-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ge0i0HgRf+CIxHqx2oYIN9r6F0LcWlKUQYS00AZ4jh9dsxzvSgRwwAYIE05RbBE8 ncGEzn8YioY17wBX/CrpoA== 0000832818-99-000005.txt : 19990416 0000832818-99-000005.hdr.sgml : 19990416 ACCESSION NUMBER: 0000832818-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOL BANCSHARES INC CENTRAL INDEX KEY: 0000832818 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 721121561 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16934 FILM NUMBER: 99594266 BUSINESS ADDRESS: STREET 1: 300 ST CHARLES AVE CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5048899400 MAIL ADDRESS: STREET 1: 300 ST CHARLES AVENUE CITY: NEW ORLEANS STATE: LA ZIP: 70130 10-K 1 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, 1998 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, 1998. Approximately $914,857 (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, 1999. (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 10 Part II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 10 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 42 Item 9: Changes in and Disagreements with Accountants and Financial Disclosure 34 Part III Item 10: Directors and Executive Officers of the Registrant 35 Item 11: Executive Compensation 36 Item 12: Security Ownership of Certain Beneficial Owners and Management 38 Item 13: Certain Relationships and Related Transactions 38 Part IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)Financial Statements Independent Auditor's Report Consolidated Balance Sheets 42 Consolidated Statements of Income (Loss) 44 Consolidated Statements of Comprehensive Income (Loss) 45 Consolidated Statements of Changes in Stockholder's Equity 46 Consolidated Statements of Cash Flow 47 Notes to Consolidated Financial Statements 49 Independent Auditor's Report on Supplementary Information Schedules I, II, III 70 (b) Reports on Form 8-K NONE (c) Schedules and Exhibits Article 9 74 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, 1998, the Company held $21,784,723 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, 1998, the Company held $3,510,152 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, 1998, approximately $1,055,000 (1.76% 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. The Credit Card Committee is 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 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, 1998, the Company had approximately 153 full-time and approximately 11 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, 1998, there is a balance of $74,633 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 was planning to close this branch and relocate to 3401 South Carrollton Avenue, New Orleans, Louisiana. In 1998 Management decided to sell the rights to the lease and this branch will remain in the present location. 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 1998 totaled $103,849. 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, 1998, 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. The appeal has been pending since June, 1998. 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 $423,000. 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. Trial has been set for June, 1999. Expected Results: The Company filed its UCC-1 Statements first. There is little doubt that the Company primes the proprietor. The Company anticipates significant recoveries. 4. The Bank is a defendant in a lawsuit filed by an individual for damages because a settlement draft for $58,685 was forged by an attorney who maintained his trust account with the Bank. The attorney has been disbarred for prior defalcations and is judgment-proof. A provision for loss of $50,000 was charged to operations in 1998. This matter is still pending. Expected Results: Since the Bank has a provision for this lawsuit, any further losses would be minimal. Item 4 Submission of Matters to a Vote of Security Holders There were no matters submitted, during the fourth quarter of fiscal year 1998, 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, 1998, the Company had approximately 679 shareholders of record.
1998 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 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
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 was one group of individuals who, to the knowledge of management of the Company, beneficially owned 5% or more of the Company Common Stock as of December 31, 1998. See "Item 12 - Security Ownership of certain Beneficial Owners and Management". 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, 1998 1997 1996 1995 1994 (dollars in thousands, except per share data) Operations: Net Interest Income $7,828 $8,189 $10,133 $9,061 $8,190 Provision for Loan Losses 1,085 3,630 2,040 1,749 805 Non-Interest Income 3,149 2,938 2,440 2,703 3,513 Non-Interest Expense 9,123 10,643 10,647 9,729 10,045 Income Tax Expense 263 (1,171) (20) 141 205 (Benefit) Net Income(Loss) 506 (1,975) (94) 145 648 Per Share: Common Shares Outstanding 179,145 179,145 179,145 179,145 179,258 Net Income (Loss) 2.83 (11.03) (0.52) 0.81 3.61 Cash Dividends - Common 0.00 0.00 0.00 0.00 0.00 Book Value at End of 20.19 16.62 27.64 28.30 27.64 Period Preferred Shares Outstanding 2,302,811 2,302,811 2,302,811 2,302,811 2,309,103 Cash Dividends - Preferred 0.00 0.00 0.00 0.00 0.08 Stock Balances at End of Period: Investment Securities 4,789 10,567 9,060 11,136 15,188 Fed Funds Sold 26,950 21,150 14,400 10,725 6,075 Loans, Net of Unearned 61,757 57,619 69,298 74,943 67,802 Interest Allowance for Loan Losses 1,800 1,800 1,500 1,500 935 Other Real Estate Owned 1,357 1,473 2,273 1,994 2,771 Total Assets 103,935 102,709 106,091 108,589 103,102 Total Deposits 94,583 93,941 95,141 97,386 91,764 Shareholders' Equity 5,920 5,280 7,251 7,368 7,257 Ratios: Return on Average Assets 0.51% -1.95% -0.09% 0.14% 0.61% Return on Average Equity 9.27% -34.49% -1.27% 1.87% 9.34% Primary Capital to Total Assets and Allowance for Possible 5.80% 5.23% 6.93% 6.68% 6.93% Loan Losses Allowance for Possible Loan Losses as a Percentage of Loans, 2.91% 3.12% 2.61% 2.00% 1.38% Net Non-Performing Loans as a Percentage of Loans, Net 0.13% 0.15% 0.47% 0.32% 0.36% (1) Non-Performing Loans as a Percentage of Total Assets 1.38% 1.51% 2.44% 2.05% 2.92% (2) Capital Ratios: Bank Tier 1 Risk Based Capital 11.36% 10.61% 12.32% 11.46% 11.87% Ratio Risk Based Capital Ratio 12.63% 11.88% 13.58% 12.72% 13.12% Tier 1 Leverage Ratio 7.63% 6.84% 8.60% 8.54% 9.43%
(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, 1998, 1997 and 1996. The consolidated financial statements and related notes should be read in conjunction with this review. Overview The Company has remained constant in total assets in the past five years. The Company had total assets of $103,935,000 at December 31, 1998, and $103,102,000 at December 31, 1994. 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, 1994, credit card loans were $37,382,000 which was 55.13% of the Company's loan portfolio of $67,802,000. At December 31, 1998, credit card loans totaled $25,200,000, or 40.96% 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. During 1998 the Company purchased Visa & MasterCard portfolios totaling $4,792,000, at a premium of $673,000. 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 income for 1998 was $506,000, or $2.83 per share, compared to a net loss of $1,975,000 or $(11.03) per share in 1997, a significant increase. This $2,481,000 increase was primarily due to the decrease in losses suffered by the Company from its credit card portfolio with charge-offs of $1,878,000 in 1998 compared to $3,996,000 in 1997. Net charge-offs totaled $1,086,000 in 1998 as compared to $3,330,000 in 1997 resulting in a decrease of $2,244,000. In addition, an Ore parcel was sold for a gain of $900,000. 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 $483,000 or 4.69% to $9,815,000 in 1998 from $10,298,000 in 1997. This decrease is mainly due to a 31.30% decrease in interest income on proprietary credit card loans. Total interest expense decreased $121,000 or 5.78% to $1,987,000 in 1998 from $2,108,000 in 1997. 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 14.04% in 1998 to $1,145,000 from $1,004,000 in 1997. The average Federal Funds Sold for 1998 was $21,566,000 and $18,372,000 in 1997. The average interest rate earned on Federal Funds Sold in 1998 was 5.31% as compared to 5.46% in 1997. Interest earned on investment securities decreased 22.98% due to a decrease in the average balance to $4,789,000 in 1998 from $10,567,000 in 1997 with an average rate earned of 5.86% in 1998 and 5.78% in 1997. 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 month end March, 1999.
Average Balances, Interests and Yields 1998 1997 Average Average (Dollars in Thousands) Balance Interest Rate Balance Interest Rate ASSETS INTEREST-EARNING ASSETS: Loans, net of unearned income(1)(2) Taxable 59,335 8,214 13.84% 62,249 8,702 13.98% Tax-exempt - - Investment securities Taxable 7,768 456 5.86% 10,232 591 5.78% Tax-exempt - - Interest-bearing deposits - - 0.00% - - 0.00% Federal funds sold 21,566 1,145 5.31% 18,372 1,004 5.46% Total Interest-Earning Assets 88,669 9,815 11.07% 90,853 10,297 11.33% Cash and due from banks 5,617 5,314 Allowance for loan Losses (1,806) (1,599) Premises and equipment 2,592 2,703 Other Real Estate 1,432 1,516 Other assets 2,634 2,433 TOTAL ASSETS 99,138 101,220 LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST-BEARING LIABILITIES: Deposits: Demand Deposits 18,109 399 2.20% 18,185 396 2.18% Savings deposits 26,381 806 3.05% 26,980 829 3.07% Time deposits 11,879 569 4.79% 13,174 664 5.04% Total Interest-Bearing Deposits 56,369 1,773 3.15% 58,339 1,889 3.24% Federal Funds Purchased Securities sold under agreements to repurchase Other Short-term borrowings - - Long-Term debt 2,278 214 9.39% 2,333 219 9.39% Total Int-Bearing Liabilities 58,647 1,987 3.39% 60,672 2,108 3.47% Noninterest-bearing deposits 33,729 33,389 Other liabilities 1,302 1,432 Shareholders' equity 5,460 5,727 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 99,138 101,220 Net Interest income/spread 7.68% 7.86% Net Interest Margin 8.83% 9.01%
(1) Fee income relating to loans of $569,000 in 1998, $231,000 in 1997 and $368,000 in 1996 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, 1998, 1997, and 1996 using a federal tax rate of 34%.
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 - - 0.00% - - 0.00% Interest-bearing deposits - - 0.00% - - 0.00% Federal funds sold 18,372 1,004 5.46% 10,997 581 5.28% Total Interest-Earning Assets 90,853 10,297 11.33% 93,943 12,326 13.12% 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 3.03% Total Interest-Bearing Deposits 58,339 1,889 3.24% 60,099 1,969 3.28% Federal Funds Purchased Securities sold under agreements to repurchase Other Short-term borrowings - - Long-Term debt 2,333 219 9.39% 2,386 224 9.39% Total Int-Bearing Liabilities 60,672 2,108 3.47% 62,485 2,193 3.51% Noninterest-bearing deposits 33,389 33,385 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 $569,000 in 1998, $231,000 in 1997 and $368,000 in 1996 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, 1998, 1997, and 1996 using a federal tax rate of 34%.
Rate/Volume Analysis 1998 Compared to 1997 1997 Compared to 1996 Variance Attributed to (1) Variance Attributed to(1) Net Net (Dollars in Thousands) Volume Rate Change Volume Rate Change Net Loans: Taxable (2,914) -0.14% (488) (11,344) -1.28% (2,531) Tax-exempt(2) - 0.00% - - 0.00% - Investment Securities Taxable (2,464) 0.09% (135) 879 0.30% 79 Tax-exempt(2) - 0.00% - - 0.00% - Interest-bearing deposits - 0.00% - - 0.00% - Federal funds sold 3,194 -0.15% 141 7,375 0.18% 423 Total Interest-Earning Assets (2,184) -0.26% (482) (3,090) -1.79% (2,029) Deposits: Demand Deposits (76) 0.02% 3 (1,393) -0.08% (46) Savings deposits (599) -0.02% (23) 1,663 0.04% 61 Time deposits (1,295) -0.25% (95) (2,030) 0.05% (95) Total interest-bearing deposits (1,970) -0.09% (116) (1,760) -0.04% (80) Federal Funds Purchased - 0.00% - - 0.00% - Securities sold under - 0.00% - - 0.00% 0 agreements to repurchase Other Short-term - 0.00% - - 0.00% - borrowings Long-Term debt (55) 0.00% (5) (53) 0.00% (5) Total Interest-Bearing Liabilities (2,025) -0.09% (121) (1,813) -0.04% (85)
(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 1998 was $7,828,000 compared to $8,189,000 in 1997 and compared to $10,133,000 in 1996. 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 decreased 70.08% to $1,086,000 in 1998, from $3,630,000 in 1997. The provisions for loan losses decreased due a decrease in the amount of the Company's charge-offs to $1,950,000 in 1998, from $4,132,000 in 1997. 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. 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.
Summary of Loan Loss Experience December 31, 1998 1997 1996 1995 1994 (Dollars in Thousands) Balance at beginning of period 1,800 1,500 1,500 935 934 Charge-Offs: Commercial 24 22 51 31 10 Real estate 6 20 - 3 14 Installment 43 94 43 34 47 Credit Cards 1,877 3,996 2,728 1,553 1,147 Total Charge-offs 1,950 4,132 2,822 1,621 1,218 Recoveries: Commercial 13 100 135 5 80 Real estate 30 14 6 45 6 Installment 23 24 27 23 29 Credit Cards 798 664 614 365 298 Total Recoveries 864 802 782 438 413 Net charge-offs 1,086 3,330 2,040 1,183 805 Provision for loan losses 1,086 3,630 2,040 1,749 805 Balance 1,800 1,800 1,500 1,501 934 Additional Reserve from Proprietor - - - (1) 1 Balance at end of period 1,800 1,800 1,500 1,500 935 Ratio of net charge-offs during period to average loans 1.83% 5.35% 2.77% 1.68% 1.33% outstanding Allowance for possible loan losses as a percentage of loans 3.00% 3.12% 2.16% 2.00% 1.38%
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 $3,149,000 in 1998 from $2,938,000 in 1997 or a 7.20% increase. The gain on sale of ORE income increased to $920,000 in 1998 from $61,000 in 1997 due to the sale of one Ore parcel for a gain of $900,000. 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.
Noninterest Income December 31, 1998 1997 1996 (Dollars in Thousands) Service Charges 653 618 643 NSF Charges 666 725 783 Gain on Sale of Securities - 16 - Cardholder & Other Credit 456 388 448 Card Income Membership Fees 224 245 218 Other Comm & Fees 34 101 112 ORE Income 13 11 24 Gain on Sale of ORE 920 61 7 Reversal of Litigation Settlement - 390 - Other Income 185 383 205 Total Non-Interest Income $3,149 $2,938 $2,440
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 14.28% to $9,124,000 in 1998 from $10,643,000 in 1997. Other operating expenses decreased 45.93% 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 in 1997. 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.
December 31, 1998 1997 1996 (Dollars in Thousands) Salaries & Benefits 3,670 3,974 4,199 Occupancy Expense 1956 1,937 1,839 Advertising Expense 117 153 306 Communications 208 307 376 Postage 357 472 627 Loan & Credit Card Expense 1,005 1,112 1,214 Professional Fees 218 266 349 Legal Fees 524 558 283 Insurance & Assessments 92 94 94 Stationery, Forms & Supply 303 375 447 ORE Expenses 133 337 266 Loss on Litigation 50 150 - Equity in Loss of - - - Unconsolidated Subsidiary Other Operating Expense 491 908 647 Total Non-Interest $9,124 $10,643 $10,647 Expense
Provision for Income Taxes The income tax provision (benefit) for the Company and the Bank on a consolidated basis, for the year 1998 was $263,000 as compared to $(1,171,000) in 1997 and $(20,000)in 1996. 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, 1998, has a net interest sensitive asset gap of 17.05% when projecting out one year. In the near term, defined as 90 days, the Company currently has a net interest sensitive liability gap of 7.03%. 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, 1998.
Interest Rate Sensitivity Analysis December 31, 1998 Over 30 60 90 120 180 One One Days Days Days Days Days Year Year (Dollars in Thousands) Total Interest-Earning Assets Investment Securities- HTM - 3,499 - - 999 - - Investment Securities - - AFS - - - - - - 20 Loans 5,068 2,028 6,334 3,739 5,209 17,010 22,370 Loans held for sale - - - - - - - Federal funds sold 26,950 - - - - - - Total Interest- Earning Assets 32,018 5,527 6,334 3,739 6,208 17,010 22,390 Non Earning Assets - - - - - - 10,709 TOTAL ASSETS 32,018 5,527 6,334 3,739 6,208 17,010 33,099 Interest-Bearing Liabilities Savings & Now accounts 15,190 - 25,462 - - - - Demand & money market 6,981 - - - - - - CD's > $100,000 967 615 607 903 1,432 1,341 3,096 CD's < $100,000 - - 614 - - 830 200 Federal Funds purchased - - - - - - - Repurchase agreements - - - - - - - Other short-term borrowings - - - - - - - Notes payable - - - - - - 2,272 Total Interest- Bearing Liabilities 23,138 615 26,683 903 1,432 2,171 5,568 Non Costing Liabilities - - - - - - 43,425 TOTAL LIABILITIES 23,138 615 26,683 903 1,432 2,171 48,993 Interest-Sensitivity Gap 8,880 4,912 (20,349) 2,836 4,776 14,839 (15,894) Cumulative Gap 8,880 13,792 (6,557) (3,721) 1,055 15,894 0 Cumulative Gap/Total Interest- Earning Assets 9.53% 14.79% -7.03% -3.99% 1.13% 17.05% 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 7.63% at December 31, 1998, 6.84% at December 31, 1997, and 8.60% at December 31, 1996. 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 $4,800,000 at December 31, 1998, $10,500,000 at December 31, 1997, and $9,000,000 at December 31, 1996. 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 one year or less at December 31, 1998. At December 31, 1998 securities classified as available-for-sale were $291,000 and $1,000,000 at December 31, 1997. The net unrealized holding gain on these securities at December 31, 1998 was $202,000 after taxes compared to net unrealized holding loss of $1,000 after taxes at December 31, 1997. At December 31, 1998, the Company classified all of its U. S. Treasury securities and obligations of U.S. government corporations and federal agencies as held-to-maturity.
Distribution of Investment Securities December 31, 1998 1997 1996 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 4,498 4,514 10,479 10,505 8,977 9,000 agencies Other investments 90 291 90 90 90 90 Total 4,588 4,805 10,569 10,595 9,067 9,090
Maturity Distribution of Investment Securities and Average Yields (1) December 31, 1998 December 31, 1997 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 Due 1-5 years - - - - 6.03% Total - - 0.00% 1,000 999 6.03% Held-to-Maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies Due in 1 year or 4,498 4,514 5.96% 5,491 5,498 5.74% less Due 1-5 years - - 0.00% 3,988 4,008 6.52% Total 4,498 4,514 5.96% 9,479 9,506 12.26% (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 31,1998 (dollars in thousands):
Other Securities Mississippi River Bank $ 216,920 New Orleans SBIDCO, Inc. 20,000 Liberty Financial Services, 54,480 Inc. Total Other Securities $ 291,400
Loan Portfolio Total loans, which includes loan loss reserves and unearned interest, increased $4,138,000 or 7.41% to $59,957,000 at December 31, 1998 from $55,819,000 at December 31, 1997. This increase was primarily attributable to the increase in the Company's real estate loans of $4,218,000 or 17.12%, an increase in the credit card portfolio of $2,062,000 or 8.88% and by a decrease in installment loans of $3,000,000 or 41.12% over December 31, 1997 total loans. Total loans 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 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.
Loans, Net by Category December 31, 1998 1997 1996 1995 1994 (Dollars in Thousands) Commercial, financial, & agricultural 4,441 4,281 4,390 4,366 5,408 Real estate-mortgage 28,861 24,643 22,370 23,323 19,543 Mortgage Loan Held for Resale - - - 256 - Personal Loans 3,006 5,106 5,731 6,022 5,482 Credit cards-Visa, MasterCard 21,785 20,302 25,265 28,199 27,999 Credit cards-Proprietary 3,510 2,931 11,344 12,380 9,383 Overdrafts 154 359 207 435 159 Loans 61,757 57,622 69,307 74,981 67,974 Less: Unearned income - 2 9 38 172 Deferred loan fees(costs), net - - - - - Allowance for possible loan losses 1,800 1,800 1,500 1,500 935 Loans, net 59,957 55,820 67,798 73,443 66,867
The following tables reflect the maturity distribution and interest rate sensitivity of the Company's loan portfolio at December 31, 1998:
Loan Maturity by Type December 31, 1998 Maturing Within One To Over One 5 Years 5 Years Total Year (Dollars in Thousands) Commercial,financial and agricultural 2,324 1,434 27 3,785 Real estate construction, land and land 19,457 7,601 1,238 28,296 development All other loans 26,406 2,765 505 29,676 Total 48,187 11,800 1,770 61,757 Rate Sensitivity of Loans Loans: With predetermined 43,617 11,800 1,770 57,187 interest rate With floating 4,489 4,489 interest rate Non-Accrual Loans 81 81 Total 48,187 11,800 1,770 61,757
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 $118,000 or 7.58% at December 31, 1998, to $1,438,000 from $1,556,000 December 31, 1997. At December 31, 1998 there were no restructured loans. 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. Since 1994, the ratio of past due loans to total loans has decreased from 2.98% to 1.42%. During that time, the Company significantly reduced its ratio of nonperforming assets to loans and ORE from a high of 4.27% of total loans at December 31, 1994, to a low of 2.34% at December 31, 1998. 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 1998, the gross amount of interest income that would have been recorded on nonaccrual loans at December 31, 1998, if all such loans had been accruing interest at the original contract rate, was $1,847.
Nonperforming Assets December 31, 1998 1997 1996 1995 1994 (Dollars in Thousands) Nonaccrual Loans 81 83 316 235 240 Restructured Loans - - - - - Other Real Estate Owned 1,357 1,473 1,723 1,994 2,771 Total Nonperforming Assets 1,438 1,556 2,039 2,229 3,011 Loans past due 90 days or more 852 1,257 2,295 1,062 2,020 Ratio of past due loans to 1.42% 2.18% 3.31% 1.42% 2.98% loans Ratio of nonperforming assets to loans and other real estate 2.34% 2.63% 2.87% 2.90% 4.27% owned
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 $1,357,000 at December 31, 1998, $1,473,000 at December 31, 1997, and $1,723,000 at December 31, 1996. There were no new parcels added in 1998. During the fiscal year 1998 the Bank sold 2 parcels of ORE totaling $116,000 as compared to 7 parcels sold in 1997 totaling $488,000 and 4 parcels totaling $295,000 in 1996. Historically the Bank has always sold ORE parcels for a net gain, $1,036,000 in 1998, $40,000 in 1997, and ($4,000) in 1996. The costs associated with the sales of ORE are minimal as compared to the gains, $1,000 in 1998, $5,000 in 1997, and $2,000 in 1996. 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, 1998 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 02/12/98 $ 438 617 N. Broad 09/24/91 591 10/09/98 605 27 Audubon Blvd 09/24/91 260 10/15/98 480 1716-18 Baronne 10/05/90 75 12/01/98 85 $1,349
In addition, any expenditure such as maintenance and repairs, etc. is recognized during the year in which it occurred. The net gain (cost) of operation of ORE totaled $800,000 in 1998, ($266,000) in 1997, ($235,000) in 1996. The following table reflects a breakdown of the income and expense amounts related to ORE operations:
1998 1997 1996 (Dollars in Thousands) ORE Income Rental Income 13 11 24 Gain on Sales 920 61 7 Total Income 933 72 31 ORE Expenses Maintenance, Repairs, 40 80 38 Upkeep & Security Real Estate Fees, 6 9 8 Advertising & Appraisals Insurance 49 60 41 Sheriff Sale - 5 11 Legal Fees 20 135 125 Taxes 18 24 23 Writedowns - 3 10 Loss on Sale - 22 10 Total Expenses 133 338 266 Net Gain or Loss $ 800 $ (266) $ (235)
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, 1998 and 1997, the recorded investment in loans that are considered impaired were $0 and $543,900, respectively. Interest income on impaired loans, recognized on the accrual method, of $0 and $46,536 was recognized in 1998 and 1997, 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 increased 11.19% to $4,174,000 at December 31, 1998 from $3,754,000 at December 31, 1997. Deposits Total deposits increased $642,000 or .68% to $94,583,000 at December 31, 1998 from $93,941,000 at December 31, 1997. During this period, total liabilities increased $586,000 or .60% to $98,015,000. 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 2.93% in 1998. Market rate core deposits, primarily CD's of less of $100,000 and money market accounts, decreased 15.37% in 1998. 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. 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 38.03% of average core deposits in 1998 compared to 26.98% of average core deposits in 1997. 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, 1998 1997 1996 Average Average Average Amount Rate Amount Rate Amount Rate (Dollars in Thousands) Noninterest-bearing Deposits $33,729 N/A $33,389 N/A $33,385 N/A Interest-bearing Demand Deposits 18,109 2.20% 18,185 2.18% 19,578 2.26% Savings Deposits 26,381 3.05% 26,980 3.07% 25,317 3.03 % Time Deposits 11,879 4.79% 13,174 2.05% 15,204 3.03% Total Average Deposits $90,098 $91,728 $93,484
The maturities of Certificates of Deposits Greater than $100,000 at December 31, 1998 are listed below:
December 31, 1998 (Dollars in Thousands) Three months or $ 614 less Over three through 830 twelve months Over twelve months 200 Total $ 1,644
Other Liabilities The following table summarizes Other Liabilities for the periods ending December 31, 1998, 1997, and 1996.
December 31, 1998 1997 1996 (Dollars in Thousands) Accrued Expenses Payable 150 145 173 Accounts Payable - - - Deferred Membership Fees 64 83 69 Blanket Bond Fund 50 50 50 Other Liabilities 85 135 6 Total Other Liabilities $ 349 $ 413 $ 298
Borrowings The Company's long-term debt is comprised primarily of debentures. Each $500 debenture is 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 increased $640,000 or 12.12% to $5,920,000 at December 31, 1998 from $5,280,000 at December 31, 1997. This increase in shareholders' equity since December 31, 1997, was attributable to $506,000 in net income and an increase in accumulated other comprehensive income of $134,000. 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. The leverage ratio (Tier 1 capital to total assets) at December 31, 1998, was 7.63% compared to 6.84% at December 31, 1997, which are compared to the minimum capital requirement of 4.00%. 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%. At December 31, 1998, based on the Federal Reserve Board's guidelines, the Company's Tier 1 risk based capital ratio was 11.36, and the risk based capital ratio was 12.63%. 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 5.51% in 1998, 5.66% in 1997, and 7.06% in 1996. 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 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 $1,800,000 in 1997. (Resulting in a charge to income in 1995 of an additional provision of $300,000 in 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. Following is the December 31,1998 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 following reflects a monthly breakdown of the current year by month:
TOTAL CAPITAL/ASSET MONTH AVERAGE TOTAL CAPITAL RATIO ASSETS 12-94 103,075,866 8,669,658 8.41% 12-95 104,843,144 8,951,771 8.54% 12-96 104,592,512 9,027,004 8.63% 12-97 101,047,884 7,168,595 7.09% * 01-98 97,634,237 7,206,572 7.38% 02-98 98,696,476 7,265,785 7.36% 03-98 99,434,887 7,299,273 7.34% 04-98 99,712,565 7,313,993 7.34% 05-98 99,714,101 7,316,343 7.34% 06-98 99,628,268 7,431,545 7.46% 07-98 99,282,560 7,388,909 7.44% 08-98 98,986,635 7,409,107 7.48% 09-98 98,697,857 7,415,870 7.51% 10-98 97,696,413 7,821,644 8.01% 11-98 97,766,996 7,832,838 8.01% 12-98 99,393,215 7,587,688 7.63%
* Due to Deferred Tax Assets disallowed for regulatory capitalpurposes 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 maintenance 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% 12-95 0.00 282,113 0.00% 12-96 0.00 75,233 0.00% 12-97 0.00 (1,829,936) 0.00% 01-98 0.00 37,977 0.00% 02-98 0.00 97,189 0.00% 03-98 0.00 130,678 0.00% 04-98 0.00 145,397 0.00% 05-98 0.00 147,748 0.00% 06-98 0.00 262,949 0.00% 07-98 0.00 220,314 0.00% 08-98 0.00 240,512 0.00% 09-98 0.00 247,275 0.00% 10-98 0.00 1,123,049 0.00% 11-98 0.00 1,132,543 0.00% 12-98 387,500.00 857,933 45.17% 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 chrgoffs 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 approved 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 and each year thereafter in a timely manner. 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 elinquent 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. 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, 1998, 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 11.36% and 12.63, respectively. Primary capital to assets ratios for the Bank were 7.63% for 1998, 6.84% for 1997, and 8.60% for 1996. 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 1999. 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 Number Percent Number Percent Company Held G. Harrison Scott Director; 699 0.39% 89,819 3.90% N/A (75) Chairman of the Board of the Company and the Bank James A. Comiskey Director; 35,226 19.66% 83,886 3.64% N/A (72) President of the Company and the Bank Douglas A. Director of 215 0.12% 9,324 0.41% President, Schonacher the (68) Company and V.I.P. Dist. the Bank Gordon A. Burgess Director of 1,015 0.57% 36,164 1.57% President, the (65) Company and Tangipahoa the Bank Parish Council Lionel J. Favret, Director of 571 0.32% 31,656 1.38% Retired Sr. the (87) Company and the Bank Louis G. Grush, Director of 2,094 1.17% 4,662 0.20% Retired DDS the (71) Company and the Bank Gerry E. Hinton Director of 5,330 2.97% 2,387 0.10% Chiropractor the (68) Company and the Bank Leland L. Landry Director of 3,800 2.12% 2,387 0.10% President, the (72) Company and Landry Realty the Bank Edward J. Soniat Director of 8,214 4.59% 234,475 10.18% President, the (86) Company and Blaise the Bank and Secretary Parking of the Company Enterprise Corp. Peggy L. Schaefer Treasurer of - - - - N/A (47) the Company and Senior Vice President, 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, 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, 1998, all directors, as a group, own directly or indirectly 57,164 shares of Common Stock and 494,760 shares of Preferred Stock, representing 31.91% and 21.48% 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 $200, $150, and $150, respectively. The Board of Directors approved a 50% reduction of the above honorarium from $400, $300, and $300, respectively to the above amounts at the June 10, 1997 meeting. On December 29, 1998, the Board of Directors approved the reinstatement of the honorarium to the full amount. 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 $733,986, including accrued and unpaid interest at the rate of 10% per annum. At this time, there is no maturity date on these loans. The following table sets forth compensation for the Company's executive officers for the years 1998, 1997, and 1996:
Annual Compensation Other Annual All Other Name and Principal Year Salary Compensation Compensation Position ($) ($) ($) G. Harrison Scott, 1998 89,800 20,500 19,494 Chairman of the Board 1997 89,800 29,042 19,494 1996 89,800 41,000 19,494 James A. Comiskey, 1998 89,800 20,500 19,000 President 1997 89,800 29,042 19,000 1996 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. On December 29, 1998, the Board of Directors also approved the reinstatement of Other Annual Compensation to the full amount. 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 1998. Committees of the Board of Directors of the Company and the Bank During fiscal year 1998, the Board of Directors of the Company held a total of 6 meetings, and the Board of Directors of the Bank held a total of 13 meetings. Each director attended at least 75% of the aggregate of the meetings of the Board of Directors and of the committees on which such director served. 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 1998. 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 27 times in 1998. 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, 1998, the following persons were known to be the beneficial owners of more than 5% of the Bank's stock.
Security Ownership Of Certain Beneficial Owners and Management Name & Address Of Title Of Amount & Nature Of Percent Beneficial Owners Class Beneficial Ownership Of Class James A. Comiskey Common 35,226 19.66% 1100 City Park Ave. Preferred 83,886 3.64% New Orleans, LA Owned directly 70119 Edward J. Soniat Common 8,214 4.59% 49 Oriole Street Preferred 234,475 10.18% New Orleans, LA Owned directly 70124 Shannon,Sharry,Slade & Rick, LLC 55481 Highway 433 Common 55,992 31.26% Slidell, LA 70461- Owned directly ** 9702
** As of March 1998, G. Harrison Scott transferred 55,992 shares in BOL Bancshares, Inc. to a limited liability company named the Shannon, Sharry, Slade & Rick, L.L.C. (Limited Liability Company). Since that date, he has transferred 90% of the ownership of the L.L.C. to his children, Shannon, Sharry, Slade & Rick. He has retained a 10% interest in the company and is the managing officer. 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 $1,053,824 at December 31, 1998 and the highest aggregate amount borrowed during the year totaled $1,398,575. These aggregate amounts represented 13.79% and 18.31% respectively of the total capital of the Bank. The following data is as of December 31, 1998. The Bank has one outstanding loan to Mr. Gordon A. Burgess, director, in the amount of $10,226 bearing an annual interest rate of 9%, with the largest aggregate amount outstanding totaling $12,101. The loan is scheduled to mature February 9, 1999, and is secured by signature only. The Bank has one outstanding loan to Mr. Burgess' corporation, Mal, Inc., in the amount of $360,913 bearing an annual interest rate of 9%, with the largest aggregate amount outstanding totaling $372,494. The loan is scheduled to mature January 25, 1999, and is secured by real estate. The Bank has one outstanding loan to Mr. Leland L. Landry, director, in the amount of $116,496 bearing an annual interest rate of 9%, with the largest aggregate amount outstanding totaling $120,932. The loan is scheduled to mature January 22, 1999, and is secured by real estate. The Bank has two outstanding loans to Mr. Douglas A. Schonacher, director, in the amount of $113,024, bearing an annual interest rate of 9%, with the largest aggregate amount outstanding totaling $125,744. The loans are scheduled to mature February 5, 1999, and is secured by real estate. The Bank has three outstanding loans to Mr. Schonacher's corporation, VIP, Inc. in the amount of $104,138, bearing an annual interest rate of 9%, with the largest aggregate amount outstanding totaling $175,882. The loan is scheduled to mature February 9, 1999, and is secured by real estate. The Bank has one outstanding loan to Mr. Soniat's corporation, The Fisk Corp. in the amount of $147,264, bearing an annual interest rate of 9%, with the largest aggregate amount outstanding totaling $163,776. The loan is scheduled to mature March 12, 1999, and 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 $74,633 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 BOL BANCSHARES, INC. & SUBSIDIARY December 31, 1998 Audits of Financial Statements December 31, 1998 and December 31, 1997 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, 1998 and December 31, 1997, and the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders' equity, and cash flows for the years ended December 31, 1998, 1997 and 1996. 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, 1998 and December 31, 1997, and the results of their operations and their cash flows for the years ended December 31, 1998, 1997 and 1996, in conformity with generally accepted accounting principles. /s/ Laporte, Sehrt, Romig & Hand A Professional Accounting Corporation Metairie, LA January 14, 1999 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, 1998 1997 Cash and Due from Banks Non-Interest Bearing Balances and Cash $6,692,995 $7,734,005 Federal Funds Sold 26,950,000 21,150,000 Investment Securities Securities Held-to-Maturity (Fair Value of $4,514,374 in 1998 and $9,510,313 in 1997) 4,497,942 9,478,718 Securities Available-for-Sale, at Fair Value 291,400 1,088,663 Loans - Less Allowance for Loan Losses of $1,800,000 in 1998 and 1997, and Unearned Discounts of $-0- in 1998 and $1,847 in 1997 59,957,087 55,819,114 Property, Equipment and Leasehold Improvements (Net of Depreciation and Amortization) 2,697,583 2,505,740 Other Real Estate 1,356,893 1,473,160 Other Assets 1,311,319 1,658,277 Deferred Taxes 287,277 618,684 Income Taxes Receivable - 876,831 Letters of Credit 84,052 113,532 $103,934,705 $102,708,567
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1998 1997 LIABILITIES Deposits Non-Interest Bearing $36,826,094 $35,124,103 Interest Bearing 57,757,018 8,816,434 Notes Payable 2,272,387 2,283,508 Other Liabilities 349,431 412,886 Accrued Litigation Settlement 200,000 150,000 Letters of Credit Outstanding 84,052 113,532 Accrued Interest 525,969 528,269 Total Liabilities 98,014,951 97,428,732 STOCKHOLDERS' EQUITY Preferred Stock - Par Value $1 2,302,811 Shares Issued and Outstanding in 2,302,811 2,302,811 1998 and 1997 Common Stock - Par Value $1 179,145 Shares Issued and Outstanding in 1998 179,145 179,145 and 1997 Accumulated Other Comprehensive Income 133,187 (569) Capital in Excess of Par - Retired Stock 14,888 14,888 Retained Earnings 3,289,723 2,783,560 Total Stockholders' Equity 5,919,754 5,279,835 $103,934,705 $102,708,567
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, 1998 1997 1996 INTEREST INCOME $9,815,065 $10,297,883 $12,326,563 INTEREST EXPENSE 1,986,681 2,108,592 2,193,255 Net Interest Income 7,828,384 8,189,291 10,133,308 PROVISION FOR LOAN LOSSES 1,085,625 3,630,273 2,039,779 Net Interest Income After Provision for Loan Losses 6,742,759 4,559,018 8,093,529 OTHER INCOME Service Charges on Deposit Accounts 1,318,419 1,398,552 1,481,144 Other Non-Interest Income 1,830,992 1,133,436 958,796 Reversal of Litigation - 390,000 - Settlement Gain on Sale of Securities - 15,860 - Total Other Income 3,149,411 2,937,848 2,439,940 OTHER EXPENSES Salaries and Employee 3,669,949 3,974,048 4,189,606 Benefits Occupancy Expense 1,956,172 1,937,416 1,848,469 Loss on Litigation 50,000 150,000 - Other Non-Interest Expense 3,447,384 4,581,491 4,609,011 Total Other Expenses 9,123,505 10,642,955 10,647,086 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 768,665 (3,146,089) (113,617) INCOME TAX EXPENSE (BENEFIT) 262,502 (1,170,803) (20,028) NET INCOME (LOSS) $506,163 ($1,975,286) ($93,589) EARNINGS (LOSS) PER SHARE OF COMMON STOCK $2.83 ($11.03) ($0.52)
The accompanying notes are an integral part of these financial statements. BOL BANCSHARES, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 1998 1997 1996 NET INCOME (LOSS) $506,163 ($1,975,286) ($93,589) OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized Holding Gains (Losses) on Investment Securities Available-for-Sale Arising During the Period 133,806 3,919 (21,960) Less: Reclassification Adjustment for Gains Included in Net Income (50) (81) (1,483) OTHER COMPREHENSIVE INCOME 133,756 3,838 (23,443) COMPREHENSIVE INCOME (LOSS) $639,919 ($1,971,448) ($117,032)
The accompanying notes are an integral part of these financial statements. BOL BANCSHARES, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumul- Capital ated In Other Excess of Preferred Common Comprehen Par Retained -sive Income Retired Earnings Total Stock Stock Stock BALANCE - December $2,302,811 $179,145 $19,036 $14,888 $4,852,435 $7,368,315 31, 1995 Other Comprehensive Income, Net of Applicable Deferred Income Taxes - - (23,443) - - (23,443) Net (Loss) for the - - - - (93,589) (93,589) Year 1996 BALANCE - December 2,302,811 179,145 (4,407) 14,888 4,758,846 7,251,283 31, 1996 Other Comprehensive Income, Net of Applicable Deferred Income Taxes - - 3,838 - - 3,838 Net (Loss) for the - - - - (1,975,286) (1,975,286) Year 1997 BALANCE - December 2,302,811 179,145 (569) 14,888 2,783,560 5,279,835 31, 1997 Other Comprehensive Income, Net of Applicable Deferred Income Taxes - - 133,756 - - 133,756 Net Income for the - - - 506,163 506,163 Year 1998 - BALANCE - December $2,302,811 $179,145 $133,187 $14,888 $3,289,723 $5,919,754 31, 1998
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, 1998 1997 1996 OPERATING ACTIVITIES Net Income (Loss) $506,163 ($1,975,286) ($93,589) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Provision for Loan Losses 1,085,625 3,630,273 2,039,779 Depreciation and Amortization Expense 454,298 422,750 365,574 Amortization of Investment Security 2,170 280 15,218 Premiums Accretion of Investment Security (20,221) (23,660) (29,102) Discounts (Increase) Decrease in Deferred Income 262,503 (293,968) 55,425 Taxes Loss on Sale of Property and Equipment - 3,083 2,421 (Gain) Loss on Sale of Other Real Estate (919,733) (39,508) 2,690 (Increase) Decrease in Other Assets and Prepaid Taxes 1,223,789 (484,534) (592,676) Decrease in Other Liabilities, Accrued Interest and Accrued Loss Contingency (15,755) (77,116) (132,050) Net Decrease in Mortgage Loans Held for Resale - - 255,750 Gain on Available-for-Sale Securities - (15,860) - 2,578,839 1,146,454 1,889,440 INVESTING ACTIVITIES Proceeds from Sale of Available-for-Sale Securities - 16,145 7,226 Purchases of Available-for-Sale - - (999,687) Securities Proceeds from Available-for-Sale Securities Released at Maturity 1,000,000 - 1,000,000 Proceeds from Held-to-Maturity Investment Securities Released at Maturity 5,500,000 4,000,000 7,500,000 Purchases of Held-to-Maturity Investment Securities (501,250) (5,478,359) (5,452,950) Proceeds from Sale of Property and 858 1,987 3,545 Equipment Purchases of Property and Equipment (263,313) (442,258) (479,953) Proceeds from Sale of Other Real Estate 1,036,000 527,605 292,600 Purchases of Loans (4,792,309) - - Net (Increase) Decrease in Loans (431,289) 8,110,638 3,325,261 Net Cash Provided by Investing 1,548,697 6,735,758 5,196,042 Activities
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, 1998 1997 1996 FINANCING ACTIVITIES Net Increase (Decrease) in Non-Interest Bearing and Interest Bearing Deposits $642,575 ($1,200,099) ($2,245,832) Proceeds from Issuance of Long-Term Debt - 1,793,000 - Principal Payments on Long-Term Debt (11,121) (1,893,980) (3,915) Net Cash Provided by (Used in) Financing Activities 631,454 (1,301,079) (2,249,747) NET INCREASE IN CASH AND CASH EQUIVALENTS 4,758,990 6,581,133 4,835,735 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 28,884,005 22,302,872 17,467,137 CASH AND CASH EQUIVALENTS - END OF YEAR $33,642,995 $28,884,005 $22,302,872 SUPPLEMENTAL DISCLOSURES: Additions to Other Real Estate through $0 $240,716 $34,130 Foreclosure Cash Paid During the Year for Interest $1,988,981 $2,060,102 $2,179,307 Cash Paid During the Year for Income $0 $0 $153,476 Taxes Market Value Adjustment for Unrealized Gain (Loss) on Securities Available-for-Sale $202,660 $5,815 ($35,520)
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. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Buildings, office equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization computed principally on the straight-line and modified accelerated cost recovery methods over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations. INCOME TAXES The Company and its consolidated subsidiary file a consolidated Federal income tax return. Federal income taxes are allocated between the companies, in accordance with a written agreement. MEMBERSHIP FEES Membership fees are collected in the 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 $1,240,000 and $1,283,077 for the years ended December 31, 1998 and 1997, 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. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" is effective for the quarter ended September 30, 1999. This statement will require all derivatives to be recognized at fair value as either assets or liabilities in the consolidated balance sheets. Changes in the fair value of derivatives not designated as hedging instruments are to be recognized currently in earnings. Gains or losses on derivatives designated as hedging instruments are either to be recognized currently in earnings or are to be recognized as a component of other comprehensive income, depending on the intended use of the derivatives and the resulting designation. The Company currently has no derivatives; therefore, adoption of this pronouncement is not expected to have an effect on the financial position and results of operations of the Company. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A ACCOUNTING STANDARDS NOT YET ADOPTED (Continued) Statement of Financial Accounting Standards No. 134 (SFAS 134), "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" is effective for the first fiscal quarter beginning after December 15, 1998. This statement establishes standards for the way that mortgage banking enterprises classify mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments, after the securitization of mortgage loans held for sale. 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 income (expense) from Other Real Estate totaled $799,942 in 1998, ($264,432) in 1997 and ($235,365) in 1996. NOTE C LOANS Major classification of loans are as follows:
December 31, 1998 1997 Real Estate Mortgages $28,861,280 $24,643,062 Commercial 4,441,110 4,280,928 Personal 3,006,321 5,105,613 Credit Cards 25,294,875 23,232,424 Overdrafts 153,501 358,934 61,757,087 57,620,961 Unearned Discounts - 1,847 61,757,087 57,619,114 Allowance for Loan Losses 1,800,000 1,800,000 $59,957,087 $55,819,114
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C LOANS (Continued) The following is a classification of loans by rate and maturity: (Dollar amounts in thousands)
December 31, 1998 1997 Fixed Rate Loans: Maturing in 3 Months or Less $ 5,077 $ 7,294 Maturing Between 3 and 12 Months 16,504 14,941 Maturing Between 1 and 5 Years 33,837 27,777 Maturing After 5 Years 1,770 2,210 57,188 52,222 Variable Rate Loans: Maturing Quarterly or More Frequently 4,229 4,747 Maturing Between 3 and 12 Months 259 569 Non-Accrual Loans 81 83 61,757 57,621 Less: Unearned Discount - 2 Less: Allowance for Loan Losses 1,800 1,800 Net Loans $ 59,957 $ 55,819
As of December 31, 1998 and 1997, the recorded investment in loans that are considered impaired under SFAS 114 and 118 were $-0- and $543,900, 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 $-0- and $46,536 was recognized in 1998 and 1997, respectively. During 1998, the Bank purchased credit card portfolios totaling $4,792,309, at a premium of $672,514. The premium is being amortized as an adjustment to interest income over three years. Unamortized premiums at December 31, 1998 totaled $514,378. 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 $1,356,893 at December 31, 1998 and $1,473,160 at December 31, 1997. In addition, during 1996, the subsidiary bank purchased land occupied by an "Other Real Estate" property for $550,000. This investment, which was included in Other Assets, was sold during 1998. Loans are placed on non-accrual status when, in management's opinion, the collection of additional interest is questionable. Thereafter no interest is taken into income unless received in cash or until such time as the borrower demonstrates the ability to pay principal and interest. At December 31, 1998, $80,572 of loans were in the non-accrual status and $1,847 of interest was foregone in the year then ended. 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. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1998:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury Securities $4,497,942 $ 16,432$ - $ 4,514,374 Securities available-for-sale consisted of the following at December 31, 1998: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity Securities $89,601 $201,799 $- $291,400 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
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E INVESTMENT SECURITIES (Continued) The maturities of investment securities at December 31, 1998 are as follows:
Securities Held-to-MaturitySecurities Available-for-Sale Amortized Market Amortized Market Cost Value Cost Value Amounts maturing in: One year or less $ 4,497,942 $4,514,374 $ 89,601 $291,400
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. Securities of $1,099,921 at December 31, 1998 and $973,000 at December 31, 1997 were pledged to secure public funds. NOTE F INCOME TAXES The components of the provision for income tax expense (benefit) are:
1998 1997 1996 Current $- $(876,831) $(59,302) Reduction for Excess Provision in Prior Year: - (11,060) (16,151) Deferred 262,502 (282,912) 55,425 Total Provision for Income Tax $262,502 $(1,170,803) $(20,028)
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F INCOME TAXES (Continued) A reconciliation of income tax at the statutory rate to income tax expense at the Company's effective rate is as follows:
1998 1997 1996 Computed Tax at the Expected Statutory Rate $261,346 $(1,069,670) $ (38,630) Reduction for Excess Provision in Prior Year - (11,060) (16,151) Tax Exempt Income - (98,835) - Other Adjustments 1,156 8,762 34,753 Income Tax Expense (Benefit) for Operations $262,502 $(1,170,803) $ (20,028) 1998 1997 1996 Income Taxes Currently Receivable: Current Income Tax Expense (Benefit) from Operations $ - $(876,831) $(75,453) Other Adjustments - - 16,151 Prepaid Tax - - (187,728) Income Tax Receivable $- $(876,831) $(247,030)
Certain income and expense items are accounted for differently for financial reporting purposes than for income tax purposes. Provisions for deferred taxes are made in recognition of these temporary differences and are measured using the income tax rates applicable to the period when the differences are expected to be realized or settled. There were net deferred tax assets of $287,277 and $618,684 as of December 31, 1998 and December 31, 1997, respectively. The major temporary differences which created deferred tax assets and liabilities are as follows:
1998 1997 Unrealized Gain on Securities FASB 115 Adjustment $(44,110) $ 29,441 Allowance for Loan Loss 19,573 119,303 Accumulated Depreciation (114,456) (123,455) Other Real Estate 30,034 169,619 Accruals not Deductible Until Paid 53,086 126,435 Net Operating Loss and Tax Credit Carryforward 262,145 237,573 Contributions Carryforward 13,005 8,768 Accrued Litigation Settlement 68,000 51,000 $287,277 $ 618,684
The net operating loss carryforwards of $72,269 and $578,692 expire in the years 2013 and 2012, respectively. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
December 31, 1998 1997 Furniture and Equipment $3,835,320 $3,585,226 Bank Owned Vehicles 78,691 78,691 Leasehold Improvements 375,817 363,455 Land 468,425 468,425 Buildings 1,334,075 1,334,075 6,092,328 5,829,872 Less: Accumulated Depreciation and Amortization 3,586,588 3,132,289 $2,505,740 $2,697,583
Depreciation and amortization expense aggregated $454,298 in 1998, $422,750 in 1997 and $365,574 in 1996. NOTE H ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows:
For The Years Ended December 31, 1998 1997 1996 Balance - January 1 $1,800,000 $1,500,000 $1,500,000 Provision Charged to: Operations 1,085,625 3,630,273 2,039,779 Loans Charged Off (1,950,067) (4,132,454)(2,822,245) Recoveries 864,442 802,181 782,466 Balance - December 31 $1,800,000 $1,800,000 $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 1998 and 1997. 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 1998 and 1997. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J EARNINGS PER COMMON SHARE Earnings per share are computed using the weighted average number of shares outstanding which was 179,145 in 1998, 1997 and 1996. There was no provision for dividends for the years ended December 31, 1998, 1997 or 1996. 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:
1998 1997 1996 Credit Card Arrangements $54,089,000 $53,467,000 $ 76,577,000 Commitments To Extend Credit 557,000 611,000 564,000
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 defend vigorously its position. 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. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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:
1998 1997 Balance - January 1 $1,083,723 $1,010,085 New Loans Made and Renewals 1,128,335 379,832 Repayments and Maturities (1,158,234) (306,194) Balance - December 31 $1,053,824 $1,083,723
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, 1998, 1997 and 1996 totaled $479,388, $492,459 and $487,464, respectively. An annual rent of $74,400 was paid to Tammany Mall Partnership for the years ended December 31, 1998, 1997 and 1996. At December 31, 1998 and 1997 amounts due to Officers and Directors of the Company, including accrued interest, totaled $733,986 and $692,910, 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, 1998 and 1997, $211,000 were to Officers and Directors of the Company (see Note Q). Another note payable to Director totaled $74,633 and $79,754 at December 31, 1998 and 1997, 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, 2001. 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, 1998, under the leases is $598,917 which is due as follows:
December 31, 1999 $373,921 2000 174,036 2001 50,960 $598,917
For the years ended December 31, 1998, 1997 and 1996, $805,605, $813,003 and $800,890 was charged to rent expense, respectively. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE M LEASES (Continued) 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, 1998 for each of the next 5 years and in the aggregate are:
December 31, 1999 $113,580 2000 110,935 2001 88,624 2002 39,256 2003 25,976 $378,371
NOTE N LETTERS OF CREDIT Outstanding letters of credit were $84,052 and $113,532 as of December 31, 1998 and 1997, respectively. NOTE O INTEREST BEARING DEPOSITS Major classifications of interest bearing deposits are as follows:
December 31, 1998 1997 NOW Accounts $13,340,333 $14,287,953 Money Market Accounts 6,750,080 5,422,849 Savings Accounts 27,061,209 25,016,124 Certificates of Deposit Greater Than $100,000 1,643,514 1,337,240 Other Certificates of Deposit 8,961,882 12,752,268 $57,757,018 $58,816,434
The maturities of Certificates of Deposit Greater than $100,000 at December 31, 1998 are as follows: (Dollar amounts in thousands)
Three Months or Less $ 614 After Three Months Through One Year 830 After One Year Through Three Years 200 $ 1,644
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1998 and 1997:
December 31, 1998 1997 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. 74,633 79,754 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. 1,787,000 1,793,000 $2,272,387 $2,283,508
Following are maturities of long-term debt:
December 31, 1999 $416,612 2000 1,793,700 2001 7,663 2002 8,763 2003 10,023 Subsequent to 2003 35,626 $2,272,387
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R INTEREST INCOME AND INTEREST EXPENSE Major categories of interest income and interest expense are as follows:
December 31, 1998 1997 1996 INTEREST INCOME Interest and Fees on Loans: Real Estate Loans $2,424,581 $2,213,306 $2,279,618 Installment Loans 390,419 464,362 518,544 Credit Cards and Related Plans 4,896,216 5,404,070 7,907,016 Commercial and all Other Loans 502,902 620,352 527,692 Interest on Investment Securities - U.S. Treasury and Other Securities 455,529 591,415 512,231 Interest on Federal Funds Sold 1,145,418 1,004,378 581,462 $9,815,065 $10,297,883 $12,326,563 INTEREST EXPENSE Interest on Time Deposits of $100,000 or More $61,204 $59,565 $55,212 Interest on Other Deposits 1,711,816 1,829,451 1,908,487 Interest on Other Borrowed Funds 1,824 220 6,041 Interest on Notes Payable 211,837 219,356 223,515 $1,986,681 $2,108,592 $2,193,255
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S NON-INTEREST INCOME AND NON-INTEREST EXPENSES Major categories of other non-interest income and non-interest expenses are as follows:
December 31, 1998 1997 1996 OTHER NON-INTEREST INCOME Cardholder and Other Charge Card Income $679,405 $632,747 $664,919 Data Processing and Items 175 850 30,047 Processing Other Commission and Fees 87,634 91,921 99,580 Other Real Estate Income 932,905 72,620 30,610 Other Income 130,873 335,298 133,640 $1,830,992 $1,133,436 $958,796 OTHER NON-INTEREST EXPENSE Loan and Charge Card Expenses $1,005,179 $1,111,666 $1,213,951 Communications 565,470 779,843 1,002,981 Stationery, Forms and Supplies 302,858 374,799 447,213 Professional Fees 741,324 823,220 631,580 Insurance and Assessments 92,049 93,869 94,441 Advertising 116,638 153,145 306,031 Miscellaneous Losses 53,461 492,512 212,931 Promotional Expenses 154,636 146,253 148,748 Other Real Estate Expenses 132,962 337,052 265,975 Other Expenses 282,807 269,132 285,160 $3,447,384 $4,581,491 $4,609,011
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE T CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY BOL BANCSHARES, INC. CONDENSED BALANCE SHEETS
December 31, 1998 1997 ASSETS Due from Banks $599,241 $586,622 Due from Subsidiary 118,738 - Securities Available-for-Sale, at Fair Value 271,400 - Other Assets 31,959 921,438 Investment in Bank of Louisiana 7,640,086 7,168,026 $8,661,424 $8,676,086 LIABILITIES AND STOCKHOLDERS' EQUITY Notes Payable $2,272,386 $2,283,508 Accrued Expenses 10,000 - Due to Subsidiary - 750,130 Accrued Interest 390,673 362,613 Shareholders' Equity 5,988,365 5,279,835 $8,661,424 $8,676,086
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE T CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued) BOL BANCSHARES, INC. STATEMENTS OF INCOME (LOSS)
December 31, 1998 1997 1996 INCOME Dividend Income - Bank of $387,500 $0 $0 Louisiana Interest Income 18,223 19,753 26,273 Miscellaneous Income - 3,327 19 405,723 23,080 26,292 EXPENSES Interest 211,837 219,357 223,515 Other Expenses 35,218 23,951 15,427 247,055 243,308 238,942 INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) OF SUBSIDIARY 158,668 (220,228) (212,650) Equity in Undistributed Earnings (Loss) of Subsidiary 471,491 (1,829,936) 46,760 INCOME (LOSS) BEFORE INCOME TAX BENEFIT 630,159 (2,050,164) (165,890) INCOME TAX BENEFIT 77,803 74,878 72,301 NET INCOME (LOSS) $707,962 ($1,975,286) ($93,589)
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE T CONDENSED FINANCIAL INFORMATION -PARENT COMPANY ONLY (Continued) BOL BANCSHARES, INC. STATEMENTS OF CASH FLOWS
December 31, 1998 1997 1996 OPERATING ACTIVITIES Net Income (Loss) $707,962 ($1,975,286) ($93,589) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities Equity in Undistributed (Earnings) Loss of Subsidiary (471,491) 1,829,936 (46,760) Net (Increase) Decrease in Other Assets 889,478 156,612 (215,461) Net Increase in Other Liabilities 38,060 50,249 40,597 Net Cash Provided by (Used in) Operating Activities 1,164,009 61,511 (315,213) INVESTING ACTIVITIES Investment in Available-for-Sale Securities (271,400) - - Net Cash Used in Investing Activities (271,400) - - FINANCING ACTIVITIES Repayments of Advances to Subsidiaries - 22,853 130,047 Repayments of Advances from Subsidiaries (791,065) - - Increase in Due From Subsidiary (77,803) - (12,999) Proceeds from Issuance of Long- Term Debt - 1,793,000 - Repayment of Long-Term Debt (11,122) (1,893,980) (3,915) Net Cash Provided by (Used in) Financing Activities (879,990) (78,127) 113,133 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,619 (16,616) (202,080) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 586,622 603,238 805,318 CASH AND CASH EQUIVALENTS - END OF YEAR $599,241 $586,622 $603,238
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 COMPREHENSIVE INCOME Comprehensive income was comprised of changes in the Company's unrealized holding gains or losses on securities available for sale during 1998, 1997 and 1996. The following represents the tax effects associated with the components of comprehensive income:
December 31, 1998 1997 1996 Gross Unrealized Holding Gains(Losses) Arising During the Period $202,736 $5,938 ($33,273) Tax (Expense) Benefit (68,930) (2,019) 11,313 133,806 3,919 (21,960) Reclassification Adjustment for Gains Included in Net Income (76) (122) (2,247) Tax (Expense) Benefit 26 41 764 (50) (81) (1,483) Net Unrealized Holding Gains(Losses) Arising During the Period $133,756 $3,838 ($23,443)
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, BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE W REGULATORY MATTERS (Continued) 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 $1,800,000 in 1997. (Resulting in a charge to income of an additional provision of $300,000 in 1997), 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, 1998, 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, 1998, the Bank is required to have a minimum Tier I leverage capital and minimum Tier I and Total capital risk based ratio of 4.00%, 4.00% and 8.00%, respectively. The Bank's actual risk based ratios at that date were 11.36% and 12.63%, respectively. Tier I leverage capital ratios for the Subsidiary Bank were 7.63% for 1998 and 6.84% for 1997. 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. 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. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE X DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) 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, 1998 Carrying Fair Amount Value Financial Assets: Cash and Short-Term Investments $ 33,642,995 $ 33,642,995 Investment Securities 4,789,342 4,805,774 Loans 61,757,087 61,649,167 Less: Allowance for Loan Losses 1,800,000 1,800,000 $101,989,424 $101,897,936 Financial Liabilities: Deposits $94,583,112 $94,668,116 Unrecognized Financial Instruments: Commitments to Extend Credit $ 472,526 $ 472,526 Commercial Letters of Credit 84,052 84,052 Credit Card Arrangements 54,089,000 54,089,000 $54,645,578 $54,645,578
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, 1998 and 1997 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 14, 1999 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, 1998 1997 Cash and Due from Banks Non Interest Bearing Balances and Cash $6,692,995 $7,734,005 Federal Funds Sold 26,950,000 21,150,000 Investment Securities Securities Held-to-Maturity (Fair Value of $4,514,374 in 1998 and $9,510,313 in1997) 4,497,942 9,478,718 Securities Available-for-Sale, at Fair 20,000 1,088,663 Value Loans: Less Allowance for Loan Losses of $1,800,000 in 1998 and 1997 and Unearned Discount of $-0- in 1998 and $1,847 in 1997 59,957,087 55,819,114 Property, Equipment and Leasehold Improvements (Net of Depreciation and Amortization) 2,505,740 2,697,583 Other Real Estate 1,356,893 1,473,160 Other Assets 1,279,358 1,613,670 Deferred Taxes 355,889 618,684 Due from Parent - 801,953 Letters of Credit 84,052 113,532 Total Assets $103,699,956 $102,589,082 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Non-Interest Bearing $36,943,605 $35,128,504 Interest Bearing 58,238,748 59,398,655 Other Liabilities 339,431 412,886 Letters of Credit Outstanding 84,052 113,532 Due to Parent 118,738 51,823 Accrued Litigation Settlement 200,000 150,000 Accrued Interest 135,296 165,656 Total Liabilities 96,059,870 95,421,056 STOCKHOLDERS' EQUITY Common Stock - 143,000 Shares Issued and Outstanding 1,430,000 1,430,000 Accumulated Other Comprehensive Income - (569) Surplus 4,616,796 4,616,796 Retained Earnings 1,593,290 1,121,799 Total Stockholders' Equity 7,640,086 7,168,026 Total Liabilities and Stockholders' Equity $103,699,956 $102,589,082
See independent auditor's report on supplementary information. BANK OF LOUISIANA SUPPLEMENTARY INFORMATION SCHEDULE II STATEMENTS OF INCOME (LOSS) UNCONSOLIDATED
For The Years Ended December 31, 1998 1997 1996 INTEREST INCOME $9,815,065 $10,297,883 $12,326,563 INTEREST EXPENSE 1,793,067 1,908,988 1,996,013 Net Interest Income 8,021,998 8,388,895 10,330,550 PROVISION FOR LOAN LOSSES 1,085,625 3,630,273 2,039,779 Net Interest Income After Provision For Loan Losses 6,936,373 4,758,622 8,290,771 OTHER INCOME Service Charges on Deposit Accounts 1,318,419 1,398,552 1,481,144 Other Non-Interest Income 1,830,992 1,130,109 958,777 Reversal of Litigation Settlement - 390,000 - Gain on Securities 201,799 15,860 - 3,351,210 2,934,521 2,439,921 OTHER EXPENSES Salaries and Employee Benefits 3,669,949 3,974,048 4,189,606 Occupancy Expense 1,956,172 1,937,416 1,848,469 Equity in Loss of Unconsolidated Subsidiary - - - Loss on Litigation 50,000 150,000 - Other Non-Interest Expense 3,412,166 4,557,540 4,593,584 9,088,287 10,619,004 10,631,659 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 1,199,296 (2,925,861) 99,033 INCOME TAX EXPENSE (BENEFIT) 340,305 (1,095,925) 52,273 NET INCOME (LOSS) $858,991 ($1,829,936) $46,760 EARNINGS (LOSS) PER SHARE OF COMMON STOCK $6.01 ($12.80) $0.33
See independent auditor's report on supplementary information. BANK OF LOUISIANA SUPPLEMENTARY INFORMATION SCHEDULE III STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY UNCONSOLIDATED
Accumulated Other Common Comprehensive Retained Stock Income Surplus Earnings Total BALANCE - December $1,430,000 $19,036 $4,616,796 $2,904,975 $8,970,807 31, 1995 Net Income for the Year - - - 46,760 46,760 1996 Other Comprehensive Income, Net of Applicable Deferred Income Taxes - (23,443) - - (23,443) BALANCE - December $1,430,000 ($4,407) $4,616,796 $2,951,735 $8,994,124 31, 1996 Net Loss for the Year - - - (1,829,936)(1,829,936) 1997 Other Comprehensive Income, Net of Applicable Deferred Income Taxes - 3,838 - - 3,838 BALANCE - December $1,430,000 ($569) $4,616,796 $1,121,799 $7,168,026 31, 1997 Net Income for the Year - - - 858,991 858,991 1998 Cash dividends declared for the Year ($2.71 per - - - (387,500) (387,500) share) Other Comprehensive Income, Net of Applicable Deferred Income Taxes - 569 - - 569 BALANCE - December $1,430,000 $0 $4,616,796 $1,593,290 $7,640,086 31, 1998
See independent auditor's report on supplementary information. 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 3-23-99 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 23, 1999. /s/ G. Harrison Scott-Director /s/ Gerry E. Hinton-Director /s/ Lionel J. Favret, Sr.-Director /s/ James A. Comiskey-Director /s/ Leland L. Landry-Direcor /s/ Edward J. Soniat-Director EX-27 2
9 1,000 12-MOS DEC-31-1998 DEC-31-1998 6693 0 26950 0 4789 4789 4806 61757 1800 103935 94583 0 1159 2272 0 2303 179 0 103935 8214 456 1145 10298 1773 214 7828 1086 0 9124 769 769 0 0 506 2.83 0 7.68 1437 852 0 4174 1800 1950 864 1800 1800 0 0
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