UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
Commission file Number 01-16934
BOL BANCSHARES, INC.
(Exact name of registrant as specified in its charter.)
Louisiana 72-1121561
(State of incorporation) (I. R. S. Employee 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
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $1 Par Value - 179,145 shares as of October 31, 1998.
BOL BANCSHARES, INC. & SUBSIDIARY
INDEX
Page No.
PART 1. Financial Information
Item 1: Financial Statements
Consolidated Statement of Condition 3
Consolidated Statements of Income 5
Consolidated Statements of Changes in
Stockholder's Equity 6
Consolidated Statement of Cash Flow 7
Notes to Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operation 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule 23
B. Reports on Form 8-K
No reports have been filed on Form 8-K
during this quarter.
Part I. - Financial Information
BOL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
Sept 30 Dec. 31, Sept 30
(Amounts in Thousands) 1998 1997 1997
ASSETS
Cash and Due from Banks
Non-Interest Bearing Balances and Cash 7,119 7,734 7,158
Interest Bearing Balances - - -
Investment Securities
Securities Held to Maturity (Fair Values at
9/30/98, 12/31/97, & 9/30/97 respectively 4,996 9,479 9,475
were $5,019,000, $9,510,000, and $9,540,000)
Securities Available for Sale 90 1,089 1,088
Federal Funds Sold 18,725 21,150 17,875
Loans, net of Unearned Discount 59,243 57,619 60,158
Allowance for Loan Losses (1,800) (1,800) (1,800)
Property, Equipment and Leasehold
Improvements
(Net of Depreciation and Amortization) 2,549 2,698 2,738
Other Real Estate 1,357 1,473 1,357
Deferred Taxes 618 619 325
Letters of Credit 84 114 106
Intangible Assets 570 - -
Other Assets 1,728 2,534 1,498
TOTAL ASSETS $95,279 $102,709 $99,978
See accompanying notes to Financial Statements
BOL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CONDITION (Continued)
Sept 30 Dec. 31, Sept 30
(Amounts in Thousands) 1998 1997 1997
LIABILITIES
Deposits:
Non-Interest Bearing 32,383 35,124 32,853
Interest Bearing 54,097 58,816 58,900
TOTAL DEPOSITS 86,480 93,940 91,753
Notes Payable 487 491 492
Senior Secured Debentures 1,787 1,793 1,793
Letters of Credit Outstanding 84 114 106
Accrued Litigation Settlement 150 150 390
Accrued Interest 492 528 481
Other Liabilities 428 413 425
TOTAL LIABILITIES 89,908 97,429 95,440
STOCKHOLDERS' EQUITY
Preferred Stock - Par Value $1
2,302,811 Shares Issued and Outstanding at
9/30/98, 12/31/97, and 9/30/97 2,303 2,303 2,303
Common Stock - Par Value $1
179,145 Shares Issued and Outstanding at
9/30/98, 12/31/97, and 9/30/97 179 179 179
Unrealized Gain (Loss) on Securities
Available for Sale,
net of applicable Deferred Income Taxes - (1) (1)
Capital in Excess of Par - Retired Stock 15 15 15
Undivided Profits 2,783 4,759 4,758
Current Earnings 91 (1,975) (2,716)
TOTAL STOCKHOLDERS' EQUITY 5,371 5,280 4,538
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 95,279 $102,709 $99,978
See accompanying notes to Financial Statements
BOL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months ended Nine months ended
Sept 30 Sept 30
(Amounts in Thousands) 1998 1997 1998 1997
INTEREST INCOME
Interest and Fees on Loans 2,091 2,118 6,212 6,740
Interest on Time Deposits - - - -
Interest on Securities Held to 105 143 381 399
Maturity
Interest & Dividends on Securities - 13 6 38
Available for Sale
Interest on Federal Funds Sold 275 252 846 723
Other Interest Income - - - -
Total Interest Income 2,471 2,526 7,445 7,900
INTEREST EXPENSE
Interest on Deposits 437 478 1,345 1,421
Interest on Federal Funds Purchased - - - -
Other Interest Expense 12 10 33 31
Interest Expense on Notes Payable 3 3 8 8
Interest Expense on Debentures 41 43 119 128
Total Interest Expense 493 534 1,505 1,588
NET INTEREST INCOME 1,978 1,992 5,940 6,312
Provision for Loan Losses 308 1,235 798 2,997
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,670 757 5,142 3,315
OTHER INCOME
Service Charges on Deposit Accounts 319 344 963 1,003
Cardholder & Other Credit Card Income 174 157 498 470
ORE Income 22 28 30 70
Other Operating Income 54 184 204 416
Gain on Sale of Securities - 16 - 16
Total Other Income 569 729 1,695 1,975
OTHER EXPENSE
Salaries and Employee Benefits 941 982 2,708 3,031
Occupancy Expense 466 496 1,413 1,427
Loan & Credit Card Expense 241 232 728 841
ORE Expense 43 75 123 254
Other Operating Expense 616 1,029 1,774 2,453
Total Other Expenses 2,307 2,814 6,746 8,006
Income Before Tax Provision (68) (1,328) 91 (2,716)
Provision (Benefit) For Income Taxes - - - -
NET INCOME (68) (1,328) 91 (2,716)
Earnings Per Share of Common Stock ($0.38) ($7.42) $0.51 ($15.17)
See accompanying notes to Financial Statements
BOL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)
UNREALIZED
(Amounts in GAIN(LOSS) CAPITAL IN
Thousands) ON
INVESTMENT EXCESS OF
SECURITIES PAR
PREFERRED COMMON AVAILABLE RETIRED RETAINED
STOCK STOCK FOR SALE STOCK EARNINGS TOTAL
Balance December 31, 2,303 179 (4) 15 4,758 7,251
1996
Change in unrealized
gain on securities AFS, net
of applicable deferred
income taxes 3 3
Net Income (2,716) (2,716)
Balance - Sept 30, 2,303 179 (1) 15 2,042 $4,538
1997
Balance December 31, 2,303 179 (1) 15 2,783 5,279
1997
Change in unrealized
gain on securities AFS, net
of applicable deferred
income taxes 1 1
Net Income (Loss) 91 91
Balance - Sept 30, 2,303 179 - 15 2,874 $5,371
1998
BOL BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For The Nine Months Ended Sept 30
(Amounts in Thousands) 1998 1997
OPERATING ACTIVITIES
Net Income (Loss) 91 (2,716)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Provision for Loan Losses 798 780
Depreciation and Amortization Expense 334 301
Amortization of Investment Security Premiums 2 -
Accretion of Investment Security Discounts 10 8
(Decrease)Increase in Deferred Income Taxes 0 2
(Gain) Loss on Sale of Property and Equipment - -
(Gain) Loss on Sale of Other Real Estate (20) (40)
Decrease(Increase) in Other Assets & Prepaid Taxes 808 551
(Decrease)Increase in Other Liabilities and (21) 130
Accrued Interest
Net Decrease(Increase) in Mortgage Loans Held for - (64)
Resale
Net Cash Provided by (Used in) Operating Activities 2,002 (1,048)
INVESTING ACTIVITIES
Proceeds from Sale of Available-for-Sale - -
Securities
Purchases of Available-for-Sale Securities - -
Proceeds from Available-for-Sale Securities
Released at Maturity 1,000 -
Proceeds from Held-to-Maturity Investment
Securities Released at Maturity 4,972 2,975
Purchases of Held-to-Maturity Investment (501) (4,480)
Securities
Proceeds from Sale of Property and Equipment 1 1
Purchases of Property and Equipment (186) (357)
Proceeds from Sale of Other Real Estate 136 528
Purchases of Other Real Estate - (124)
Net Decrease (Increase) in Loans (2,423) 8,723
Net Cash Provided by (Used in) Investing Activities 2,999 7,266
FINANCING ACTIVITIES
Net Increase (Decrease) in Demand Deposits,
Interest Bearing Deposits,
Savings Accounts, and CD's (8,030) (3,388)
Proceeds from Issuance of Long-Term Debt - -
Retirement of Stock - -
Principal Payments on Long Term Debt (10) (100)
Net Cash Provided by (Used in) Financing Activities (8,040) (3,488)
Net Increase (Decrease) in Cash and Cash (3,039) 2,730
Equivalents
Cash and Cash Equivalents at Beginning of Year 28,884 22,303
Cash and Cash Equivalents at End of Period $25,845 $25,033
See accompanying notes to Financial Statements
BOL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended
September 30, 1998, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. For further
information, refer to the audited consolidated financial statements and
notes included in the Registrant's annual report on Form 10-K for the year
ended December 31, 1997.
Note 2. PER SHARE DATA
Income per common share data are based on the weighted average number
of shares outstanding of 179,145 at September 30, 1998 and 1997 respectively.
Note 3. CONTINGENCIES
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. The Company has not provided a judicial
interest that may be awarded on a judgment pending the conclusion of the
appeals procedure. 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 has appealed the judgment and is waiting for the court's
decision.
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 Company is a defendant in a lawsuit filed by a county in
Alabama to collect sales taxes as a consequence of the failure of a
proprietor. The matter was scheduled for trial on September 29, 1997, but
was continued.
Expected Results: The Company has no exposure in this matter. The
taxes apply to the sale of tangible property and not to a credit card
portfolio that the Company purchased. It is believed that this matter will
be resolved without a trial.
Note 4. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate the value:
CASH AND SHORT-TERM INVESTMENTS
For cash, the carrying amount approximates fair value. For short-term
investments, fair values are calculated based upon general investment
market interest rates for similar maturity investments.
INVESTMENT SECURITIES
For securities and marketable equity securities held-for-investment
purposes, fair values are based on quoted market prices.
LOAN RECEIVABLES
For certain homogeneous categories of loans, such as residential
mortgages, credit card receivables and other consumer loans, fair value is
estimated using the current U.S. Treasury interest rate curve, a factor for
cost of processing and a factor for historical credit risk to determine the
discount rate.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings deposits and certain money
market deposits are calculated based upon general investment market
interest rates for investments with similar maturities. The value of fixed
maturity certificates 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 creditworthiness of the
counterparties.
The estimated fair values of the Bank's financial instruments are as follows:
Sept 30, 1998
Carrying Fair
(Amounts in Thousands) Amount Value
Financial Assets:
Cash and Short-Term Investments $25,844 $25,844
Investment Securities 5,086 5,109
Loans 59,243 59,257
Less: Allowance for Loan Losses 1,800 1,800
$88,373 $88,410
Financial Liabilities:
Deposits $86,480 $86,485
Unrecognized Financial Instruments:
Commitments to Extend Credit $1,384 $1,384
Commercial Lines of Credit 84 84
Credit Card Arrangements 58,182 58,182
$59,650 $59,650
QUARTERLY CONSOLIDATED SUMMARY OF INCOME AND SELECTED FINANCIAL DATA
Three Months Ended Nine Months Ended
(Amounts in Thousands, Sept 30 June 30 Sept 30 Sept 30 Sept 30
Except
Per Share Data) 1998 1998 1997 1998 1997
Interest Income $2,471 $2,489 $2,526 $7,445 $7,900
Interest Expense 493 503 534 1,505 1,588
Net Interest Income $1,978 1,986 1,992 $5,940 6,312
Provision for Loan 308 189 1,235 798 2,997
Losses
Net Interest Income $1,670 1,797 757 $5,142 3,315
after Provision
Noninterest Income:
Noninterest Income 569 551 713 1,695 1,959
Securities Gains - - 16 - 16
Noninterest Income 569 551 729 1,695 1,975
Noninterest Expense 2,307 2,268 2,814 6,746 8,006
Income before Taxes (68) 80 (1,328) 91 (2,716)
Income Tax Expense - - - - -
(Benefit)
Net Income (Loss) ($68) $80 ($1,328) $91 ($2,716)
Income per Common Share ($0.38) $0.45 ($7.42) $0.51 ($15.17)
Average Common Shares 179 179 179 179 179
Outstanding
Selected Quarter-End Balances
Loans $59,243 $59,509 $60,158
Deposits 86,480 90,753 91,753
Long-Term Debt 2,274 2,281 2,285
Stockholders' Equity 5,371 5,439 4,538
Total Assets 95,279 99,820 99,978
Selected Average Balances
Loans $59,732 $58,392 $61,150 $58,899 $62,801
Deposits 88,042 91,070 90,778 90,101 91,880
Long-Term Debt 2,277 2,281 2,285 2,282 2,350
Stockholders' Equity 5,378 5,379 4,934 5,161 6,032
Total Assets 96,968 100,007 99,482 98,907 101,658
Selected Ratios
Return on Average Assets -0.07% 0.08% -1.33% 0.09% -2.67%
Return on Average Equity -1.27% 1.49% -26.92% 1.76% -45.03%
Tier 1 Risk-Based 11.02% 11.18% 10.44%
Capital
Risk-Based Capital 12.29% 12.46% 11.71%
Tier 1 Leverage 7.21% 7.06% 6.47%
BOL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1998
Management's Discussion presents a review of the major factors and
trends affecting the performance of BOL BANCSHARES, INC. (the "Company")
and its bank subsidiary (the Bank) and should be read in conjunction with
the accompanying consolidated financial statements, notes and tables.
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.
FINANCIAL CONDITION:
EARNING ASSETS
Interest earning assets averaged $88,275,000 in the third quarter of
1998, a $2,386,000 decrease from the third quarter of 1997 average of
$90,661,000. Compared to the third quarter of 1997, average loans decreased
$3,902,000 (6.21%) and average investment securities decreased $1,363,000
(13.48%), while average federal funds sold increased $2,879,000 (16.22%).
Table 1 presents the Company's loan portfolio by major classifications.
Total loans decreased $915,000 (1.52%)over the third quarter of 1997.
TABLE 1. MAJOR CLASSIFICATION OF LOAN PORTFOLIO
Sept 30, 1998 June 30, 1998 Sept 30, 1997
(Amounts in Loans % Loans % Loans %
Thousands)
Commercial, 4,609 7.78% 5,332 8.96% 6,883 11.44%
Financial, & Agricultural
Real Estate Mortgage 26,367 44.51% 24,892 41.83% 24,357 40.49%
Mortgage Loan Held - 0.00% - 0.00% 63 0.10%
for Resale
Personal Loans 3,144 5.31% 3,316 5.57% 3,807 6.33%
Credit Cards-Visa, 21,518 36.32% 22,403 37.65% 21,253 35.33%
MasterCard
Credit Cards- 3,432 5.79% 3,436 5.77% 3,609 6.00%
Proprietary
Overdrafts 173 0.29% 131 0.22% 186 0.31%
Loans 59,243 100.00% $59,510 100.00% $60,158 100.00%
Securities Held to Maturity. Average securities held to maturity
decreased $486,000 (5.38%) from the third quarter of 1997. Securities held
to maturity are carried as cost, adjusted for amortization of premium and
accretion of discounts using methods approximating the interest method.
Securities Available for Sale. Average securities available for sale
decreased $878,000 (80.92%) from the third quarter of 1997. Securities
available for sale are carried at fair value.
Short Term Investments. Average federal funds sold increased
$2,879,000 (16.22%) up from the third quarter of 1997. This increase is
mainly due to the decrease in the loan portfolio and the investment
securities.
ASSET QUALITY
Table 2 presents a summary of nonperforming assets for the past five
quarters.
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. The loan process
ensures that all loans which meet the criteria for nonaccrual status are
placed on nonaccrual. 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, totaled $1,843,000 at September 30, 1998 as
compared to $1,567,000 at September 30, 1997. Other real estate totaled
$1,357,000 at September 30, 1998 as compared to $1,357,000 at September 30,
1997.
Table 2. NONPERFORMING ASSETS
(Amounts in 09/30/98 06/30/98 03/31/98 12/31/97 09/30/97
Thousands)
Nonaccrual Loans 31 94 87 83 210
Restructured Loans 455 565 - - -
Other Real Estate Owned 1,357 1,473 1,473 1,473 1,357
Total Nonperforming Assets $1,843 $2,132 $1,560 $1,556 $1,567
Loans Past Due 90 1,183 1,039 996 1,257 1,501
Days or More
Ratio of Past Due 2.00% 1.75% 1.68% 2.18% 2.50%
Loans to Loans
Ratio of Nonperforming Assets
to Loans and Other Real 3.04% 3.50% 2.57% 2.63% 2.55%
Estate Owned
IMPAIRED LOANS
As of September 30, 1998, the recorded investment in loans that are
considered impaired under SFAS 114 and 118 was $13,000. The related
allowance for credit losses for the impaired loans is not specifically
identified, but is included in the percentages allocated to the portfolio.
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.
The Bank's watch list 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 5.75% to $3,947,000 at September 30, 1998 from
$4,188,000 at September 30, 1997.
Management is not aware of any potential problem loans other than
those disclosed above, which includes all loans recommended for
classification by regulators, which would have a material impact on asset
quality.
ALLOWANCE AND PROVISION FOR POSSIBLE LOAN LOSSES
Table 3 presents an analysis of the activity in the allowance for loan
losses for the three month and nine month period ending September 30, 1998
and 1997. The allowance for loan losses as a percentage of loans increased
from 2.99% at September 30, 1997 to 3.04% at September 30, 1998. The net
charge-off (recoveries) as a percentage of average loans decreased from
4.29% at September 30, 1997 to 1.35% at September 30, 1998.
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.
TABLE 3 - ALLOWANCE FOR LOAN LOSSES
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(Amounts in Thousands) 1998 1997 1998 1997
Balance at Beginning of 1,800 $1,500 1,800 $1,500
Period
Loans Charged Off (495) (1,131) (1,520) (3,320)
Recoveries 187 196 722 623
Net (Charge Offs) Recoveries (308) (935) (798) (2,697)
Provision for Loan 308 1,235 798 2,997
Losses
Balance at End of Period 1,800 $1,800 $1,800 $1,800
Allowance for Loan Losses as a
Percentage of Loans 3.04% 2.99% 3.04% 2.99%
Net (Charge Offs) Recoveries as a
Percentage of Average Loans 0.32% 1.53% 1.35% 4.29%
FUNDING SOURCES:
DEPOSITS
Deposits. Average deposits totaled $88,042,000 in the third quarter
of 1998, a decrease of $2,736,000 (3.01%) from $90,778,000 in the third
quarter of 1997. Average core deposits were $86,650,000 for the third
quarter of 1998 down from $89,373,000 in the third quarter of 1997. Table
4 presents the composition of average deposits for the three quarters
ending September 30, 1998, June 30, 1998, and September 30, 1997.
TABLE 4. DEPOSIT COMPOSITION
For The Three Months Ended
Sept 30, Jun 30, Sept 30,
1998 1998 1997
Average % of Average % of Average % of
(Amounts in Balances Deposits Balances Deposits Balances Deposits
Thousands)
Demand, Noninterest- $32,790 37.24% $34,168 37.52% $32,708 36.03%
Bearing
NOW Accounts 11,916 13.53% 12,066 13.25% 11,899 13.11%
Money Market Deposit 5,773 6.56% 5,843 6.42% 6,149 6.77%
Accounts
Savings Accounts 26,064 29.60% 26,537 29.14% 26,586 29.29%
Other Time Deposits 10,107 11.48% 11,095 12.18% 12,031 13.25%
Total Core Deposits $86,650 98.42% 89,709 98.51% 89,373 98.45%
Certificates of Deposit of
$100,000 or more 1,392 1.58% 1,361 1.49% 1,405 1.55%
Total Deposits $88,042 100.00% $91,070 100.00% $90,778 100.00%
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.
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.
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.
RESULTS OF OPERATIONS:
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 the third quarter of 1998 decreased $8,000
over the same period last year, and decreased $372,000 from the first nine
months of 1997. The net interest margin increased to 2.28% for the third
quarter of 1998 from 2.22% for the third quarter of 1997.
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
THIRD QUARTER 1998 THIRD QUARTER 1997
Average Average
(Amounts in Thousands) Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST-EARNING ASSETS:
Loans, Net of Unearned Income(1)(2)
Taxable 59,732 2,091 3.50% 61,150 2,118 3.46%
Tax-Exempt - -
Investment Securities
Taxable 7,110 105 1.48% 10,558 155 1.47%
Tax-Exempt - -
Interest-Bearing Deposits - -
Federal Funds Sold 19,865 275 1.38% 18,142 253 1.39%
Total Interest-Earning 86,707 2,471 2.85% 89,850 2,526 2.81%
Assets
Cash and Due from Banks 5,354 5,047
Allowance for Loan Losses (1,792) (1,649)
Premises and Equipment 2,558 2,776
Other Real Estate 1,428 1,395
Other Assets 2,713 2,063
TOTAL ASSETS 96,968 $99,482
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Demand Deposits 17,689 98 0.55% 18,048 102 0.57%
Savings Deposits 26,064 187 0.72% 26,586 206 0.77%
Time Deposits 11,499 152 1.32% 13,436 170 1.27%
Total Interest-Bearing 55,252 437 0.79% 58,070 478 0.82%
Deposits
Federal Funds Purchased
Securities sold under
Agreements to Repurchase
Other Short-Term Borrowings - -
Long-Term Debt 2,277 56 2.48% 2,285 56 2.45%
Total Int-Bearing 57,529 493 0.86% 60,355 534 0.88%
Liabilities
Noninterest-Bearing 32,790 32,708
Deposits
Other Liabilities 1,271 1,485
Shareholders' Equity 5,378 4,934
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 96,968 $99,482
Net Interest Income/Spread 1.99% 1.93%
Net Interest Margin 2.28% 2.22%
(1) Fee income relating to loans of $157,000 at Sept 30, 1998, and $88,000 at
Sept 30, 1997 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 using a federal tax rate of 34%.
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
Nine Months Ended 9/98 Nine Months Ended 9/97
Average Average
(Amounts in Thousands) Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST-EARNING ASSETS:
Loans, Net of Unearned Income(1)(2)
Taxable 58,899 6,212 3.46% 62,801 6,740 10.73%
Tax-Exempt - -
Investment Securities
Taxable 8,752 388 1.47% 10,115 437 4.32%
Tax-Exempt - -
Interest-Bearing Deposits - -
Federal Funds Sold 20,624 845 1.39% 17,745 723 4.07%
Total Interest-Earning 88,275 7,445 8.43% 90,661 7,900 8.71%
Assets
Cash and Due from Banks 5,541 5,275
Allowance for Loan Losses (1,808) (1,533)
Premises and Equipment 2,615 2,693
Other Real Estate 1,458 1,565
Other Assets 2,826 2,997
TOTAL ASSETS 98,907 101,658
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Demand Deposits 17,956 295 0.57% 18,035 299 1.66%
Savings Deposits 26,415 606 0.77% 27,288 628 2.30%
Time Deposits 12,234 444 1.27% 13,182 494 3.75%
Total Interest-Bearing 56,605 1,345 2.38% 58,505 1,421 2.43%
Deposits
Federal Funds Purchased
Securities sold under
Agreements to Repurchase
Other Short-Term Borrowings - -
Long-Term Debt 2,282 160 2.45% 2,350 167 7.11%
Total Int-Bearing 58,887 1,505 2.56% 60,855 1,588 2.61%
Liabilities
Noninterest-Bearing 33,497 33,375
Deposits
Other Liabilities 1,362 1,396
Shareholders' Equity 5,161 6,032
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 98,907 101,658
Net Interest Income/Spread 5.88% 6.10%
Net Interest Margin 6.73% 6.96%
(1) Fee income relating to loans of $372,000 at Sept 30, 1998, and $198,000
at Sept 30, 1997 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 using a federal tax rate of 34%.
Rate/Volume Analysis
Sept, 1998 Compared to Sept, 1997
Variance Attributed to (1)
Net
(Amounts in Thousands) Volume Rate Change
Net Loans:
Taxable (3,902) -7.27% (528)
Tax-Exempt(2) - 0.00% -
Investment Securities - 0.00% -
Taxable (1,363) -2.85% (49)
Tax-Exempt(2) - 0.00% -
Interest-Bearing Deposits - 0.00% -
Federal Funds Sold 2,879 -2.68% 122
Total Interest-Earning Assets (2,386) -12.80% (455)
Deposits:
Demand Deposits (79) -1.09% (4)
Savings Deposits (873) -1.53% (22)
Time Deposits (948) -2.48% (50)
Total Interest-Bearing (1,900) -0.05% (76)
Deposits
Federal Funds Purchased - 0.00% -
Securities Sold under - 0.00% -
Agreements to Repurchase
Other Short-Term Borrowings - 0.00% -
Long-Term Debt (68) -4.66% (7)
Total Interest-Bearing (3,868) -9.81% (159)
Liabilities
(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%.
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.
Noninterest income for the third quarter of 1998 decreased $280,000 or
14.18% from the same period last year. Table 5 presents noninterest income
for the three months and nine months ended September 30, 1998 and 1997.
TABLE 5. NONINTEREST INCOME
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Increase Sept 30, Sept 30, Increase
(Amounts in 1998 1997 (Decrease) 1998 1997 (Decrease)
Thousands)
Service Charges $148 $160 ($12) $453 $463 ($10)
NSF Charges 171 185 (14) 510 540 (30)
Gain on Sale of - 16 (16) - 16 (16)
Securities
Cardholder & Other 124 95 29 323 287 36
Credit Card Income
Membership Fees 50 62 (12) 175 183 (8)
Other Comm & Fees 23 25 (2) 71 74 (3)
ORE Income 3 2 1 10 9 1
Gain on Sale of ORE 20 26 (6) 20 61 (41)
Other Income 30 158 (128) 133 342 (209)
Total Non-Interest $569 $729 ($160) $1,695 $1,975 ($280)
Income
NONINTEREST EXPENSE
The major components of noninterest expense represents the cost of
operating the banking organization.
Noninterest expense for the third quarter of 1998 decreased $1,260,000
or 15.74% from the same period last year. Table 6 presents the activity
for the three months and nine months ended September 30, 1998 and 1997.
TABLE 6. NONINTEREST EXPENSE
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Increase Sept 30, Sept 30, Increase
(Amounts in 1998 1997 (Decrease) 1998 1997 (Decrease)
Thousands)
Salaries & Benefits $941 $982 ($41) $2,708 $3,031 ($323)
Loss on Litigation - - - - - -
Occupancy Expense 466 496 (30) 1,413 1,427 (14)
Advertising Expense 22 35 (13) 78 118 (40)
Communications 46 60 (14) 153 228 (75)
Postage 84 99 (15) 271 362 (91)
Loan & Credit Card 241 232 9 728 841 (113)
Expense
Professional Fees 44 75 (31) 140 194 (54)
Legal Fees 131 112 19 384 411 (27)
Insurance & 23 23 (0) 68 73 (5)
Assessments
Stationery, Forms & 80 92 (12) 221 295 (74)
Supply
ORE Expenses 43 75 (32) 123 254 (131)
Amortization Exp- 54 0 54 102 0 102
PCCRS
Other Operating 132 533 (401) 357 772 (415)
Expense
Total Non-Interest $2,307 $2,814 ($507) $6,746 $8,006 ($1,260)
Expense
INCOME TAXES
The Company did not record a provision for income taxes for the third
quarter of 1998 or 1997. The provision for income taxes consists of
provisions for federal taxes only. Louisiana does not have an income tax
for corporations.
CAPITAL
The Bank is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by banking regulators. Table 7 presents
these ratios for the most recent five quarters.
TABLE 7. QUARTERLY SELECTED CAPITAL RATIOS
Sept 30, June 30, March 31, Dec. 31, Sept. 30,
1998 1998 1998 1997 1997
Risk-Based Capital
Tier 1 Risk Based 11.02% 11.18% 10.99% 10.61% 10.44%
Capital Ratio
Risk Based Capital 12.29% 12.46% 12.26% 11.88% 11.71%
Ratio
Tier 1 Leverage Ratio 7.21% 7.06% 6.95% 6.84% 6.47%
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. The liquidity ratio for the Bank was
35.73% at September 30, 1998, 39.02% at June 30, 1998, and 39.95% at
September 30, 1997.
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.
PART II - OTHER INFORMATION
Item #6 Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
BOL BANCSHARES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized to sign on behalf of the
registrant.
BOL BANCSHARES, INC.
(Registrant)
November 11, 1998 /s/ Peggy L. Schaefer
Date Peggy L. Schaefer
Treasurer