gain on sale of ORE income decreased to
$7,000 in 1996 from $134,000 in 1995.
Noninterest Income
December 31,
1997 1996 1995
(Dollars in Thousands)
Service Charges 618 643 732
NSF Charges 725 783 790
Gain on Sale of Securities 16 - -
Cardholder & Other Credit 388 448 480
Card Income
Membership Fees 245 218 243
Other Comm & Fees 101 112 88
ORE Income 11 24 45
Gain on Sale of ORE 61 7 134
Reversal of Litigation
Settlement 390 - -
Other Income 383 205 191
Total Non-Interest Income $2,938 $2,440 $2,703
Noninterest Expense
The major components of this group represents the cost of operating
the banking organization as reflected in the below table.
Total noninterest expense decreased .04% to $10,643,000 in 1997 from
$10,647,000 in 1996. Postage expense decreased 24.72% to $472,000 in 1997
from $627,000 in 1996. In 1997 a judgment was rendered against the bank in
a suit filed by a proprietary merchant in the sum of $150,000. Other
operating expenses increased 40.36% due mainly to the Bank processing
payments in the amount of $422,000 that were accepted by a proprietary
merchant, but were not remitted to the Bank. This proprietary merchant is
involved in a suit against the Bank.
Total noninterest expense increased 9.42% to $10,647,000 in 1996 from
$9,730,000 in 1995. Postage expense increased 73.10% to $627,000 in 1996
from $358,000 in 1995. Loan & credit card expenses increased 40.35% to
$1,214,000 in 1996 from $865,000 in 1995.
December 31,
1997 1996 1995
(Dollars in Thousands)
Salaries & Benefits 3,974 4,199 3,834
Occupancy Expense 1,937 1,839 1,758
Advertising Expense 153 306 348
Communications 307 376 272
Postage 472 627 358
Loan & Credit Card Expense 1,112 1,214 865
Professional Fees 266 349 267
Legal Fees 558 283 242
Insurance & Assessments 94 94 212
Stationery, Forms & Supply 375 447 389
ORE Expenses 337 266 621
Loss on Litigation 150 - -
Equity in Loss of - - 35
Unconsolidated Subsidiary
Other Operating Expense 908 647 529
Total Non-Interest Expense $10,643 $10,647 $9,730
Provision for Income Taxes
The income tax provision (benefit) for the Company and the Bank on a
consolidated basis, for the year 1997 was $(1,171,000) as compared to
$(20,000)in 1996 and $141,000 in 1995. The provision for income taxes
consists of provisions for federal taxes only. Louisiana does not have an
income tax for corporations.
Financial Condition
The Company 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 Company's asset liability committee
meets regularly to review both the interest rate sensitivity position and
liquidity.
Interest Rate Sensitivity
The Bank has established, as bank policy, an asset/liability
management system that protects Bank profits from undue exposure to
interest rate risks. The major elements used 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 Company's policy not
to invest in derivatives in the ordinary course of business. The Company
performs a monthly 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 instrument's next repricing date or
contractual maturity, whichever occurs first. Through such analysis, the
Company 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, 1997, has a net interest sensitive asset gap of
15.70% when projecting out one year. In the near term, defined as 90 days,
the Company currently has a net interest sensitive liability gap of 12.32%.
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 at December 31, 1997.
Interest Rate Sensitivity Analysis
December 31, 1997
Over
30 60 90 120 180 One One
Days Days Days Days Days Year Year
(Dollars in Thousands)
Total
Interest-Earning Assets
Investment - 499 - - 999 7,980 -
Securities-HTM
Investment 999 - - - - - 90
Securities - AFS
Loans 5,716 2,533 7,761 2,375 6,231 14,810 18,192
Loans held for - - - - - - -
sale
Federal funds 21,150 - - - - - -
sold
Total Interest- 27,865 3,032 7,761 2,375 7,230 22,790 18,282
Earning Assets
Non Earning Assets - - - - - - 12,158
TOTAL ASSETS 27,865 3,032 7,761 2,375 7,230 22,790 30,440
Interest-Bearing Liabilities
Savings & Now 15,366 - 24,597 - - - 238
accounts
Demand & money 6,314 - - - - - -
market
CD's > $100,000 1,215 713 324 1,924 2,051 2,774 1,963
CD's < $100,000 - - 728 - - 609 -
Federal Funds - - - - - - -
purchased
Repurchase - - - - - - -
agreements
Other short-term - - - - - - -
borrowings
Notes payable 411 - - - - - 1,873
Total Interest- 23,306 713 25,649 1,924 2,051 3,383 4,074
Bearing
Liabilities
Non Costing - - - - - - 40,393
Liabilities
TOTAL 23,306 713 25,649 1,924 2,051 3,383 44,467
LIABILITIES
Interest- 4,559 2,319 (17,888) 451 5,179 19,407 (14,027)
Sensitivity Gap
Cumulative Gap 4,559 6,878 (11,010) (10,559) (5,380) 14,027 0
Cumulative Gap/Total
Interest-
Earning Assets 5.10% 7.70% -12.32% -11.82% -6.02% 15.70% 0.00%
GAP & Interest Margin Spread
By Bank policy we limit the Bank's earnings exposure due to interest
rate risk by setting limits on positive and negative gaps within the next
12 months. These limits are set so that this year's profits will not be
unduly impacted no matter what happens to interest rates during the year.
In addition, we extend the scenarios out five years to monitor the risks
associated on a longer term.
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. The Company has maintained
adequate liquidity through cash flow from operating activities and
financing activities to fund loan growth, and anticipates that this will
continue even if the Company expands.
Liquidity and capital resources are discussed weekly by the management
committee, the assets and liability committee and at the monthly executive
committee meeting. Bank of Louisiana maintains adequate capital to meet
its needs in the foreseeable future.
Measuring liquidity and capital on a weekly basis enables management
to constantly monitor loan growth, and shifting customer preferences. The
committee's in-depth reviews of current, projected, and worse case
scenarios through various reports ensures the availability of funds and
capital adequacy.
The Bank intends on increasing capital by implementing an extensive
marketing program and evaluating all pricing fees and investing in
proprietary accounts which will maximize the highest yield possible and
thereby improve earnings.
There are no known trends, events, regulatory authority
recommendations, or uncertainties that the Company is aware of that will
have or that are likely to have a material adverse effect on the Company's
liquidity, capital resources, or operations.
Capital Adequacy
The FDIC's regulations require that a state-chartered bank, such as
the Bank of Louisiana maintain a minimum Tier 1 risk based capital ratio of
4% and a risk based capital ratio of 8%. The Bank, however, is required to
maintain a Tier 1 leverage ratio of 7.00% as part of a Memorandum of
Understanding signed in 1996 which replaces the Memorandum of Understanding
dated November 8, 1994. See "Supervision and Regulation Enforcement
Action".
The Bank's "primary capital ratio" is the sum of shareholders' equity
divided by total assets. The Bank's capital to asset ratio was 6.84% at
December 31, 1997, 8.60% at December 31, 1996, and 8.54% at December 31,
1995. The Bank's capital to asset ratio decreased in 1997 due mainly to
the amount of charge-offs in the credit card portfolio of $3,996,000. The
provision for loan losses in 1997 was $3,630,000 which was charged to
operations. Additionally, the Bank was required by the FDIC to bring the
Reserve for Loan Losses up to $1,800,000 from $1,500,000 resulting in
$300,000 being charged to operations. Also, $415,000 in deferred tax
assets was disallowed for regulatory capital purposes.
The Bank intends on increasing capital by implementing an extensive
marketing program and to obtain additional proprietary accounts which will
maximize the highest yield possible and thereby improve earnings.
Investment Securities
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. Investment securities totaled
$10,500,000 at December 31, 1997, $9,000,000 at December 31, 1996, and
$11,000,000 at December 31, 1995. The majority of the holdings are backed
by U.S. Government or federal agency guarantees limiting the credit risks
associated with these securities. The average maturity of the Company's
securities portfolio was two years at December 31, 1997. At December 31,
1997 and 1996, securities classified as available-for-sale were $1,000,000.
The net unrealized holding loss on these securities at December 31, 1997
was $1,000 after taxes compared to net unrealized holding loss of $4,000
after taxes at December 31, 1996.
At December 31, 1997, the Company classified all but $1,000,000 of its
U. S. Treasury securities and obligations of U.S. government corporations
and federal agencies as held-to-maturity. The Company maintains a
relatively low percentage of its investment portfolio as available-for-
sale, but the Company maintains a large majority of its held-to-maturity
securities in one year or less maturities to fund possible liquidity needs
required by loan production and credit card activities.
Distribution ofInvestment Securities
December 31,
1997 1996 1995
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(Dollars in Thousands)
U.S. Treasury securities and
obligations of U.S. government
corporations and 10,479 10,505 8,977 9,000 11,010 11,014
agencies
Other investments 90 90 90 90 97 124
Total 10,568 10,595 9,067 9,090 11,107 11,138
Maturity Distribution of Investment Securities and Average Yields (1)
December December
31, 1997 31, 1996
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
(2) (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 1,000 999 6.03% - -
Due 1-5 years - - 1,000 993 5.02%
Total 1,000 999 6.03% 1,000 993 5.02%
Held-to-Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies
Due in 1 year or less 5,491 5,498 5.74% 3,997 4,001 4.94%
Due 1-5 years 3,988 4,008 6.52% 3,980 4,006 6.21%
Total 9,479 9,506 12.26% 7,977 8,007 11.15%
(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%.
Included in Investment Securities are equity securities acquired
through foreclosure which have no maturity date. Below is a table of these
securities at December 31, 1997 (dollars in thousands):
Other Securities
Mississippi River Bank $69,600
New Orleans SBIDCO, Inc. 20,000
Liberty Financial Services, 1
Inc.
Total Other Securities $89,601
Loan Portfolio
Total loans, which includes loan loss reserves and unearned interest,
decreased $11,979,000 or 17.67% to $55,819,000 at December 31, 1997 from
$67,798,000 at December 31, 1996. This decrease was primarily attributable
to the decline in the Company's credit card portfolio by 36.54% to
$23.233,000 at December 31, 1997 from $36,609,000 at December 31, 1996.
Total loans, which includes loan loss reserves and unearned interest,
decreased $5,645,000 or 7.69% to $67,798,000 at December 31, 1996 from
$73,443,000 at December 31, 1995. This decrease was primarily attributable
to the decline in the Company's credit card portfolio by 9.78% to
$36,609,000 at December 31, 1996 from $40,579,000 at December 31, 1995.
In 1995, the Company experienced increases in every major category.
Total loans outstanding increased $6,576,000 or 9.83% to $73,443,000 at
December 31, 1995 from $66,867,000 at December 31, 1994. Average total
loans during 1995, increased $9,967,000 or 16.52% to $70,318,000. The most
significant increases in 1995, occurred in real estate loans which were up
$3,780,000 or 19.34% to $23,323,000; consumer installment loans up $816,000
or 14.47% to $6,457,00; and credit card loans up $3,197,000 or 8.55% to
$40,579,000.
Loans, Net by Category
December
31,
1997 1996 1995 1994 1993
(Dollars in Thousands)
Commercial, financial, &
agricultural 4,281 4,390 4,366 5,408 4,544
Real estate-mortgage 24,643 22,370 23,323 19,543 18,627
Mortgage Loan Held for
Resale - - 256 - 1,234
Personal Loans 5,106 5,731 6,022 5,482 4,712
Credit cards-Visa,
MasterCard 20,302 25,265 28,199 27,999 20,066
Credit cards-Proprietary 2,931 11,344 12,380 9,383 16,212
Overdrafts 359 207 435 159 211
Loans 57,621 69,307 74,981 67,974 65,606
Less:
Unearned income 2 9 38 172 539
Deferred loan fees(costs),
net - - - - -
Allowance for possible
loan losses 1,800 1,500 1,500 935 934
Loans, net 55,819 67,798 73,443 66,867 64,133
The following tables reflect the maturity distribution and interest
rate sensitivity of the Company's loan portfolio at December 31, 1997:
Loan Maturity by Type
December 31, 1997
Maturing
Within One To Over
One Year 5 Years 5 Years Total
(Dollars in Thousands)
Commercial, financial and
agricultural 2,900 663 93 3,656
Real estate
construction, land
and land development 18,078 5,012 1,144 24,233
All other loans 25,826 2,932 974 29,731
Total 46,804 8,607 2,210 57,621
Rate Sensitivity of Loans
Loans:
With predetermined 22,235 27,777 2,210 52,222
interest rate
With floating 5,316 5,316
interest rate
Non-Accrual Loans 83 83
Total 27,634 27,777 2,210 57,621
Nonperforming Assets
Nonperforming assets consist of nonaccrual and restructured loans and
ORE. Nonaccrual 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. ORE is real property acquired by foreclosure or
directly by title or deed transfer in settlement of debt.
Nonperforming assets decreased $483,000 at December 31, 1997, to
$1,556,000 from $2,039,000 December 31, 1996. This 23.69% decrease in
nonperforming assets in 1997 was the result of the sale of ORE parcels. At
December 31, 1997 there were no restructured loans.
Nonperforming assets decreased $190,000 at December 31, 1996, to
$2,039,000 from $2,229,000 at December 31, 1995. This 8.52% decrease in
nonperforming assets in 1996 was the result of the sale of ORE. At
December 31, 1996 there were no restructured loans.
Nonperforming assets decreased $782,000 to $2,229,000 at December 31,
1995, from $3,011,000 at December 31, 1994. This 25.97% decrease in
nonperforming assets in 1995 was a result of the sale of ORE. During 1995,
the decrease in nonaccrual loans was negligible while ORE declined
$777,000. At December 31, 1995, there were no restructured loans.
Since 1993, the ratio of past due loans to total loans has decreased
from 4.12% to 2.18%. During that time, the Company significantly reduced
its ratio of nonperforming assets to loans and ORE from a high of 6.23% of
total loans at December 31, 1993, to a low of 2.63% at December 31, 1997.
When a loan is classified as nonaccrual, previously accrued interest
is reversed and interest income is decreased to the extent of all interest
accrued in the current year. If any portion of the accrued interest had
been accrued in the previous years, accrued interest is decreased and a
charge for that amount is made to the allowance for possible loan losses.
For 1997, the gross amount of interest income that would have been recorded
on nonaccrual loans at December 31, 1997, if all such loans had been
accruing interest at the original contract rate, was $18,866.
Nonperforming Assets
December 31,
1997 1996 1995 1994 1993
(Dollars in Thousands)
Nonaccrual Loans 83 316 235 240 665
Restructured Loans - - - - -
Other Real Estate Owned 1,473 1,723 1,994 2,771 3,616
Total Nonperforming
Assets 1,556 2,039 2,229 3,011 4,281
Loans past due 90 days or
more 1,257 2,295 1,062 2,020 2,679
Ratio of past due loans to 2.18% 3.31% 1.42% 2.98% 4.12%
loans
Ratio of nonperforming
assets to loans and other
real estate owned 2.63% 2.87% 2.90% 4.27% 6.23%
Management is not aware of any potential problem loans other than
those disclosed in the table above, which includes all loans recommended
for classification by regulators, which would have a material impact on
asset quality.
Other Real Estate
The Bank's ORE category has also been affected by the depressed
economic conditions in Louisiana. This was coupled with the adverse impact
the Bank encountered with the merger in 1988, whereby the Bank inherited
over $2,500,000 in ORE properties.
These properties, which are held for sale, are recorded on the Bank's
records, at cost, adjusted to the lower of current appraised value. Any
difference is charged to the allowance for loan losses in the year of
foreclosure. Any subsequent writedowns and income and expenses associated
with ORE are included in the income and expense of the Bank.
ORE totaled $1,473,000 at December 31, 1997, $1,723,000 at December
31, 1996, and $1,994,000 at December 31, 1995. New parcels of $116,000
were added in 1997 due to foreclosing on loans which had defaulted and were
in the non-accrual status.
During the fiscal year 1997 the Bank sold 7 parcels of ORE totaling
$528,000 as compared to 4 parcels sold in 1996 totaling $295,000 and 13
parcels totaling $599,000 in 1995. Historically the Bank has always sold
ORE parcels for a net gain, $40,000 in 1997, ($4,000) in 1996, and $134,000
in 1995. The costs associated with the sales of ORE are minimal as
compared to the gains, $5,000 in 1997, $2,000 in 1996, and $3,000 in 1995.
The Bank annually obtains a current appraisal from a qualified
appraiser as to the fair market value of all ORE properties and adjusts the
book value accordingly. Management voluntarily recognizes any writedown
due to reductions in the fair market value upon receipt of the appraisal.
Below is a schedule of all ORE parcels held as of December 31, 1997
which are in excess of $50,000.00.
Date Book Appraisal Appraisal
Address Acquired Value Date Amount
(Dollars in Thousands)
123-125 Carondelet 01/17/91 $ 423 02/15/97 $ 440
1907 Esplanade 12/22/97 116 12/22/97 126
617 N. Broad 09/24/91 591 10/20/97 593
27 Audubon Blvd 09/24/91 260 10/24/97 321
1716-18 Baronne 10/05/90 75 10/09/97 75
$1,465
In addition, any expenditure such as maintenance and repairs, etc. is
recognized during the year in which it occurred. The net cost of operation
of ORE totaled $264,000 in 1997, $235,000 in 1996, and $442,000 in 1995.
The following table reflects a breakdown of the income and expense amounts
related to ORE operations:
1997 1996 1995
(Dollars in Thousands)
ORE Income
Rental Income 11 24 45
Gain on Sales 61 7 134
Total Income 73 31 179
ORE Expenses
Maintenance, Repairs,
Upkeep & Security 80 38 60
Real Estate Fees,
Advertising & Appraisals 9 8 23
Insurance 60 41 59
Sheriff Sale 5 11 1
Legal Fees 135 125 22
Taxes 24 23 34
Writedowns 3 10 422
Loss on Sale 22 10 0
Total Expenses 337 266 621
Net Gain or Loss (264) (235) (442)
Impaired Loans
A loan is considered potentially impaired if: a) it is probable that
the Bank will be unable to collect all amounts due (principal and interest)
according to the terms of the loan agreement; b) A loan's original
contractual terms have been modified because of the collectibility
concerns.
Impairment assessment is based on the present value of expected future
cash flows related to the particular loan. The Bank discounts expected net
future cash flows or the underlying collateral of a loan to determine the
appropriate loss allowance for the loan.
For impaired loans that have risk characteristics in common with other
impaired loans, the Bank aggregates those loans and uses historical
statistics, such as average recovery period and average amount recovered,
along with a composite effective interest rate as a means of measuring the
impaired loans.
If the measure of the impaired loan is less that the recorded
investment in the loan, including accrued interest net deferred loan fees
or costs, and unamortized premium or discount, the Bank recognizes the
impairment.
The term recorded investment in the loan is distinguished from net
carrying amount of the loan because the latter term is net of a valuation
allowance, while the former term is not. The recorded investment in the
loan does, however, reflect any direct write-down of the investment.
When the Bank recognizes the impairment, we create a valuation
allowance with a corresponding charge to bad-debt expense or adjust an
existing valuation allowance for the impaired loan with a corresponding
charge or credit to bad debt expense.
As of December 31, 1997 and 1996, the recorded investment in loans
that are considered impaired were $543,900 and $562,265, respectively.
Interest income on impaired loans, recognized on the accrual method, of
$46,536 and $49,029 was recognized in 1997 and 1996, respectively.
Watch List
The Bank's watch list includes loans which, for management purposes,
have been identified as requiring a higher level of monitoring due to risk
and includes both performing and nonperforming loans. The majority of
watch list loans are classified as performing, because they do not have
characteristics resulting in uncertainty about the borrower's ability to
repay principal and interest in accordance with the original terms of the
loans.
The watch list consists of classifications, identified as Type 1
through Type 4. Types 1, 2 and 3 generally parallel the regulatory
classifications of loss, doubtful and substandard, respectively. Type 4
generally parallels the regulatory classification of Other Assets
Especially Mentioned (OAEM). These loans require monitoring due to
conditions which, if not corrected, could increase credit risk. Total
watch list loans decreased 16.63% to $3,754,000 at December 31, 1997 from
$4,503,000 at December 31, 1996.
Deposits
Total deposits decreased $1,200,000 or 1.26% to $93,941,000 at
December 31, 1997 from $95,141,000 at December 31, 1996. During this
period, total liabilities decreased $1,481,000 or 1.43% to $97,429,000.
The decrease in deposits occurred principally in money market deposits
which decreased $1,649,000 or 23.32% while demand and savings deposits
increased $721,000 or .98%. Core deposits, the Company's largest source of
funding, consist of all interest-bearing and noninterest bearing deposits
except certificates of deposits over $100,000. Core deposits are obtained
from a broad range of customers. Average interest-bearing core deposits
decreased 2.01% in 1997. Market rate core deposits, primarily CD's of less
of $100,000 and money market accounts, decreased 16.85% in 1997.
Total deposits decreased $2,245,000 or 2.31% to $95,141,000 at
December 31, 1996, from $97,386,000 at December 31, 1995. During this
period, total liabilities decreased $2,381,000 or 2.35% to $98,840,000.
The decrease in deposits occurred principally in time deposits which
decreased $4,063,000 or 22.05%. Demand, money market, and savings deposits
increased $1,818,000 or 2.30 during the same period. Core deposits, the
Company's largest source of funding, consist of all interest-bearing and
noninterest bearing deposits except certificates of deposits over $100,000.
Core deposits are obtained from a broad range of customers. Average
interest-bearing core deposits decreased 1.20% to $58,823,000 in 1996.
Market rate core deposits, primarily CD's of less of $100,000 and money
market accounts, decreased 4.72% in 1996.
Total deposits increased $5,622,000 or 6.13% to $97,386,000 at
December 31, 1995, from $91,764,000 at December 31, 1994. During 1995 all
categories of deposits except savings reflected volume increases. Average
interest-bearing core deposits decreased 4.73% to $59,539,000 in 1995.
Market rate core deposits, primarily CD's of less of $100,000 and money
market accounts, increased 10.50% in 1995.
Noninterest bearing deposits are comprised of business accounts,
including correspondent bank accounts, escrow deposits, as well as
individual accounts. Average noninterest bearing demand deposits
represented 26.98% of average core deposits in 1997 compared to 36.21% of
average core deposits in 1996.
The average amount of, and average rate paid on deposits by category
for the period shown are presented below:
Selected Statistical Information for Deposits
December 31,
1997 1996 1995
Average Average Average
Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
Noninterest-bearing
Deposits 33,388 N/A 33,385 N/A 32,350 N/A
Interest-bearing Demand
Deposits 18,185 2.18% 19,578 2.26% 19,203 2.75%
Savings Deposits 26,980 3.07 % 25,317 3.03% 25,160 2.94%
Time Deposits 13,174 5.04% 15,204 4.99% 16,692 5.58%
Total Average Deposits 91,728 93,484 93,405
The maturities of Certificates of Deposits Greater than $100,000 at
December 31, 1997 are listed below:
December 31, 1997
(Dollars in Thousands)
Three months or less 728
Over three through twelve months 609
Over twelve months 0
Total $ 1,337
Other Liabilities
The following table summarizes Other Liabilities for the periods
ending December 31, 1997, 1996, and 1995.
December 31,
1997 1996 1995
(Dollars in Thousands)
Accrued Expenses Payable 145 173 150
Accounts Payable - - 69
Deferred Membership Fees 83 69 74
Blanket Bond Fund 50 50 50
Other Liabilities 135 6 101
Total Other Liabilities 413 298 444
Borrowings
The Company's long-term debt is comprised primarily of debentures
which are secured by 39.72 shares of the Subsidiary 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 $600,000 with a correspondent bank and also has a
commitment from an upstream correspondent which will increase our Federal
Funds line of credit over and above the normal amount by pledging unused
securities.
Shareholders' Equity
Shareholders' equity decreased $1,971,000 or 27.19% to $5,280,000 at
December 31, 1997 from $7,251,000 at December 31, 1996. This decrease in
shareholders' equity since December 31, 1996, was attributable to
$1,975,000 in losses.
Shareholders' equity decreased $117,000 or 1.59% to $7,251,000 at
December 31, 1996, from $7,368,000 at December 31, 1995, because of
fluctuations in shareholders' equity. Realized shareholder's equity
(shareholders' equity excluding net unrealized holdings gains or losses on
investment securities classified as available-for-sale) at December 31,
1996 was $7,256,000. The $117,000 decrease in shareholders' equity since
December 31, 1995, was attributable to $94,000 in losses and a $23,000
decline in net unrealized value of investment securities, net of tax,
classified as available-for-sale.
Shareholder's equity increased $111,000 or 1.53% to $7,368,000 at
December 31, 1995, from $7,257,000 at December 31, 1994. Realized
shareholders' equity increased $144,000 or 2.00% to $7,349,000 at December
31, 1995, from $7,205,000 at December 31, 1994. During 1995, the growth in
shareholders' equity was primarily attributable to a $144,000 increase in
retained earnings over 1994 being offset by a $33,000 decline in the net
unrealized value of investment securities, net of tax.
The leverage ratio (Tier 1 capital to total assets) at December 31,
1997, was 6.84% compared to 8.60% at December 31, 1996, which are compared
to the minimum capital requirement of 4.00%.
The leverage ratio (Tier 1 capital to total assets) at December 31,
1996, was 8.60% compared to 7.02% at December 31, 1995, which are compared
to the minimum capital requirement of 4.00%.
At December 31, 1997, based on the Federal Reserve Board's guidelines,
the Company's Tier 1 risk based capital ratio was 10.61, and the risk based
capital ratio was 11.88%.
At December 31, 1996, based on the Federal Reserve Board's guidelines,
the Company's Tier 1 capital ratio was 12.32%, and the total risk-based
capital ratio was 13.58%.
The ratio of average shareholders' equity to average assets was 5.66%
in 1997, 7.06% in 1996, and 7.32% in 1995.
Supervision and Regulation Enforcement Action
The Bank is currently subject to an enforcement action from its
primary regulator, the FDIC, in the form of a Memorandum of Understanding.
The revised order was entered into by the Bank and the FDIC on March 12,
1996, as a result of their examination of July 31, 1995 and replaces the
Memorandum of Understanding dated November 8, 1994.
The Memorandum of Understanding is an arrangement between the Bank and
FDIC in which the Bank agrees to perform, among other things, the following
within specified time periods:
a)The Bank shall maintain a Tier 1 leverage capital ratio equal to or
greater than seven percent, including restricting dividends to a maximum of
50% of the Bank's net income,
b)Eliminate from its books certain criticized assets and reduce other
criticized assets to specified levels,
c)Initiate and implement a marketing program to dispose of its other
real estate in a timely manner,
d)Formulate and implement a written Profit Plan.
e)Perform a quarterly review of the adequacy of the Bank's loan
valuation reserve. Increase the Bank's allowance for loan and lease losses
to $1,500,000 in 1995 and $1,800,000 in 1997. (Resulting in a charge to
income in 1995 of an additional provision of $566,166 and $300,000 in 1995
and 1997, respectively.)
f)Revision of the Bank's loan policy for charging off delinquent
credit card loans.
Bank Management has taken action toward complying with the provisions
of the Memorandum of Understanding. Below is the December 31,1997 report.
A. During the life of the Memorandum, the Bank shall maintain a Tier 1
capital ratio, as defined in Part 325 of the FDIC Rules and Regulations, equal
to or greater than seven (7.0) percent.
The bank is presently below 7.00%; the following reflects a monthly
breakdown:
TOTAL CAPITAL/ASSET
MONTH AVERAGE TOTAL CAPITAL RATIO
ASSETS
12-94 103,075,866 8,669,658 8.41%
01-95 101,404,565 8,810,885 8.69%
02-95 101,265,687 8,861,727 8.75%
03-95 101,128,196 8,972,989 8.87%
04-95 101,211,383 9,062,880 8.95%
05-95 101,186,108 9,180,194 9.07%
06-95 101,633,930 9,226,277 9.08%
07-95 102,585,018 9,312,802 9.08%
08-95 103,364,563 9,405,513 9.10%
09-95 103,829,789 9,482,853 9.13%
10-95 104,200,596 9,326,922 8.95%
11-95 104,553,817 9,213,842 8.81%
12-95 104,843,144 8,951,771 8.54%
01-96 105,679,014 9,025,961 8.54%
02-96 104,406,542 9,093,939 8.71%
03-96 104,484,982 9,187,425 8.79%
04-96 104,836,828 9,218,297 8.79%
05-96 105,026,617 9,257,071 8.81%
06-96 105,102,912 9,246,776 8.80%
07-96 103,344,801 9,017,156 8.73%
08-96 104,703,155 8,934,152 8.53%
09-96 104,555,669 9,117,351 8.72%
10-96 104,200,468 9,074,717 8.71%
11-96 104,595,993 9,007,118 8.61%
12-96 104,592,512 9,027,004 8.63%
01-97 102,469,480 8,953,740 8.74%
02-97 102,537,922 8,923,792 8.70%
03-97 103,028,109 8,555,257 8.30%
04-97 103,952,610 8,223,612 7.91%
05-97 102,908,718 7,987,659 7.76%
06-97 102,629,602 7,722,584 7.52%
07-97 102,270,024 7,246,391 7.09%
08-97 101,942,795 6,794,545 6.67%
09-97 101,665,116 6,451,158 6.35%
10-97 101,433,178 6,606,133 6.51%
11-97 101,209,549 6,420,921 6.34%
12-97 101,047,884 7,168,026 7.09% *
* Due to Deferred Tax Assets disallowed for regulatory capital purposes in
the amount of $415,000, the actual Tier 1 Capital Ratio is 6.84%.
B. During the life of this Memorandum, the Bank shall not declare nor pay
any dividends on its common stock that, when combined with all other cash
dividends paid during the current year, will exceed fifty percent of the
current year's net income or cause the capital maintenanc level as described
in provision A to fall below the required 7.0 percent, without prior written
approval of the Regional Director and the Commissioner.
The bank is in compliance and the following reflects a monthly breakdown:
MONTH DIVIDENDS NET EARNINGS PERCENT PAID
DECLARED
12-94 424,484.62 848,969 50.00%
01-95 0.00 141,227 0.00%
02-95 0.00 192,069 0.00%
03-95 0.00 303,330 0.00%
04-95 0.00 393,221 0.00%
05-95 0.00 510,536 0.00%
06-95 0.00 556,619 0.00%
07-95 0.00 643,144 0.00%
08-95 0.00 735,855 0.00%
09-95 0.00 813,195 0.00%
10-95 0.00 624,662 0.00%
11-95 0.00 544,184 0.00%
12-95 0.00 282,113 0.00%
01-96 0.00 74,190 0.00%
02-96 0.00 142,168 0.00%
03-96 0.00 235,654 0.00%
04-96 0.00 266,525 0.00%
05-96 0.00 305,299 0.00%
06-96 0.00 295,005 0.00%
07-96 0.00 65,385 0.00%
08-96 0.00 (17,619) 0.00%
09-96 0.00 165,580 0.00%
10-96 0.00 122,946 0.00%
11-96 0.00 55,347 0.00%
12-96 0.00 75,233 0.00%
01-97 0.00 (44,791) 0.00%
02-97 0.00 (74,739) 0.00%
03-97 0.00 (443,274) 0.00%
04-97 0.00 (774,919) 0.00%
05-97 0.00 (1,010,871) 0.00%
06-97 0.00 (1,275,947) 0.00%
07-97 0.00 (1,752,140) 0.00%
08-97 0.00 (2,206,793) 0.00%
09-97 0.00 (2,547,372) 0.00%
10-97 0.00 (2,392,393) 0.00%
11-97 0.00 (2,577,610) 0.00%
12-97 0.00 (1,829,936) 0.00%
C. Within 10 days from the date of this Memorandum, the Bank shall
eliminate from its books, by charge-off or collection, all assets classified
"Loss" as of July 31, 1995, that have not been previously collected or
charged off. Reduction of these assets through proceeds of other loans made
by the Bank is not considered collection for the purpose of this paragraph.
Reports of Condition and Income filed with the FDIC for September 30, 1995
shall reflect elimination of all assets classified "Loss" as required by this
paragraph. If necessary to comply, amendments shall be filed by the Bank.
All Charge offs as recommended in the Jun 1997 Exam were completed before the
September Call Report. In July 1997, the reserves were increased $300m, in
Aug. 1997 $422m was charged off due to a proprietary merchant payments and in
Sept 1997, the doubling effect of 180 day chrg offs were realized.
D. (1) Within 60 days of the effective date of this Memorandum, the Bank
shall initiate and implement a marketing program to dispose of its other real
estate in a timely manner. At a minimum, the program shall provide for:
(i) Establishing specific goals for reduction of other real estate;
Plan has been in place for several years and is reflected on each year's
annual budget. The plan in 1995 reflected sales of $550,000. The bank
exceeded this goal, proceeds from sales totaled $599,130. Please see exhibit
D. 1 (i). The bank's goal has been decreased in 1996 due to sales
anticipated on parcels which have book values less than $50m. In addition, the
bank has reduced all action taken in writing.
(ii) Actively listing and advertising all parcels of real estate at market
value;
Some properties are listed with realtors, others don't qualify, either
because of activity or conditions of the property. The exceptions shall be
presented to the board.
(2) For the purposes of this Memorandum, the term "other real estate" means
all real estate, other than bank premises, actually owned by the Bank.
Procedures implemented as described above are in place for all "other real
estate" as defined in item 2.
E. Within 60 days from the date of this Memorandum, the Bank shall formulate
and implement a written Profit Plan for 1996. This plan shall be forwarded to
the Regional Director and to the Commissioner, for review and comment, and
shall address, at a minimum, the following: (See Budget exhibit)
(a) Goals and strategies for improving and sustaining the earnings of the
Bank, including:
(i) An identification of the major areas in, and means by which, the board
will seek to improve the Bank's operating performance;
This plan is already in effect and has always been accomplished through
various reports submitted to the Audit & Finance Committee on a monthly basis.
(i). Any variance in excess of $20m is scrutinized, and if necessary a plan
of action is taken.
(ii) Realistic and comprehensive budgets, prepared on at least an annual
basis.
As noted in the Bank's Executive Policy Manual,realistic and comprehensive
budgets are prepared annually before December 31 of each year. In addition,
actual results are compared monthly through the utilization of several
reports as described in our Executive Policy Manual. Special meetings will
also be documented & forwarded with the quarterly progress report.
(iii) A description of the operating assumptions that form the basis for, and
adequately support, the major projected income and expense components.
The highlights of the budget specify the above each year. The 1996 budget &
highlights were forwarded with February's mailing to the FDIC & OFI.
(iv) Budget review process to monitor the income and expenses of the Bank to
compare actual figures with budgetary projections on at least a quarterly
basis and included in the minutes of the board of directors' meeting; and
Plan already exists whereby actual performance versus budget is reviewed and
monitored by the Audit & Finance Committee on a monthly basis.
NOTE: As per the visitation dtd 3-3-97, the YTD earnings have not met the
projections as outlined in the 1997 Budget. REVISED BUDGET SUBMITTED FOR
APPROVAL AT THE AUDIT & FINANCE MTG 6-3-97; Revised & approved again
9-9-97, 1998 budget in Dec 1997.
(v) Periodic compensation review, including amounts and costs of life
insurance coverage carried on senior officers.
The Salary Administration Committee meets quarterly to review salaries,
transfers, promotions, etc. Life insurance compensation will be reviewed
annually by the board.
(b) By December 31, 1996, a separate Profit Plan for 1997 shall be completed
which incorporates the minimum requirements set forth in subparagraph (a)
above.
The bank has always completed its fiscal budget plans, before year end and
intends to continue. The 1996 Budget was forwarded to the FDIC & OFI in
February 1996.
F. Effective with the date of this Memorandum, the Bank's board of directors
shall review, on at least a quarterly basis, the adequacy of the Bank's loan
valuation reserve and make such entries (charges to current operating income)
as are necessary to provide a loan valuation reserve that is adequate in
light of the condition of the loan and credit card portfolios at that time.
(a) In reviewing the adequacy of the loan valuation reserve, consideration
shall be given to the volume and severity of adverse loan and credit card
account classifications at the latest FDIC and State examinations, the
volume of delinquent loans and credit card accounts, the results of the
Bank's loan review function, any growth in the loan and credit card
portfolios, and any other factors appropriate in the circumstances. The basis
upon which the determination of adequacy and adjustments to the reserve are
made shall be reduced to writing and made a part of the minutes of the board.
This is done on a quarterly basis and presented to the Audit & Finance
Committee.
b) Notwithstanding the provisions of the above paragraph, the Bank's
allowance for loan and lease losses shall be increased to at least $1,500,000,
subsequent to charge-offs required in Paragraph A, less any amount collected
on the loans and credit cards classified "Loss" in the July 31, 1995, Reports
of Examination. Reports of Condition and Income filed with the FDIC for
September 30, 1995, shall reflect an adequate reserve for loan and lease
losses as required by this paragraph. If necessary to comply, amendments
shall be filed by the Bank.
The Allowance for Loan Loss Reserves was increased to $1,500,000, retroactive
December 31, 1995 and the 12/31/95 call Report was amended.
G. Within 60 days from the date of this MEMORANDUM, the bank shall revise
its loan policy as necessary to address the deficiencies discussed on pages
8.1 and 8.2 of the July 31, 1995, reports of examination. At a minimum,
revisions will include procedures for charging off delinquent credit cards
which conform with the Uniform Policy for classification of Consumer
Installment Credit Based on Delinquency Status and procedures to assure that
the Bank's assets and income are not materially overstated by accrued
interest on severely delinquent credit card accounts.
The policies have been revised and delinquencies are charged off automatically
via computer once past due.
H. (a) On the tenth day of each calendar quarter, unless and until each and
every correction required by this Memorandum is accomplished, the Bank shall
furnish written progress reports to the Regional Director detailing the form
and manner of any actions taken to secure compliance with this Memorandum and
the results thereof. Such reports may be discontinued when the corrections
required by this Memorandum have been accomplished and the Regional
Director has, in writing, released the Bank from making future reports.
The Bank will forward progress reports on a timely basis.
(b) The board minutes, for the month in which the reports are submitted
pursuant to the paragraph above, should reflect the review and approval of
said reports by the Bank's board of directors.
The reports shall be presented on a monthly basis at the Audit & Finance
Committee, with quarterly reports reviewed by the Board.
The Bank has been ordered by the FDIC to reimburse bank customers
certain cash advance fees and finance charges. The Bank's exposure for
this reimbursement is not expected to exceed $70,000. The Bank has already
expended and accrued for this amount.
Bank management philosophy and plans are directed to enhancing the
financial stability of the Bank to ensure the continuity of Operations.
The Bank is required to maintain minimum amounts of capital to total
"riskweighted" assets, as defined by banking regulators. At December 31,
1997, the Bank is required to have a minimum Tier 1 and Total capital
ratios of 4.00% and 8.00%, respectively. The Bank's actual ratios at that
date were 10.61% and 11.88, respectively. Primary capital to assets ratios
for the Bank were 6.84% for 1997, 8.60% for 1996, and 8.54% for 1995.
The Bank is presently below 7%.
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
All audit services for the Company and the subsidiary are performed by
LaPorte, Sehrt, Romig and Hand, Certified Public Accountants. The same
firm will be retained to perform audit services in 1998.
Item 10
Directors and Executive Officers of the Company
Company Company Principal
Common Preferred Occupation
Stock Stock For Last Five
Beneficially Beneficially Years If Not
Owned Owned With The
Name (Age) Position Held Number Percent Number Percent Company
G. Harrison Scott Director; 618 0.31% 87,488 3.80% N/A
(74) Chairman of
the Board of the
Company and the
Bank
James A. Comiskey Director; 35,146 19.62% 81,555 3.54% N/A
(71) President of
the Company
and the Bank
Douglas A. Director of 215 0.12% 9,324 0.40% President,
Schonacher the Company
(67) and the Bank V.I.P. Dist.
Gordon A. Burgess Director of 1,015 0.57% 36,164 1.57% President,
the Company Tangipahoa
(64) and the Parish
Bank Council
Lionel J. Favret, Director of 571 0.32% 31,656 1.37% Retired
Sr. the Company
(86) and the Bank
Louis G. Grush, Director of 1,987 1.11% - - Dentist,
DDS the Company
(70) and the Bank Associate
Professor-LSU
School of
Dentistry
Gerry E. Hinton Director of 5,330 2.97% 2,387 0.10% Chiropractor
the Company
(67) and the Bank
Leland L. Landry Director of 3,800 2.12% 2,387 0.10% President,
the Company
(71) and the Bank Landry Realty
Samuel A. Logan, Director of 626 0.35% 20,039 0.88% Physician
MD the Company
(75) and the Bank
Edward J. Soniat Director of 8,214 4.59% 232,144 10.08% President,
the Company
(85) and the Bank Blaise
and Secretary Parking
of the Company Enterprise
Corp.
Peggy L. Schaefer Treasurer of - - - - N/A
(46) the Company
and Senior
Vice President,
Cashier, and
Chief Financial
Officer of
the Bank
Directors and executive officers of the Company each serve for a term
of one year.
Messrs. Scott, Comiskey, Favret, and Soniat have served as directors
since 1981. Messrs. Burgess, Grush, Hinton, Landry, Logan, and Schonacher
have served as directors since 1988. Mr. Scott has served as Chairman of
the Board of the Company since 1981. Mr. Soniat has served in his capacity
as Secretary of the Company since 1988. Ms. Schaefer has served in her
capacity as Treasurer of the Company since 1988.
As of December 31, 1997, all directors, as a group, own directly or
indirectly 57,522 shares of Common Stock and 503,144 shares of Preferred
Stock, representing 32.11% and 21.84% respectively of outstanding shares.
No family relationships exist among the current directors or executive
officers of the Company or the Bank, and, except for service as directors
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.
The Company does not have standing audit, 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.
Item 11
Executive Compensation
The Company pays no salaries or other compensation to its directors
and executive officers. The Bank pays each director other than Messrs.
Scott and Comiskey an honorarium 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.
The Board of Directors approved a 50% reduction of the above honorarium at
the June 10, 1997 meeting. The new amounts are $200, $150, and $150,
respectively.
From October 1, 1990, through June 30, 1992, these honorariums were
loaned by the director-recipients to the Company. The total amount of
these loans to the Company as of December 31, 1997, was $692,910, including
accrued and unpaid interest at the rate of 10% per annum. At this time,
there is no maturity date on these loans.
The following table sets forth compensation for the Company's
executive officers for the years 1997, 1996, and 1995:
Annual Compensation
Other
Annual All Other
Name and Principal Year Salary Compensation Compensati
Position ($) ($) ($)
G. Harrison Scott, 1997 89,800 29,042 19,494
Chairman of the 1996 89,800 41,000 19,494
Board 1995 89,800 41,000 19,000
James A. Comiskey, 1997 89,800 29,042 19,000
President 1996 89,800 41,000 19,000
1995 89,800 41,000 19,000
The Board of Directors also approved a 50% reduction of Other Annual
Compensation, as reflected above, at the June 10, 1997 meeting. In
addition to the cash compensation shown in the foregoing table, the Company
provides an automobile and certain club memberships for Messrs. Scott and
Comiskey. The Company also provides life insurance policies for Messrs.
Scott and Comiskey. Upon the death of the insured, the Company is entitled
to receive all of the premiums it paid on behalf of Messrs. Scott and
Comiskey, but in no event more that $150,000 per man. The Company provided
Messrs. Scott and Comiskey with life insurance policies in which Messrs.
Scott and Comiskey name the beneficiary and own their respective policies.
The Company paid $19,494 for Mr. Scott's policy and $19,000 for Mr.
Comiskey's policy in 1997.
Committees of the Board of Directors of the Company and the Bank
During fiscal year 1997, the Board of Directors of the Company held a
total of 5 meetings, and the Board of Directors of the Bank held a total of
15 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. Neither the Board of Directors of the Company nor the
Bank has a standing compensation committee or committee performing similar
functions. In lieu thereof, the Board of Directors as a group performs the
foregoing function.
The Board of Directors of the Bank does have an Audit and Finance
Committee consisting of Messrs. Favret (chairman), Landry, and Soniat, and
two rotating members selected from Messrs. Burgess, Grush, Hinton, and
Schonacher. The Audit and Finance Committee receives information from
management, reviews financial reports and delinquency reports, and
coordinates and reviews the work performed by the Bank's internal auditor
and the Bank's certified public accountants. The Audit and Finance
Committee met 12 times in 1997.
The Bank also has an Executive Committee consisting of six permanent
members and two rotating members. The permanent members of the Executive
Committee in 1997 were Messrs., Scott (chairman), Comiskey, Favret, Soniat,
Hinton, and Burgess, and the rotating members were selected from Messrs.
Grush, Landry, and Schonacher. 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 25 times in 1997.
Item 12
Security Ownership Of Certain Beneficial Owners and Management
No director of the Company holds a directorship in any company with a
class of securities registered under Section 12 of the Exchange Act or
subject to the requirements of Section 15(b) of the Exchange Act or in any
company registered as an investment company under the Investment Company
Act. No family relationships exist among the current directors or
executive officers of the Company.
As of December 31, 1997, the following persons were known to be the
beneficial owners of more than 5% of the Bank's stock.
Name & Address Of Title Of Amount & Nature Percent
Of
Beneficial Owners Class Beneficial Of Class
Ownership
James A. Comiskey Common 35,146 19.62%
1100 City Park Ave. Preferred 81,555 3.54%
New Orleans, LA 70119 Owned directly
Edward J. Soniat Common 8,214 4.59%
49 Oriole Street Preferred 232,144 10.08%
New Orleans, LA 70124 Owned directly
Shannon,Sharry,Slade & Rick, LLC
55481 Highway 433 Common 55,992 31.26%
Slidell, LA 70461-9702 Owned directly
Item 13
Certain Relationships and Related Transactions
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with officers, directors
and principal shareholders and their associates, on substantially the same
term and conditions, including interest rates and collateral on loans, as
those prevailing at the same time for comparable transactions with others,
and that do not involve more than the normal risk of collectability or
presents other unfavorable features.
The aggregate amount borrowed by all officers, directors, and their
associates totaled $1,083,723 at December 31, 1997 and the highest
aggregate amount borrowed during the year totaled $1,389,917. These
aggregate amounts represented 15.11% and 19.39% respectively of the total
capital of the Bank. The following data is as of December 31, 1997.
The Bank has one outstanding loan to Mr. Gordon A. Burgess, director,
in the amount of $12,101 bearing an annual interest rate of 9%, with the
largest aggregate amount outstanding totaling $19,660. The loan is
scheduled to mature January 10, 1998, and is secured by signature only.
The Bank has one outstanding loan to Mr. Burgess' corporation, Mal,
Inc., in the amount of $372,494 bearing an annual interest rate of 9%, with
the largest aggregate amount outstanding totaling $383,960. The loan is
scheduled to mature January 25, 1998, and is secured by real estate.
The Bank has one outstanding loan to Mr. Leland L. Landry, director,
in the amount of $120,932, bearing an annual interest rate of 9%, with the
largest aggregate amount outstanding totaling $124,996. The loan is
scheduled to mature January 22, 1998, and is secured by real estate.
The Bank has two outstanding loans to Mr. Douglas A. Schonacher,
director, in the amount of $125,744, bearing an annual interest rate of 9%,
with the largest aggregate amount outstanding totaling $132,141. The loans
are scheduled to mature February 5, 1998, and each is secured by real
estate.
The Bank has one outstanding loan to Mr. Schonacher's corporation,
VIP, Inc. in the amount of $140,565, bearing an annual interest rate of 9%,
with the largest aggregate amount outstanding totaling $297,864. The loan
is scheduled to mature February 9, 1998, and is secured by real estate.
The Bank has two outstanding loans to Mr. Soniat's corporation, The
Fisk Corp. in the amount of $163,776, bearing an annual interest rate of
9%, with the largest aggregate amount outstanding totaling $178,888. The
loans are scheduled to mature March 12, 1998 and November 14, 1998, and
each is secured by real estate.
On September 30, 1991, the Bank purchased a four-story building
located at 300 St. Charles Avenue from the RTC for a price of $402,500.
The building serves as the Bank's main office. The purchase was financed
by a loan from Mr. Soniat to the Company. There is currently a balance of
$79,954 in principal and accrued but unpaid interest on the loan, which
bears interest at the rate of 13.50% per annum. The loan matured September
30, 1996. Mr. Soniat has agreed to renew this loan at the same interest
rate and repayment schedule, on a month-to-month basis which, unless
changed, would fully amortize this loan on September 30, 2006.
The Bank leases space for its operations center under four separate
leases from Severn South Partnership, a limited partnership for which
Messrs. Scott and Comiskey are the only two general partners. There are 13
limited partners, of which three also serve as directors of the Bank,
namely Messrs. Scott, Comiskey, and Soniat. The Bank pays $27,921, plus a
percentage of operating costs, per month for the leased premises.
Management believes that the terms of the leases are no less favorable than
the terms that could be obtained from an unaffiliated party for similar
space. The Amendment to Lease dated June 1, 1995, with respect to this
office space expires on May 31, 1999.
The Bank leases the facilities for its Severn Branch from Severn South
Partnership. The Bank pays $12,456, plus a percentage of operating
expenses, per month. Management of the Company believes that the terms of
the lease are no less favorable than the terms that could be obtained from
an unaffiliated party for similar space. The Amendment to Lease dated June
1, 1995, with respect to this office space expires on May 31, 1999.
The Bank leases its Tammany Mall branch office on a month-to-month
basis from the Tammany Mall Partnership. This partnership is a limited
partnership consisting of Messrs. Scott and Comiskey as the only general
partners and of the 12 limited partners, five are currently directors of
the Bank, namely, Messrs. Scott, Comiskey, Hinton, Landry and Grush. The
Bank pays $6,200 per month for the leased premises. Management of the
Company believes that such lease payments are comparable to what would
have been paid to an unrelated party for similarly situated space at the
time the lease was executed.
Item 14
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<AUDIT>
BOL BANCSHARES, INC.
& SUBSIDIARY
December 31, 1997
Audits of Financial Statements
December 31, 1997
and
December 31, 1996
To the Board of Directors
BOL Bancshares, Inc.
& Subsidiary
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of BOL
BANCSHARES, INC. and its wholly-owned subsidiary, Bank of Louisiana, as of
December 31, 1997 and December 31, 1996, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for
the years ended December 31, 1997, 1996 and 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our 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, 1997 and December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
/s/ LaPorte, Sehrt, Romig & Hand
A Professional Accounting Corporation
Metairie, LA
January 22, 1998, except for Note K,
for which the date is March 11, 1998
A Professional Accounting Corporation
800 Two Lakeway Center 3850 N. Causeway Blvd. Metairie, LA 70002
(504)835-5522 FAX (504)835-5535
P.O. Box 27 Riverside Drive Covington, LA 70434
(504)892-5850 FAX (504)892-5956
E-Mail Address: laporte@laporte.com Internet Address:
http://www.laporte.com/
Member of AICPA Division for CPA Firms-Private Companies Practice Section
and
SEC Practice Section
International Affiliation with Accounting Firms Associated, Inc.
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1997 1996
Cash and Due from Banks
Non-Interest Bearing Balances and Cash $7,734,005 $7,902,872
Federal Funds Sold 21,150,000 14,400,000
Investment Securities
Securities Held-to-Maturity (Fair Value of
$9,510,313
in 1997 and $8,016,619 in 1996) 9,478,718 7,977,101
Securities Available-for-Sale, at Fair Value 1,088,663 1,083,011
Loans - Less Allowance for Loan Losses of
$1,800,000 in 1997 and $1,500,000 in 1996,
and Unearned Discounts
of $1,847 in 1997 and $9,318 in 1996 55,819,114 67,798,187
Property, Equipment and Leasehold Improvements (Net
of Depreciation and Amortization) 2,697,583 2,683,149
Other Real Estate 1,473,160 1,723,095
Other Assets 1,658,277 1,803,544
Deferred Taxes 618,684 326,689
Income Taxes Receivable 876,831 247,030
Letters of Credit 113,532 146,332
$102,708,567 $106,091,010
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1997 1996
LIABILITIES
Deposits
Non-Interest Bearing $35,124,103 $35,767,855
Interest Bearing 58,816,434 59,372,781
Notes Payable 2,283,508 2,384,488
Other Liabilities 412,886 298,492
Accrued Litigation Settlement 150,000 390,000
Letters of Credit Outstanding 113,532 146,332
Accrued Interest 528,269 479,779
Total Liabilities 97,428,732 98,839,727
Preferred Stock - Par Value $1
2,302,811 Shares Issued and Outstanding in
1997 and 1996 2,302,811 2,302,811
Common Stock - Par Value $1
179,145 Shares Issued and Outstanding in 1997
and 1996 179,145 179,145
Unrealized (Loss) on Securities Available-for-Sale,
Net of Applicable Deferred Income Taxes (569) (4,407)
Capital in Excess of Par - Retired Stock 14,888 14,888
Retained Earnings 2,783,560 4,758,846
Total Stockholders' Equity 5,279,835 7,251,283
$102,708,567 $106,091,010
The accompanying notes are an integral part of these financial statements.
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the Years Ended December 31,
1997 1996 1995
INTEREST INCOME $10,297,883 $12,326,563 $11,489,756
INTEREST EXPENSE 2,108,592 2,193,255 2,428,526
Net Interest Income 8,189,291 10,133,308 9,061,230
PROVISION FOR LOAN LOSSES 3,630,273 2,039,779 1,748,761
Net Interest Income
After Provision
for Loan Losses 4,559,018 8,093,529 7,312,469
OTHER INCOME
Service Charges on
Deposit Accounts 1,398,552 1,481,144 1,521,705
Other Non-Interest
Income 1,133,436 958,796 1,181,643
Reversal of Litigation
Settlement 390,000 - -
Gain on Sale of
Securities 15,860 - -
Total Other Income 2,937,848 2,439,940 2,703,348
OTHER EXPENSES
Salaries and Employee
Benefits 3,974,048 4,189,606 3,833,797
Occupancy Expense 1,937,416 1,848,469 1,757,796
Loss on Litigation 150,000 - -
Equity in Loss of
Unconsolidated Subsidiary - - 34,614
Other Non-Interest
Expense 4,581,491 4,609,011 4,103,544
Total Other Expenses 10,642,955 10,647,086 9,729,751
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE
(BENEFIT) (3,146,089) (113,617) 286,066
INCOME TAX EXPENSE
(BENEFIT) (1,170,803) (20,028) 141,413
NET INCOME (LOSS) ($1,975,286) ($93,589) $144,653
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK ($11.03) ($0.52) $0.81
The accompanying notes are an integral part of these financial statements.
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
Gain
(Loss)
on
Investment
Securities Capital in
Preferred Common Available- Excess Retained
of Par
for-Sale Retired Earnings Total
Stock Stock Stock
BALANCE - December $2,309,103 $179,258 $52,421 $8,810 $4,707,782 $7,257,374
31, 1994
Stock Retired (6,292) (113) - 6,078 - (327)
Change in Unrealized Gain on
Securities Available-for-Sale,
Net of Applicable Deferred
Income Taxes - - (33,385) - - (33,385)
Net Income for the
Year 1995 - - - - 144,653 144,653
BALANCE - December
31, 1995 2,302,811 179,145 19,036 14,888 4,852,435 7,368,315
Change in Unrealized Gain on
Securities Available-for-Sale,
Net of Applicable Deferred
Income Taxes - - (23,443) - - (23,443)
Net(Loss) for the
Year 1996 - - - - (93,589) (93,589)
BALANCE - December
31, 1996 2,302,811 179,145 (4,407) 14,888 4,758,846 7,251,283
Change in Unrealized Gain on
Securities Available for-Sale,
Net of Applicable Deferred
Income Taxes - - 3,838 - - 3,838
Net (Loss) for the
Year 1997 - - - - (1,975,286) (1,975,286)
BALANCE - December $2,302,811 $179,145 ($569) $14,888 $2,783,560 $5,279,835
The accompanying notes are an integral part of these financial statements.
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
1997 1996 1995
OPERATING ACTIVITIES
Net Income (Loss) ($1,975,286) ($93,589) $144,643
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by
Operating Activities:
Provision for Loan
Losses 3,630,273 2,039,779 1,748,761
Depreciation and
Amortization Expense 422,750 365,574 238,087
Amortization of
Investment Security Premiums 280 15,218 27,160
Accretion of Investment
Security Discounts (23,660) (29,102) (41,077)
(Increase) Decrease in
Deferred Income Taxes (293,968) 55,425 (428,113)
(Gain) Loss on Sale of
Property and Equipment 3,083 2,421 (521)
(Gain) Loss on Sale of
Other Real Estate (39,508) 2,690 (133,986)
(Increase) Decrease in
Other Assets and
Prepaid Taxes (484,534) (592,676) 188,876
Decrease in Other
Liabilities, Accrued
Interest and Accrued
Loss Contingency (77,116) (132,050) (72,277)
Net (Increase) Decrease in
Mortgage Loans
Held for Resale - 255,750 (255,750)
Undistributed Equity
Method Income - - 34,614
Gain on Sale of Available-
for-Sale Securities (15,860) - -
Net Cash Provided by Operating
Activities 1,146,454 1,889,440 1,450,417
INVESTING ACTIVITIES
Proceeds from Sale of
Available-for-Sale Securities 16,145 7,226 -
Purchases of Available-
for-Sale Securities - (999,687) (977,656)
Proceeds from Available-
for-Sale Securities
Released at Maturity - 1,000,000 -
Proceeds from Held-to-
Maturity Investment Securities
Released at Maturity 4,000,000 7,500,000 5,000,000
Purchases of Held-to-
Maturity Investment (5,478,359) (5,452,950) -
Securities
Proceeds from Sale of
Property and Equipment 1,987 3,545 7,389
Purchases of Property and
Equipment (442,258) (479,953) (944,098)
Proceeds From Liquidation
of Unconsolidated Subsidiary - - 1,402,058
Proceeds from Sale of
Other Real Estate 527,605 292,600 780,131
Net (Increase) Decrease
in Loans 8,110,638 3,325,261 (7,945,484)
Net Cash Provided by (Used in)
Investing Activities 6,735,758 5,196,042 (2,677,660)
The accompanying notes are an integral part of these financial statements.
BOL BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended
December 31,
1997 1996 1995
FINANCING ACTIVITIES
Net Increase (Decrease)
in Non-Interest Bearing
and Interest Bearing ($1,200,099) ($2,245,832) $5,622,708
Deposits
Proceeds from Issuance of -
Long-Term Debt 1,793,000 -
Retirement of Stock - - (327)
Principal Payments on
Long-Term Debt (1,893,980) (3,915) (32,424)
Net Cash Provided by (Used in)
Financing Activities (1,301,079) (2,249,747) 5,589,957
NET INCREASE IN CASH
AND CASH EQUIVALENTS 6,581,133 4,835,735 4,362,714
CASH AND CASH EQUIVALENTS-
BEGINNING OF YEAR 22,302,872 17,467,137 13,104,423
CASH AND CASH EQUIVALENTS $28,884,005 $22,302,872 $17,467,137
- END OF YEAR
SUPPLEMENTAL DISCLOSURES:
Additions to Other Real Estate
through Foreclosure $240,716 $34,130 $290,724
Cash Paid During the Year
for Interest $2,060,102 $2,179,307 $2,516,414
Cash Paid During the Year
for Income Taxes $ - $153,476 $524,271
Market Value Adjustment
for Unrealized Gain (Loss)
on Securities Available-
for-Sale $5,815 $(35,520) $28,843
Accounting Policies Note: Cash Equivalents Include Amounts Due from Banks and
Federal Funds Sold.
Generally, Federal Funds are Purchased and Sold for One Day Periods.
The accompanying notes are an integral part of these financial statements.
BOL BANCSHARES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OF THE COMPANY
BOL BANCSHARES, INC. 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.
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
installment 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.
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.
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
MEMBERSHIP FEES
Membership fees are collected in the month of May and 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 Subsidiary 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 $1,283,077 and $1,405,269
for the years ended December 31, 1997 and 1996, respectively.
NON-DIRECT RESPONSE ADVERTISING
The Bank expenses advertising costs as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent 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.
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" is effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. This statement requires that
an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
condition. Adoption of this pronouncement is not expected to have an
effect on the financial position and results of operations of the Company.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information" is
effective for fiscal years beginning after December 15, 1997. This
statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Adoption of
this pronouncement is not expected to have an effect on the financial
position and results of operations of the Company.
NOTE B
OTHER REAL ESTATE
The Subsidiary 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 Subsidiary 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 cost of operation of Other Real Estate totaled $264,432 in
1997, $235,365 in 1996 and $441,803 in 1995.
NOTE C
LOANS
Major classification of loans are as follows:
December 31,
1997 1996
Real Estate Mortgages $24,643,062 $22,370,113
Commercial 4,280,928 4,390,270
Personal 5,105,613 5,731,437
Credit Cards 23,232,424 36,608,564
Overdrafts 358,934 207,121
57,620,961 69,307,505
Unearned Discounts 1,847 9,318
57,619,114 69,298,187
Allowance for Loan Losses 1,800,000 1,500,000
$55,819,114 $67,798,187
The following is a classification of loans by rate and maturity:
(Dollar amounts in thousands)
December 31,
1997 1996
Fixed Rate Loans:
Maturing in 3 Months or Less $ 7,294 $ 6,309
Maturing Between 3 and 12 Months 14,941 13,343
Maturing Between 1 and 5 Years 27,777 40,400
Maturing After 5 Years 2,210 1,913
52,222 61,965
Variable Rate Loans:
Maturing Quarterly or More Frequently 4,747 7,026
Maturing Between 3 and 12 Months 569 -
Non-Accrual Loans 83 316
57,621 69,307
Less: Unearned Discount 2 9
Less: Allowance for Loan Losses 1,800 1,500
Net Loans $ 55,819 $ 67,798
As of December 31, 1997 and 1996, the recorded investment in loans
that are considered impaired under SFAS 114 and 118 were $543,900 and
$562,265, respectively. The related allowance for credit losses for the
impaired loans is not specifically identified, but is included in the
percentages allocated to the portfolio. Interest income on impaired loans,
recognized on the accrual method, of $46,536 and $49,029 was recognized in
1997 and 1996, respectively.
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
balance sheet under the account caption, "Other Real Estate", and amount to
$1,473,160 at December 31, 1997 and $1,723,095 at December 31, 1996. In
addition, during 1996, the subsidiary bank purchased land occupied by an
"Other Real Estate" property for $550,000. This investment, which is
considered temporary, is included in Other Assets.
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.
NOTE D
NON-PERFORMING ASSETS (Continued)
At December 31, 1997, $82,798 of loans were in the non-accrual status
and $18,866 of interest was foregone in the year then ended. At December
31, 1996, $316,292 of loans were in the non-accrual status and $22,978 of
interest was foregone in the year then ended.
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, 1997:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury Securities $9,478,718 $31,595 $ - $ 9,510,313
Securities available-for-sale consisted of the following at December 31, 1997:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity Securities $ 89,601 $- $- $ 89,601
U.S. Treasury Securities 999,924 - 862 999,062
$1,089,525 $- $ 862 $1,088,663
Securities held-to-maturity consisted of the following at December 31, 1996:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury Securities $7,977,101 $ 39,518 $ - $8,016,619
Securities available-for-sale consisted of the following at December 31, 1996:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity Securities $89,886 $- $- $ 89,886
U.S. Treasury Securities 999,802 - 6,677 993,125
$1,089,688 $- $ 6,677 $1,083,011
The maturities of investment securities at December 31, 1997 are as follows:
Securities Held-to-Maturity Securities Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Amounts maturing in:
One year or less $5,490,371 $5,501,563 $1,089,525 $1,088,663
After one year
through five years 3,988,347 4,008,750 - -
$9,478,718 $9,510,313 $1,089,525 $1,088,663
NOTE E
INVESTMENT SECURITIES (Continued)
During 1997 and 1996, the Bank sold securities available-for-sale for
total proceeds of $16,145 and $7,226, resulting in gross realized gains of
$15,860 and $-0-, respectively. There were no sales of securities during
1995.
Securities of $973,000 at December 31, 1997 and $975,000 at December 31,
1996 were pledged to secure public funds.
NOTE F
INCOME TAXES
The components of the provision for income tax expense (benefit) are:
1997 1996 1995
Current $(876,831) $(59,302) $586,719
Reduction for Excess Provision
in Prior Year: (11,060) (16,151) -
Deferred (282,912) 55,425 (445,306)
Total Provision for
Income Tax $(1,170,803) $(20,028) $141,413
A reconciliation of income tax at the statutory rate to income tax
expense at the Company's effective rate is as follows:
1997 1996 1995
Computed Tax at the Expected
Statutory Rate $(1,069,670) $(38,630) $97,263
Earnings of Unconsolidated
Subsidiary - - 11,769
Reduction for Excess Provision
in Prior Year (11,060) (16,151) -
Tax Exempt Income (98,835) - -
Other Adjustments 8,762 34,753 32,381
Income Tax Expense (Benefit)
for Operations $(1,170,803) $(20,028) $141,413
1997 1996 1995
Income Taxes Currently Receivable:
Current Income Tax Expense
(Benefit) from Operations $(876,831) $(75,453) $586,719
Other Adjustments - 16,151 7,445
Prepaid Tax - (187,728) (600,495)
Tax Payable for Unconsolidated
Subsidiary - - (11,769)
Income Tax Receivable $(876,831) $(247,030) $(18,100)
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.
NOTE F
INCOME TAXES (Continued)
There were net deferred tax assets of $618,684 and $326,689 as of
December 31, 1997 and December 31, 1996, respectively. The major temporary
differences which created deferred tax assets and liabilities are as
follows:
1997 1996
Unrealized Gain on Securities
FASB 115 Adjustment $ 29,441 $ 38,388
Unrealized Loss on Securities (Section 481
Adjustment) - (8,995)
Allowance for Loan Loss 119,303 93,757
Accumulated Depreciation (123,455) (104,962)
Other Real Estate 169,619 175,901
Accruals not Deductible Until Paid 126,435 -
Net Operating Loss and Tax Credit
Carryforward 237,573 -
Contributions Carryforward 8,768 -
Accrued Litigation Settlement 51,000 132,600
$618,684 $ 326,689
The net operating loss carryforward of $578,692 expires in the year
2012.
NOTE G
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
December 31,
1997 1996
Furniture and Equipment $3,585,226 $3,200,922
Bank Owned Vehicles 78,691 78,691
Leasehold Improvements 363,455 312,491
Land 468,425 468,425
Buildings 1,334,075 1,334,075
5,829,872 5,394,604
Accumulated Depreciation and
Amortization 3,132,289 2,711,455
$2,697,583 $2,683,149
Depreciation and amortization expense aggregated $422,750 in 1997,
$365,574 in 1996 and $238,087 in 1995.
NOTE H
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
For The Years Ended
December 31,
1997 1996 1995
Balance - January 1 $1,500,000 $1,500,000 $ 934,947
Provision Charged to:
Operations 3,630,273 2,039,779 1,748,761
Proprietor - - (1,213)
Loans Charged Off (4,132,454) (2,822,245) (1,620,250)
Recoveries 802,181 782,466 437,755
Balance - December 31 $1,800,000 $1,500,000 $1,500,000
NOTE I
STOCKHOLDERS' EQUITY
PREFERRED STOCK
8%, non-cumulative, non-participating, non-convertible, par value $1;
3,000,000 shares authorized, 2,302,811 shares issued and outstanding in
1997 and 1996. 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 1997 and 1996.
NOTE J
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average number of
shares outstanding which was 179,145 in 1997 and 1996 and 179,202 in 1995.
There was no provision for dividends for the years ended December 31, 1997,
1996 or 1995.
In February, 1997, the FASB issued Statement 128, "Earnings Per
Share", effective for financial statements issued for periods ending after
December 15, 1997. This statement establishes standards for computing and
presenting earnings per share. It replaces the presentation of primary
earnings per share with a presentation of basic earnings per share.
Adoption of this standard had no impact on the Company's computation of
earnings per share.
NOTE K
CONTINGENT LIABILITIES AND COMMITMENTS
The Subsidiary 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:
1997 1996 1995
Credit Card Arrangements $53,467,000 $76,577,000 $72,851,202
Commitments To Extend Credit 611,000 564,000 693,000
Commitments to extend credit, credit card arrangements and commercial
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 statements of condition.
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 Subsidiary Bank in the course of conducting its business, becomes
involved as a defendant or plaintiff in various lawsuits. In one such
case, the Subsidiary Bank is a defendant in a lawsuit filed by another
bank. Outside counsel for the Subsidiary Bank has advised that at this
stage in the proceedings he believes the probable outcome to be favorable
to Bank of Louisiana. The Subsidiary Bank believes the suits are without
merit and intends to vigorously defend its position.
In another such case, the Subsidiary Bank was a defendant in a lawsuit
filed by a party owning land that other real estate is built on, for back
lease payments. In 1994, an unfavorable outcome was reached and a
provision for loss of $390,000 was charged to operations. During the year
ended December 31, 1997, this judgment was reversed and accordingly, a
$390,000 reversal from the litigation settlement is included in income.
NOTE K
CONTINGENT LIABILITIES AND COMMITMENTS (Continued)
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The subsidiary bank is a defendant in a lawsuit filed by one of its
proprietary customers for alleged breach of contract. During the year, a
judgement was rendered against the bank, and accordingly, a provision for
loss of $150,000 has been charged to operations in the accompanying
financial statements for 1997. The bank has countersued and is presently
appealing the judgement.
NOTE L
RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Subsidiary 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:
1997 1996
Balance - January 1 $1,010,085 $999,319
New Loans Made and Renewals 379,832 264,228
Repayments and Maturities (306,194) (253,462)
Balance - December 31 $1,083,723 $1,010,085
The Subsidiary Bank leases office space from Severn South Partnership
and Tammany Mall Partnership. The general partners of these Partnerships
are majority shareholders in BOL BANCSHARES, INC. Rent paid to Severn
South Partnership for the years ended December 31, 1997, 1996 and 1995
totaled $492,459, $487,464 and $484,524, respectively. An annual rent of
$74,400 was paid to Tammany Mall Partnership for the years ended December
31, 1997, 1996 and 1995.
At December 31, 1997 and 1996 amounts due to Officers and Directors of
the Company, including accrued interest, totaled $692,910 and $651,835,
respectively. These amounts which are included in Notes Payable and
Accrued Interest Payable in the accompanying balance sheets, are payable on
demand and bear interest at 10% per annum. Of the debentures payable at
December 31, 1997 and 1996, $211,000 and $153,000, respectively, were to
Officers and Directors of the Company (see Note Q). Another note payable
to Director totaled $79,754 and $84,233 at December 31, 1997 and 1996,
respectively, and is also disclosed in Note Q.
NOTE M
LEASES
The Subsidiary Bank leases office space under agreements expiring in
various years through December 31, 2003. Two of the leases are with
related parties, as discussed in Note L. In addition, the Subsidiary Bank
rents office space on a month-to-month basis from non-related groups.
Various pieces of data processing equipment are also leased.
The total minimum rental commitment at December 31, 1997, under the
leases is $1,357,837 which is due as follows:
December 31,
1998 $671,320
1999 390,721
2000 190,836
2001 68,960
2002 18,000
Subsequent to 2002 18,000
$1,357,837
NOTE M
LEASES (Continued)
For the years ended December 31, 1997, 1996 and 1995, $813,003,
$800,890 and $770,045 was charged to rent expense, respectively.
The Subsidiary Bank is the lessor of office space under operating
leases expiring in various years through 2003.
Minimum future rentals to be received on non-cancelable leases as of
December 31, 1997 for each of the next 5 years and in the aggregate are:
December 31,
1998 $ 96,681
1999 87,052
2000 87,052
2001 79,096
2002 39,256
Subsequent to 2002 25,976
$415,113
NOTE N
LETTERS OF CREDIT
Outstanding letters of credit were $113,532 and $146,332 as of
December 31, 1997 and 1996, respectively.
NOTE O
INTEREST BEARING DEPOSITS
Major classifications of interest bearing deposits are as follows:
December 31,
1997 1996
NOW Accounts $14,287,953 $12,649,021
Money Market Accounts 5,422,849 7,071,712
Savings Accounts 25,016,124 25,290,143
Certificates of Deposit Greater
Than $100,000 1,337,240 1,319,370
Other Certificates of Deposit 12,752,268 13,042,535
$58,816,434 $59,372,781
The maturities of Certificates of Deposit Greater than $100,000 at December
31, 1997 are as follows: (Dollar amounts in thousands)
Three Months or Less $ 728
After Three Months Through One Year 609
$ 1,337
NOTE P
FUNDS AVAILABLE FOR DIVIDENDS
The Subsidiary 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 Subsidiary Bank's earnings.
The Subsidiary Bank has been further restricted by regulatory
authorities from paying dividends in excess of 50% of the Bank's net
income. Refer to Note W.
NOTE Q
NOTES PAYABLE
The following is a summary of notes payable at December 31, 1997 and 1996:
December 31,
1997 1996
Notes payable to Directors of the Company,
payable on demand, interest at 10%. $410,754 $410,754
Notes payable to Director, interest at
13.5%, maturing September 30, 2006,
monthly payments of $1,298. 79,754 84,234
Debentures payable, due July 1997, interest at
9%, callable at 103% , 102% and 101% of
face value in 1995,1996 and 1997, respectively,
interest payable semi-annually, each $500
debenture secured by 23.83 shares of the
Subsidiary Bank's stock. - 1,889,500
Debentures payable, due July 2000, interest at
9%, 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 39.72 shares of the
Subsidiary Bank's stock. 1,793,000 -
$2,283,508 $2,384,488
Following are maturities of long-term debt:
December 31,
1998 $415,876
1999 5,858
2000 1,799,700
2001 7,663
2002 8,763
Subsequent to 2002 45,648
$2,283,508
NOTE R
INTEREST INCOME AND INTEREST EXPENSE
Major categories of interest income and interest expense are as
follows:
December 31,
1997 1996 1995
INTEREST INCOME
Interest and Fees on Loans:
Real Estate Loans $2,213,306 $2,279,618 $2,389,840
Installment Loans 464,362 518,544 487,059
Credit Cards and Related
Plans 5,404,070 7,907,016 6,928,746
Commercial and all
Other Loans 620,352 527,692 390,363
Interest on Depository - - 4,488
Interest on Investment Securities -
U.S. Treasury and Other
Securities 591,415 512,231 718,983
Interest on Federal Funds
Sold 1,004,378 581,462 570,277
$10,297,883 $12,326,563 $11,489,756
NOTE R
INTEREST INCOME AND INTEREST EXPENSE (Continued)
INTEREST EXPENSE
Interest on Time Deposits
of $100,000 or More $59,565 $55,212 $63,000
Interest on Other Deposits 1,829,451 1,908,487 2,137,181
Interest on Other Borrowed
Funds 220 6,041 3,997
Interest on Notes Payable 219,356 223,515 224,348
$2,108,592 $2,193,255 $2,428,526
December 31,
1997 1996 1995
OTHER NON-INTEREST INCOME
Cardholder and Other Charge
Card Income $632,747 $664,919 $722,576
Data Processing and Items
Processing 850 30,047 34,171
Other Commission and Fees 91,921 99,580 87,754
Other Real Estate Income 72,620 30,610 179,469
Other Income 335,298 133,640 157,673
$1,133,436 $958,796 $1,181,643
OTHER NON-INTEREST EXPENSE
Loan and Charge Card Expenses $1,111,666 $1,213,951 $865,309
Communications 779,843 1,002,981 629,191
Stationery, Forms and
Supplies 374,799 447,213 389,452
Professional Fees 823,220 631,580 509,131
Insurance and Assessments 93,869 94,441 211,755
Advertising 153,145 306,031 348,263
Miscellaneous Losses 492,512 212,931 39,131
Promotional Expenses 146,253 148,748 188,905
Other Real Estate Expenses 337,052 265,975 621,271
Other Expenses 269,132 285,160 301,136
$4,581,491 $4,609,011 $4,103,544
NOTE T
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
BOL BANCSHARES, INC.
CONDENSED BALANCE SHEETS
December 31,
1997 1996
ASSETS
Due from Banks $586,622 $603,238
Due from Subsidiary - 74,677
Other Assets 921,438 276,096
Investment in Bank of Louisiana 7,168,026 8,994,124
$8,676,086 $9,948,135
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes Payable $2,283,508 $2,384,488
Due to Subsidiary 750,130 -
Accrued Interest 362,613
312,364
Shareholders' Equity 5,279,835 7,251,283
$8,676,086 $9,948,135
BOL BANCSHARES, INC.
STATEMENTS OF INCOME (LOSS)
December 31,
1997 1996 1995
INCOME
Interest Income $19,753 $26,273 $32,918
Miscellaneous Income 3,327 19 -
23,080 26,292 32,918
EXPENSES
Interest 219,357 223,515 224,348
Other Expenses 23,951 15,427 16,842
243,308 238,942 241,190
LOSS BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS
(LOSS) OF SUBSIDIARY (220,228) (212,650) (208,272)
Equity in Undistributed
Earnings (Loss) of
Subsidiary (1,829,936) 46,760 282,113
INCOME (LOSS) BEFORE
INCOME TAX BENEFIT (2,050,164) (165,890) 73,841
INCOME TAX BENEFIT 74,878 72,301 70,812
NET INCOME (LOSS) ($1,975,286) ($93,589) $144,653
NOTE T
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
December 31,
1997 1996 1995
OPERATING ACTIVITIES
Net Income (Loss) $(1,975,286) $(93,589) $144,653
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in
Operating Activities
Equity in Undistributed (Earnings)
Loss of Subsidiary 1,829,936 (46,760) (282,113)
Net (Increase) Decrease
in Other Assets 156,612 (215,461) 60,496
Net Increase in Other 50,249
Liabilities 50,249 40,597 28,253
Net Cash Provided by (Used in)
Operating Activities 61,511 (315,213) (48,711)
FINANCING ACTIVITIES
Repayments of Advances to
Subsidiaries 22,853 130,047 8,076
Repayments of Advances
from Subsidiaries - - (94,857)
Advances to Subsidiaries - (12,999) (121,125)
Proceeds from Issuance of 1,793,000 - -
Long-Term Debt
Repayment of Long-Term
Debt (1,893,980) (3,915) (32,424)
Cancellation of Stock - - (327)
Net Cash Provided by (Used in)
Financing Activities (78,127) 113,133 (240,657)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (16,616) (202,080) (289,368)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 603,238 805,318 1,094,686
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 586,622 $603,238 $805,318
NOTE U
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 V
UNCONSOLIDATED SUBSIDIARY
An unconsolidated subsidiary ownership was acquired February 24, 1989
in a foreclosure proceeding.
Investments in unconsolidated subsidiaries were carried at cost,
adjusted for the Bank's proportionate share of their undistributed earnings
or losses. Liquidation of the subsidiary in 1995, resulted in a net loss
of $34,614 being charged to operations.
NOTE W
REGULATORY MATTERS
On March 12, 1996, the Bank consented to a revised Memorandum of
Understanding issued by the Federal Deposit Insurance Corporation (FDIC).
The Memorandum was issued by the FDIC as a result of their examination of
the Bank as of July 31, 1995 and replaces the Memorandum of Understanding
dated November 8, 1994. The Memorandum of Understanding is an arrangement
between the Bank and the FDIC in which the Bank agrees to perform, among
other things, the following within specified time periods:
a) The Bank shall maintain a Tier I leverage capital ratio equal to
or greater than seven percent, including restricting dividends to a maximum
of 50% of the Bank's current year's net income,
b) Eliminate from its books certain criticized assets and reduce
other criticized assets to specified levels,
c) Initiate and implement a marketing program to dispose of its
other real estate in a timely manner,
d) Formulate and implement a written Profit Plan,
e) Perform a quarterly review of the adequacy of the Bank's loan
valuation reserve. Increase the Bank's allowance for loan and lease losses
to $1,500,000 in 1995 and $1,800,000 in 1997. (Resulting in a charge to
income of an additional provision of $566,266 and $300,000 in 1995 and
1997, respectively,
f) Revision of the Bank's loan policy for charging off delinquent
credit card loans.
While no assurance can be given, Bank management believes it has taken
action toward complying with the provisions of the Memorandum of
Understanding, although at December 31, 1997 their Tier I leverage capital
ratio fell below the seven percent threshold to 6.84%. It is not presently
determinable what actions, if any, bank regulators might take if
requirements of the Memorandum are not complied with in the specified time
periods.
As of December 31, 1997, 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 defined by banking regulators.
Management philosophy and plans are directed to enhancing the financial
stability of the Subsidiary Bank to ensure the continuity of operations.
At December 31, 1997, the Bank is required to have a minimum Tier I
leverage capital and minimum Tier I and Total capital risked based ratio of
4.00%, 4.00% and 8.00%, respectively. The Bank's actual risk based ratios
at that date were 10.61% and 11.88%, respectively. Tier I leverage capital
ratios for the Subsidiary Bank were 6.84% for 1997 and 8.60% for 1996.
NOTE X
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.
NOTE X
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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 Bank's financial instruments are as
follows:
December 31, 1997
Carrying Fair
Amount Value
Financial Assets:
Cash and Short-Term Investments $ 28,884,005 $ 28,884,005
Investment Securities 10,567,381 10,598,976
Loans 57,619,114 57,600,168
Less: Allowance for Loan Losses 1,800,000 1,800,000
$ 95,270,500 $ 95,283,149
Financial Liabilities:
Deposits $ 94,527,159 $ 94,670,601
Unrecognized Financial Instruments:
Commitments to Extend Credit $ 497,000 $ 497,000
Commercial Letters of Credit 113,532 113,532
Credit Card Arrangements 53,467,000 53,467,000
$ 54,077,532 $ 54,077,532
To the Board of Directors
BOL Bancshares, Inc.
& Subsidiary
Independent Auditor's Report
on Supplementary Information
Our report on our audit of the basic financial statements of BOL
BANCSHARES, INC. and its wholly-owned subsidiary, Bank of Louisiana, for
the years ended December 31, 1997 and 1996 appears on page 1. That audit
was 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 purposes 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 audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ LaPorte, Sehrt, Romig & Hand
A Professional Accounting Corporation
January 22, 1998
A Professional Accounting Corporation
800 Two Lakeway Center 3850 N. Causeway Blvd. Metairie, LA 70002
(504)835-5522 FAX (504)835-5535
P.O. Box 27 Riverside Drive Covington, LA 70434
(504)892-5850 FAX (504)892-5956
E-Mail Address: laporte@laporte.com Internet Address:
http://www.laporte.com/
Member of AICPA Division for CPA Firms-Private Companies Practice Section
and
SEC Practice Section
International Affiliation with Accounting Firms Associated, Inc.
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE I
BALANCE SHEETS
UNCONSOLIDATED
ASSETS
December 31,
1997 1996
Cash and Due from Banks
Non Interest Bearing Balances and Cash $ 7,734,005 $ 7,902,872
Federal Funds Sold 21,150,000 14,400,000
Investment Securities
Securities Held-to-Maturity (Fair
Value of $9,510,313 in 1997
and $8,016,619 in 1996) 9,478,718 7,977,101
Securities Available-for-Sale, at Fair
Value 1,088,663 1,083,011
Loans: Less Allowance for Loan Losses
of $1,800,000 in 1997 and $1,500,000
in 1996 and Unearned Discount of $1,847
in 1997 and $9,318 in 1996 55,819,114 67,798,187
Property, Equipment and Leasehold
Improvements (Net
of Depreciation and Amortization) 2,697,583 2,683,149
Other Real Estate 1,473,160 1,723,095
Other Assets 1,613,670 1,774,478
Deferred Taxes 618,684 326,689
Due from Parent 801,953 -
Letters of Credit 113,532 146,332
Total Assets $102,589,082 $105,814,914
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non Interest Bearing $ 35,128,504 $ 35,769,692
Interest Bearing 59,398,655 59,974,183
Other Liabilities 412,886 298,492
Letters of Credit Outstanding 113,532 146,332
Due to Parent - 12,999
Accrued Litigation Settlement 150,000 390,000
Notes Payable 51,823 61,678
Accrued Interest 165,656 167,414
Total Liabilities 95,421,056 96,820,790
STOCKHOLDERS' EQUITY
Common Stock - 143,000 Shares Issued
and Outstanding 1,430,000 1,430,000
Unrealized Loss on Securities
Available-for-Sale, Net of
Applicable Deferred Income Taxes (569) (4,407)
Surplus 4,616,796 4,616,796
Retained Earnings 1,121,799 2,951,735
Total Stockholders' Equity 7,168,026 8,994,124
Total Liabilities and
Stockholders' Equity $102,589,082 $105,814,914
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE II
STATEMENTS OF INCOME (LOSS)
UNCONSOLIDATED
For The Years Ended
December 31,
1997 1996 1995
INTEREST INCOME $10,297,883 $12,326,563 $11,489,756
INTEREST EXPENSE 1,908,988 1,996,013 2,237,096
Net Interest Income 8,388,895 10,330,550 9,252,660
PROVISION FOR LOAN LOSSES 3,630,273 2,039,779 1,748,761
Net Interest Income After
Provision
for Loan Losses 4,758,622 8,290,771 7,503,899
OTHER INCOME
Service Charges on Deposit
Accounts 1,398,552 1,481,144 1,521,705
Other Non-Interest Income 1,130,109 958,777 1,181,643
Reversal of Litigation
Settlement 390,000 - -
Gain on Sale of Securities 15,860 - -
Total Other Income 2,934,521 2,439,921 2,703,348
OTHER EXPENSES
Salaries and Employee
Benefits 3,974,048 4,189,606 3,833,797
Occupancy Expense
1,937,416 1,848,469 1,757,796
Equity in Loss of
Unconsolidated Subsidiary - - 34,614
Loss on Litigation 150,000 - -
Other Non-Interest Expense 4,557,540 4,593,584 4,086,702
Total Other Expenses 10,619,004 10,631,659 9,712,909
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE
(BENEFIT) (2,925,861) 99,033 494,338
INCOME TAX EXPENSE (BENEFIT) (1,095,925) 52,273 212,225
NET INCOME (LOSS) ($1,829,936) $46,760 $282,113
EARNINGS (LOSS) PER SHARE
OF COMMON STOCK ($12.80) $0.33 $1.97
BANK OF LOUISIANA
SUPPLEMENTARY INFORMATION
SCHEDULE III
STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
UNCONSOLIDATED
Unrealized
Gain (Loss) on
Investment
Securities
Common Retained
Available-
Stock for- Surplus Earnings Total
Sale
BALANCE - December 31, $1,430,000 $52,421 $4,616,796 $2,622,862 $8,722,079
1994
Net Income for the Year
1995 - - - 282,113 282,113
Change in Unrealized Gain on
Securities Available-for-Sale,
net of Applicable Deferred
Income Taxes - (33,385) - - (33,385)
BALANCE - December 31,
1995 1,430,000 19,036 4,616,796 2,904,975 8,970,807
Net Income for the Year
1996 - - - 46,760 46,760
Change in Unrealized Gain on
Securities Available-for-Sale,
net of Applicable Deferred
Income Taxes - (23,443) - - (23,443)
BALANCE - December 31,
1996 1,430,000 (4,407) 4,616,796 2,951,735 8,994,124
Net Loss for the Year
1997 - - - (1,829,936) (1,829,936)
Change in Unrealized Gain on
Securities Available-for-Sale,
net of Applicable Deferred
Income Taxes - 3,838 - - 3,838
BALANCE - December 31, $1,430,000 ($569) $4,616,796 $1,121,799 $7,168,026
1997
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/ Peggy L. Schaefer
Peggy L. Schaefer
Treasurer
03-24-98
Date
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, 1998.
/s/ Gordon A. Burgess-Director /s/ Edward J. Soniat-Director
/s/ Lionel J. Favret-Director /s/ Douglas A. Schonacher-Director
/s/ Leland L. Landry-Director /s/ James A. Comiskey-Director