10-K 1 0001.txt 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, 2000 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) (504) 889-9400 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) _____________________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Common Stock, par value $1.00 per share _____________________________ Indicate by check mark 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. [ ] The aggregate market value of the voting stock held by non- affiliates of the registrant was approximately $914,857 as of the close of business on February 28, 2001. The number of shares of Common Stock, $1.00 par value, outstanding as of February 28, 2001 was approximately 179,145.
Cross Reference Index Page Part I Item 1: Business 3 Item 2: Properties 5 Item 3: Legal Proceedings 6 Item 4: Submission of Matters to a Vote of Security Holders 7 Part II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6: Selected Financial Data 8 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operation 9 Item 8: Financial Statements and Supplementary Data 34 Item 9: Changes in and Disagreements with Accountants and Financial Disclosure 27 Part III Item 10: Directors and Executive Officers of the Registrant 28 Item 11: Executive Compensation 29 Item 12: Security Ownership of Certain Beneficial Owners and Management 31 Item 13: Certain Relationships and Related Transactions 31 Part IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Financial Statements Independent Auditor's Report Consolidated Balance Sheets 34 Consolidated Statements of Income (Loss) 36 Consolidated Statements of Comprehensive Income (Loss) 37 Consolidated Statements of Changes in Stockholder's Equity 38 Consolidated Statements of Cash Flow 39 Notes to Consolidated Financial Statements 41 Independent Auditor's Report on Supplementary Information Schedules I, II, III 64 (b) Reports on Form 8-K NONE (c) Schedules and Exhibits Article 9 69
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 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, 2000, the Company held $18,291,941 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, 2000, the Company held $1,745,318 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. 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, 2000, the Company had approximately 155 full-time and approximately 13 part-time employees. The Company considers its relationship with its employees to be very good. The employee benefit programs provided by the Company include group life and health insurance, paid vacations, and sick leave. The Company has no employees who are not employees of the Company. See "Item 11, Executive Compensation". Item 2 Property In addition to its main office, the Company has six branch locations and an operations center. Set forth below is a description of the offices of the Company. Main Office. The main office of the Company is located at 300 St. Charles Avenue in the central business district of New Orleans, Louisiana. On September 30, 1991, the Company purchased a four-story building located at 300 St. Charles Avenue from the Resolution Trust Corporation (the "RTC") for the price of $402,500. The purchase was financed by a loan from director Edward J. Soniat to the Company. As of December 31, 2000, there is a balance of $62,073 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. 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 May 1, 1999, the lease commenced on June 1, 1999, and terminates on May 31, 2003. The lease payments are $12,456, 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 $11,832 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 $5,848 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 2000 totaled $113,504. 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 May 1, 1999, the leases commenced on June 1, 1999, and will terminate on May 31, 2003. The lease payments total $27,384, 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, 2000, 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 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 counter suit against the Plaintiffs for contribution on the $110,000 loss and for tortuous interference. The Plaintiff filed exceptions to the counter suit. These exceptions were heard in the district court and the Company's right to contribution was maintained, however the Company's suit for tortuous interference was dismissed. On appeal, the appellate court sustained the Company's right to contribution and overruled the lower court's decision on tortuous 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. 2. 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 counter sued and in March 2000, a decision was rendered in favor of the Bank and accordingly, the $150,000 was reversed and is reflected in operations. In February 2001 the $243,000 deposit for bond together with interest has been returned to the Bank. 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. Item 4 Submission of Matters to a Vote of Security Holders There were no matters submitted, during the fourth quarter of fiscal year 2000, 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 1999, 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, 2000, the Company had approximately 654 shareholders of record. 2000 High Low First Quarter $7.00 $5.00 Second Quarter 7.00 5.00 Third Quarter 7.00 5.00 Fourth Quarter 7.50 4.00 1999 First Quarter 7.00 5.00 Second Quarter 7.00 5.00 Third Quarter 7.00 5.00 Fourth Quarter 7.00 5.00
Principal Shareholders Other than directors, officers, and directors and officers as a group identified in the table in "Directors and Executive Officers of the Company", there were no persons who, to the knowledge of management of the Company, beneficially owned 5% or more of the Company Common Stock as of December 31, 2000. See "Item 12 Security Ownership of Certain Beneficial Owners and Management". Item 6 Selected Consolidated Financial Data of the Company
For The Years Ended December 31, 2000 1999 1998 1997 1996 (dollars in thousands, except per share data) Operations: Net Interest Income $7,727 $7,502 $7,827 $8,189 $10,133 Prov for (Recovery Of) Loan 308 (154) 1,085 3,630 2,040 Losses Other Income 2,123 2,134 2,249 2,938 2,440 Other Expense 8,993 9,650 9,123 10,643 10,647 Income Tax Expense (Benefit) 170 46 96 (1,171) (20) Net Income (Loss) 379 94 (228) (1,975) (94) Per Share: Common Shares Outstanding 179,145 179,145 179,145 179,145 179,145 Net Income (Loss) 2.11 0.53 (1.27) (11.03) (0.52) Cash Dividends - Common 0.00 0.00 0.00 0.00 0.00 Book Value at End of Period 19.10 16.89 16.46 16.62 27.64 Preferred Shares Outstanding 2,302,811 2,302,811 2,302,811 2,302,811 2,302,911 Cash Dividends - Preferred 0.00 0.00 0.00 0.00 0.00 Stock Balances at End of Period: Investment Securities 3,370 3,370 4,789 10,567 9,060 Fed Funds Sold 25,905 24,785 26,950 21,150 14,400 Loans, Net of Unearned 57,727 58,781 61,542 57,619 69,298 Interest Allowance for Loan Losses 1,800 1,800 1,800 1,800 1,500 Other Real Estate Owned 1,074 1,274 1,357 1,473 2,273 Total Assets 94,707 100,109 103,886 102,709 106,091 Total Deposits 85,164 90,555 94,583 93,941 95,141 Shareholders' Equity 5,722 5,329 5,185 5,280 7,251 Ratios: Return on Average Assets 0.18% 0.09% -0.23% -1.95% -0.09% Return on Average Equity 3.10% 1.93% -4.18% -34.49% -1.27% Primary Capital to Total Assets & Allowance for Possible Loan 6.16% 5.42% 5.12% 5.23% 6.93% Losses Allowance for Possible Loan Losses as a Percentage of Loans, 3.12% 3.06% 2.92% 3.12% 2.61% Net Non-Performing Loans as a Percentage of Loans, Net (1) 0.09% 0.07% 0.13% 0.15% 0.47% Non-Performing Loans as a Percentage of Total Assets 1.19% 1.31% 1.38% 1.51% 2.44% (2) Capital Ratios: Bank Tier 1 Risk Based Capital 12.27% 10.50% 10.27% 10.61% 12.32% Ratio Risk Based Capital Ratio 13.54% 11.77% 11.54% 11.88% 13.58% Tier 1 Leverage Ratio 7.81% 6.80% 6.89% 6.84% 8.60%
(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 is intended to provide a better understanding of the consolidated financial condition and results of operations of BOL Bancshares Inc. (the "Company") and its bank subsidiary, (the "Bank") for the years ending December 31, 2000, 1999 and 1998. This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report. The preceding chart reflects the most recent five years of the Company's operations. Overview The Company had total assets of $94,707,000 at December 31, 2000 and $100,109,000 at December 31, 1999. The Company currently operates through seven locations, five in the metropolitan New Orleans area and two in St. Tammany Parish. Loans comprise the largest single component of the Company's interest earning assets and provide a far more favorable return than other categories of earnings assets. The Company's loans totaled $55,927,000 and $56,981,000 net of unearned discount and Allowance for Loan Losses at December 31, 2000 and 1999, respectively. The Company's net interest margin was 8.71% for the year ended December 31, 2000. Historically, credit card loans have been an important part of the Company's total loan portfolio. At December 31, 2000, credit card loans were $18,292,000 and represented 32.71% of the Company's loan portfolio of $55,927,000. At December 31, 1999, credit card loans were $21,014,000 and represented 36.88% of the Company's loan portfolio of $56,981,000. The decrease in the Company's credit card loans during 2000 was largely attributable to (i) competition from other banks and non-traditional credit card issuers such as AT&T and GMAC; (ii) the Company's loss of proprietary business; and (iii) tightening of the Company's underwriting standards. 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. The Company has initiated an aggressive marketing campaign to acquire several Visa and MasterCard portfolios and proprietary accounts. 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 earned $379,000, or $2.11 per share in 2000. In 1999 the net income was $94,000 or $.53 per share and in 1998 the net loss was $228,000 or $(1.27) per share. In 2000, the increase in net income of $285,000 over 1999 income was primarily due to the Company recovering $202,000 in the settlement of a lawsuit against a proprietor. Interest expense decreased $216,000; non- interest expenses decreased $657,000 primarily from a decrease in legal fees of $404,000 due to the settlement of the above-mentioned lawsuit. In 1999, the $322,000 increase in income from the 1998 loss was primarily due to the company recovering $1,100,000 in the settlement of a lawsuit against a proprietor and the decrease in interest expense of $140,000. Interest income decreased $466,000, non-interest income decreased $115,000 while non-interest expense increased $527,000 from the year 1998. Net Interest Income Net interest income increased $225,000 or 3.00% to $7,727,000 in 2000 from $7,502,000 in 1999. This increase is mainly due to a decrease in interest expense on deposits which decreased $216,000 or 11.70% to $1,630,000 in 2000 from $1,846,000 in 1999. Total interest bearing deposits decreased $4,116,000 or 7.45%. The Company's average balances, interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table: TABLE 1 Average Balances, Interests and Yields
2000 1999 1998 Average Average Average (Dollars in Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate ASSETS INTEREST-EARNING ASSETS: Loans, net of unearned income (1)(2) Taxable 56,769 7,403 13.04% 57,397 7,638 13.31% 59,335 8,214 13.84% Tax-exempt 0 0 Investment securities Taxable 3,318 170 5.14% 4,011 191 4.76% 7,768 456 5.87% Tax-exempt 0 0 0 0 0.00% Interest-bearing deposits 0 0 0.00% 0 0 0.00% 0 0 0.00% Federal funds sold 28,602 1,784 6.24% 30,645 1,519 4.96% 21,566 1,145 5.31% Total Interest-Earning 88,689 9,357 10.55% 92,053 9,348 10.16% 88,669 9,815 11.07% Assets Cash and due from banks 5,450 5,739 5,617 Allowance for loan Losses (1,807 (1,792) (1,806 ) ) Premises and equipment 2,324 2,678 2,592 Other Real Estate 1,165 1,350 1,432 Other assets 1,825 1,130 2,634 TOTAL ASSETS 97,646 101,158 99,138 LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST-BEARING LIABILITIES: Deposits: Demand Deposits 18,229 288 1.58% 19,873 332 1.67% 18,109 399 2.20% Savings deposits 25,415 744 2.93% 26,704 784 2.94% 26,381 806 3.06% Time deposits 9,763 382 3.91% 11,583 520 4.49% 11,879 569 4.79% Total Interest-Bearing 53,407 1,414 2.65% 58,160 1,636 2.81% 56,369 1,774 3.15% Deposits Federal Funds Purchased Securities sold under agreements to repurchase Other Short-term borrowings 0 0 0 Long-Term debt 2,229 216 9.69% 2,249 210 9.34% 2,278 214 9.39% Total Int-Bearing 55,636 1,630 2.93% 60,409 1,846 3.06% 58,647 1,988 3.39% Liabilities Noninterest-bearing deposits 34,479 34,670 33,729 Other liabilities 1,836 1,210 1,302 Shareholders' equity 5,695 4,869 5,460 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 97,646 101,158 99,138 Net Interest Income 7,727 7,502 7,827 Net Interest Spread 7.62% 7.10% 7.68% Net Interest Margin 8.71% 8.15% 8.83%
(1) Fee income relating to loans of $709,000 in 2000, $669,000 in 1999 and $569,000 in 1998 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, 2000, 1999, and 1998 using a federal tax rate of 34%.
TABLE 2 Rate/Volume Analyses (1) 2000 Compared to 1999 1999 Compared to 1998 Change Change in in Interest Due to Total Interest Due to Total (Dollars in Thousands) Volume Rate Change Volume Rate Change Net Loans: Taxable (151) (84) (235) (308) (268) (576) Tax-Exempt (2) - - - - - - Investment Securities - - - - - - Taxable 12 (33) (21) (44) (221) (265) Tax-Exempt (2) - - - - - - Interest-Bearing Deposits - - - - - - Federal Funds Sold 366 (101) 265 (108) 482 374 Total Interest Income 227 (218) 9 (460) (7) (467) Deposits: Demand Deposits (16) (27) (44) (106) 39 (67) Savings Deposits (3) (38) (40) (32) 10 (22) Time Deposits (56) (82) (138) (35) (14) (49) Total Interest-Bearing (75) (147)(222) (173) 35 (138) Deposits Federal Funds Purchased - - - - - - Securities Sold under - - - - - - Agreements to Repurchase Other Short-Term Borrowings - - - - - - Long-Term Debt 8 (2) 6 (1) (3) (4) Total Interest Expense (67) (149) (216) (174) 32 (142)
(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%. Provision for Loan Losses Management's policy is to maintain the allowance for possible loan losses at a level sufficient to absorb estimated losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses and decreased by charge-offs, net of recoveries. Management's evaluation process to determine potential losses includes consideration of the industry, specific conditions of individual borrowers, historical loan loss experience and the general economic environment. As these factors change, the level of loan loss provision changes. At December 31, 2000, the allowance for possible loan losses was $1,800,000 and was that same amount at December 31, 1999. In 2000, the provision for loan losses was $308,000 compared to (recovery of) $(154,000) in 1999. Net charge-offs were $308,000 for 2000 compared to net recoveries of $154,000 in 1999 and net charge-offs of $1,086,000 in 1998. The decrease in provisions for 2000 over 1999 and 1998 primarily resulted from the recovery of $202,000 in 2000 and $1,100,000 in 1999 from the settlement of a major piece of litigation on a proprietary account, which was previously charged off. Based on the volume of credit card charges and payments, the credit card portfolio turns over every eight to nine months, requiring a provision to loan loss allowance less than annual charge-offs due to recoveries being contemporaneously made.
TABLE 3 Allowance for Loan Losses December 31, 2000 1999 1998 1997 1996 (Dollars in Thousands) Balance at beginning of $1,800 $1,800 $1,800 $1,500 $1,500 period Charge-Offs: Commercial 3 49 24 22 51 Real estate 6 0 6 20 0 Installment 38 41 43 94 43 Credit Cards 1,099 1,491 1,877 3,996 2,728 Total Charge-offs 1,146 1,581 1,950 4,132 2,822 Recoveries: Commercial 8 11 13 100 135 Real estate 55 2 30 14 6 Installment 4 17 23 24 27 Credit Cards 771 1,705 798 664 614 Total Recoveries 838 1,735 864 802 782 Net charge-offs 308 (154) 1,086 3,330 2,040 Provision for (recovery 308 (154) 1,086 3,630 2,040 of) loan losses Balance at end of period $1,800 $1,800 $1,800 $1,800 $1,500 Ratio of net charge-offs during period to average loans 0.54% -0.27% 1.83% 5.35% 2.77% outstanding Allowance for possible loan losses as a percentage of loans 3.22% 3.16% 3.00% 3.12% 2.16%
Other Income An important source of the Company's revenue is derived from other income. The following table sets forth the major components of other income for the last three years.
TABLE 4 Other Income $ Change From December 31, Prior Year 2000 1999 1998 2000 1999 (Dollars in Thousands) Service Charges 512 545 653 (33) (108) NSF Charges 564 628 666 (64) (38) Gain on Sale of Securities 0 0 0 0 0 Cardholder & Other Cr Card 503 497 456 6 41 Inc Membership Fees 137 176 224 (39) (48) Other Comm. & Fees 97 97 34 (0) 63 ORE Income 3 9 13 (6) (4) Gain on Sale of ORE 13 27 20 (14) 7 Rev of Litigation 150 0 0 150 0 Settlement Other Income 144 156 183 (12) (27) Total Other Income $2,123 $2,135 $2,249 ($12) ($114)
Total other income decreased to $2,123,000 in 2000 from $2,135,000 in 1999 or a 0.56% decrease. Total other income decreased to $2,135,000 in 1999 from $2,249,000 in 1998 or a 5.07% increase. Other Expense The major categories of other expense include salaries and employee benefits, occupancy and equipment expenses and other operating costs associated with the day-to-day operations of the Company. The following table sets forth the major components of other expense for the last three years:
TABLE 5 Other Expense $ Change From December 31, Prior Year 2000 1999 1998 2000 1999 (Dollars in Thousands) Salaries & Benefits 4,327 4,158 3,670 169 488 Occupancy Expense 1,969 1,969 1,956 0 13 Advertising Expense 108 103 117 5 (14) Communications 184 199 208 (15) (9) Postage 263 301 357 (38) (56) Loan & Credit Card Expense 933 1,031 1,005 (98) 26 Professional Fees 215 330 218 (115) 112 Legal Fees 187 591 524 (404) 67 Insurance & Assessments 95 99 92 (4) 7 Stationery, Forms & Supply 239 317 303 (78) 14 ORE Expenses 48 68 133 (20) (65) Loss on Litigation 0 0 50 0 (50) Other Operating Expense 425 484 491 (59) (7) Total Other Expense $8,993 $9,650 $9,124 ($657) $526
Total other expense decreased 6.81% to $8,993,000 in 2000 from $9,650,000 in 1999. Total other expense increased 5.77% to $9,650,000 in 1999 from $9,124,000 in 1998. Provision for Income Taxes The income tax provision for the Company and the Bank on a consolidated basis, for the year 2000 was $170,000 as compared to $46,000 in 1999 and $96,000 in 1998. The provision for income taxes consists of provisions for federal taxes only. Louisiana does not have an income tax for banks. 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, 2000, has a net interest sensitive asset gap of 33.68% when projecting out one year. In the near term, defined as 90 days, the Company currently has a net interest sensitive liability gap of 6.59%. The information represents a general indication of repricing characteristics over time; however, the sensitivity of certain deposit products may vary during extreme swings in the interest rate cycle. Since all interest rates and yields do not adjust at the same velocity, the interest rate sensitivity gap is only a general indicator of the potential effects of interest rate changes on net interest income. The following table illustrates the Company's interest rate sensitivity analysis at December 31, 2000, as well as the cumulative position at December 31, 2000.
TABLE 6 Interest Rate Sensitivity Analysis December 31, 2000 Over 30 60 90 120 180 One One Days Days Days Days Days Year Year (Dollars in Thousands) Total Earning Assets Securities-HTM - 1,489 - - - 1,493 - Securities - AFS - - - - - - 20 Loans 7,959 2,388 2,127 7,613 14,577 14,543 8,523 Loans held for sale - - - - - - - Federal funds sold 26,950 - - - - - - Total Earning Assets 34,909 3,877 2,127 7,613 14,577 16,036 8,543 Non Earning Assets - - - - - - 7,025 TOTAL ASSETS 34,909 3,877 2,127 7,613 14,577 16,036 15,568 Interest-Bearing Liabilities Savings & Now 37,822 - - - - - - accounts Money market 5,382 - - - - - - CD's < $100,000 1,415 785 484 1,359 1,121 39 1,906 CD's > $100,000 - - 801 - - 400 - Federal Funds - - - - - - - purchased Repurchase - - - - - - - agreements Other short-term - - - - - - - borrowings Notes payable - - - - - - 2,226 Total Interest- 44,619 785 1,285 1,359 1,121 439 4,132 Bearing Liabilities Non Costing Liabilities - - - - - - 40,967 TOTAL LIABILITIES 44,619 785 1,285 1,359 1,121 439 45,099 Interest Sensitivity (9,710) 3,092 842 6,254 13,456 15,597 (29,531) Gap Cumulative Gap (9,710) (6,618) (5,776) 478 13,934 29,531 - Cumulative Gap/Total Interest- Earning Assets -11.07% -7.55% -6.59% 0.55% 15.89% 33.68% 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 ensure 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. Loans The loan portfolio is the largest category of the Company's earning assets. The following table summarizes the composition of the loan portfolio for the last five years:
TABLE 7 Loans Net by Category December 31, 2000 1999 1998 1997 1996 (Dollars in Thousands) Commercial, financial, & 3,095 4,095 4,441 4,281 4,390 agricultural Real estate-mortgage 32,622 30,976 28,861 24,643 22,370 Mortgage Loan Held for 0 0 0 0 0 Resale Personal Loans 3,917 2,845 3,006 5,106 5,731 Credit cards-Visa, 16,547 18,585 21,785 20,302 25,265 MasterCard Credit cards-Proprietary 1,745 2,429 3,510 2,931 11,344 Overdrafts 159 128 154 359 207 Loans 58,085 59,058 61,757 57,622 69,307 Less: Unearned income 358 277 215 2 9 Deferred loan fees 0 0 0 0 0 (costs), net Allowance for possible 1,800 1,800 1,800 1,800 1,500 loan losses Loans, net $55,927 $56,981 $59,742 $55,820 $67,798
Total loans, which include loan loss reserves and unearned interest, decreased $1,053,000 or 1.85% to $55,927,000 at December 31, 2000 from $56,981,000 at December 31, 1999. This decrease was primarily attributable to the decrease in the Company's commercial loans of $1,000,000 or 24.42%, a decrease in the credit card portfolio of $2,722,000 or 12.95% which is offset by an increase in real estate loans of $1,646,000 or 5.31%, an increase in personal loans of $1,072,000 or 37.68% over December 31, 1999 total loans. Total loans decreased $2,761,000 or 4.62% to $56,981,000 at December 31, 1999 from $59,742,000 at December 31, 1998. This decrease was primarily attributable to the decrease in the Company's credit card portfolio of $4,282,000 or 16.93%, which was offset by an increase in real estate loans of 2,114,000 or 7.33%. The following table shows the maturity distribution and interest rate sensitivity of the Company's loan portfolio:
TABLE 8 Loan Maturity and Interest Rate Sensitivity December 31, 2000 Maturing Within One To Over One 5 Years 5 Years Total Year (Dollars in Thousands) Loan Maturity by Type Commercial, financial and agricultural 2,089 1,002 4 3,095 Real estate construction, land and land 18,317 11,363 2,587 32,267 development All other loans 19,326 3,019 20 22,365 Total $39,732 $15,384 $2,611 $57,727 Rate Sensitivity of Loans Loans: Fixed rate loans 36,990 15,384 2,611 54,985 Variable rate 2,693 0 0 2,693 loans Non-Accrual Loans 49 0 0 49 Total $39,732 $15,384 $2,611 $57,727
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 $190,000 or 14.46% at December 31, 2000, to $1,123,000 from $1,314,000 December 31, 1999. At December 31, 2000 there were no restructured loans. Nonperforming assets decreased $123,000 or 8.55% at December 31, 1999, to $1,314,000 from $1,438,000 December 31, 1998. At December 31, 1999 there were no restructured loans. Since 1996, the ratio of past due loans to total loans has decreased from 3.31% to .66%. During that time, the Company significantly reduced its ratio of nonperforming assets to loans and ORE from a high of 2.87% of total loans at December 31, 1996, to a low of 1.97% at December 31, 2000. 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 2000, the gross amount of interest income that would have been recorded on nonaccrual loans at December 31, 2000, if all such loans had been accruing interest at the original contract rate, was $4,298.
TABLE 9 Nonperforming Assets December 31, 2000 1999 1998 1997 1996 (Dollars in Thousands) Nonaccrual Loans 49 40 81 83 316 Restructured Loans 0 0 0 0 0 Other Real Estate Owned 1,074 1,274 1,357 1,473 1,723 Total Nonperforming $1,123 $1,314 $1,438 $1,556 $2,039 Assets Loans past due 90 days or 367 528 852 1,257 2,295 more Ratio of past due loans to 0.66% 0.93% 1.42% 2.18% 3.31% loans Ratio of nonperforming assets to loans and other real estate 1.97% 2.26% 2.34% 2.63% 2.87% owned
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 collectability 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, 2000 and 1999, there was no recorded investment in loans that are considered impaired under SFAS 114 and 118. Watch List The Bank's watch list includes loans, which, for management purposes, have been identified as requiring a higher level of monitoring due to risk, and includes both performing and nonperforming loans. The majority of watch list loans are classified as performing, because they do not have characteristics resulting in uncertainty about the borrower's ability to repay principal and interest in accordance with the original terms of the loans. The watch list consists of classifications, identified as Type 1 through Type 4. Types 1, 2 and 3 generally parallel the regulatory classifications of loss, doubtful and substandard, respectively. Type 4 generally parallels the regulatory classification of Other Assets Especially Mentioned (OAEM). These loans require monitoring due to conditions which, if not corrected, could increase credit risk. Total watch list loans decreased 15.01% to $2,996,000 at December 31, 2000 from $3,525,000 at December 31, 1999. Management is not aware of any potential problem loans other than those disclosed above, which includes all loans recommended for classification by regulators, which would have a material impact on asset quality. 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 $1,074,000 at December 31, 2000, $1,274,000 at December 31, 1999, and $1,357,000 at December 31, 1998. There was one new parcel added in 2000. During the fiscal year 2000 the Bank sold 2 parcels of ORE totaling $31,000 as compared to 3 parcels sold in 1999 totaling $168,000 and 2 parcels totaling $116,000 in 1998. Historically the Bank has always sold ORE parcels for a net gain, $13,000 in 2000, $27,000 in 1999, and $20,000 in 1998. The costs associated with the sales of ORE are minimal as compared to the gains, $0 in 2000, $3,000 in 1999, and $1,000 in 1998. 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, 2000, which are in excess of $50,000:
TABLE 10 Other Real Estate Over %50,000 Date Book AppraisalAppraisal Address Acquired Value Date Amount (Dollars in Thousands) 123-125 Carondelet 01/17/91 423 02/01/00 460 617 N. Broad 09/24/91 391 10/01/99 605 27 Audubon Blvd 09/24/91 260 10/17/00 515 $1,074
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 ($32,000) in 2000, ($32,000) in 1999, ($100,000) in 1998. The following table reflects a breakdown of the income and expense amounts related to ORE operations:
TABLE 11 Other Real Estate Income/Expense 2000 1999 1998 (Dollars in Thousands) ORE Income Rental Income 3 9 13 Gain on Sales 13 27 20 Total Income 16 36 33 ORE Expenses Maintenance, Repairs, Upkeep & 15 20 40 Security Real Estate Fees, Advertising & 5 7 6 Appraisals Insurance 10 18 49 Sheriff Sale 3 0 0 Legal Fees 1 4 20 Taxes 14 13 18 Writedowns 0 6 0 Loss on Sale 0 0 0 Total Expenses 48 68 133 Net Gain or Loss ($32) ($32) ($100)
Allocation of Allowance for Possible Loan Losses Allocation of the allowance for loan losses is based primarily on previous credit loss experience, adjusted for changes in the risk characteristics of each category. Additional amounts are allocated based on the evaluation of the loss potential of individual troubled loans and the anticipated effect of economic conditions on both individual loans and loan categories. Since the allocation is based on estimates and subjective judgment, it is not necessarily indicative of the specific amounts of loan categories in which losses may ultimately occur.
Table 12 Allocation of Allowance for Possible Loan Losses December 31, December 31, December 31, 2000 1999 1998 Allowance % * Allowance % * Allowance % * (Dollars in Thousands) Commercial, financial and agricultural 330 61.49% 324 55.53% 314 53.92% Real Estate- - - - - - - Construction Real Estate-Mortgage - - - - - - Consumer Installment 124 6.70% 103 8.89% 99 5.12% Credit Cards 1,346 31.81% 1,373 35.58% 1,387 40.96% Unallocated - - - - - - Total 1,800 1,800 1,800 December 31, December 31, 1997 1996 Allowance % * Allowance % * (Dollars in Thousands) Commercial, financial and agricultural 285 50.20% 263 33.61% Real Estate- - - - - Construction Real Estate-Mortgage - - - - Consumer Installment 110 9.48% 118 8.57% Credit Cards 1,405 40.32% 1,119 52.82% Unallocated - - - - Total 1,800 1,500 * Percentage of respective loan type to total loans.
Investment Securities The Company's investment portfolio policy is to maximize income consistent with liquidity, asset quality, regulatory constraints, and asset/liability objectives. The Company's Board of Directors reviews the policy not less than annually. The levels of taxable and tax-exempt securities and short-term investments reflect the Company's strategy of maximizing portfolio yields while providing for liquidity needs. The Investment securities totaled $3,400,000 at December 31, 2000, $3,400,000 at December 31, 1999, and $4,800,000 at December 31, 1998. 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, 2000. At December 31, 2000 securities classified as available-for-sale were $388,000 and $367,000 at December 31, 1999. The gross unrealized holding gains on these securities at December 31, 2000 was $99,000 after taxes compared to net unrealized holding gains of $272,000 after taxes at December 31, 1999. At December 31, 2000, the Company classified all of its U. S. Treasury securities and obligations of U.S. government corporations and federal agencies as held-to-maturity. The following table sets forth the carrying and approximate market values of investment securities for the last three years:
TABLE 13 Investment Securities December 31, 2000 1999 1998 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 2,982 2,984 3,004 3,000 4,498 4,514 agencies Other investments 291 388 90 367 90 291 Total $3,273 $3,372 $3,094 $3,367 $4,588 $4,805
TABLE 14 Securities Maturities and Yields December 31, 2000 Amortized Fair Average Cost Value Yield (2) Available-for-Sale U.S. Treasury securities and obligations of U.S. government corporations and agencies Due in 1 year or - - less Due 1-5 years - - Total - - - Held-to-Maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies Due in 1 year or 2,982 2,984 4.59% less Due 1-5 years 0 0 0.00% Total $2,982 $2,984 4.59%
(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 31,2000 (dollars in thousands):
TABLE 15 Other Securities Mississippi River Bank 299,860 Liberty Financial 68,100 Services, Inc. New Orleans SBIDCO, Inc. 20,000 Total Other Securities $387,960
Deposits Total deposits decreased $5,391,000 or 5.95% to $85,164,000 at December 31, 2000 from $90,555,000 at December 31, 1999. 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 7.78% in 2000. Market rate core deposits, primarily CD's of less of $100,000 and money market accounts, decreased 15.19% in 2000. Total deposits decreased $4,028,000 or 4.26% to $90,555,000 at December 31, 1999 from $94,583,000 at December 31, 1998. 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 increased 2.48% in 1999. Market rate core deposits, primarily CD's of less of $100,000 and money market accounts, increased 1.62% in 1999. 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 39.89% of average core deposits in 2000 compared to 38.10% of average core deposits in 1999. The average amount of, and average rate paid on deposits by category for the period shown are presented below:
TABLE 16 Selected Statistical Information December 31, 2000 1999 1998 Average Average Average Amount Rate Amount Rate Amount Rate (Dollars in Thousands) Noninterest-bearing $34,479 N/A $34,670 N/A $33,729 N/A Deposits Interest-bearing Demand 18,229 1.58% 19,873 1.67% 18,109 2.20% Deposits Savings Deposits 25,415 2.93% 26,704 2.94% 26,381 3.06% Time Deposits 9,763 3.91% 11,583 4.49% 11,879 4.79% Total Average Deposits $87,886 $92,830 $90,098
The composition of average deposits for the last three years are presented below:
TABLE 17 Deposit Composition December 31, 2000 1999 1998 (Dollars in Thousands) Average % of Average % of Average % of Balances Deposits Balances Deposits Balances Deposits Demand, noninterest- 34,479 39.23% 34,670 37.35% 33,729 37.44% bearing NOW accounts 13,360 15.20% 14,091 15.18% 13,295 14.76% Money market deposit 4,869 5.54% 5,782 6.23% 4,814 5.34% accounts Savings accounts 25,415 28.92% 26,704 28.77% 26,381 29.28% Other time deposits 8,312 9.46% 9,760 10.51% 10,481 11.63% Total core deposits 86,435 98.35% 91,007 98.04% 88,700 98.45% Certificates of deposit of $100,000 or more 1,451 1.65% 1,823 1.96% 1,398 1.55% Total deposits $87,886 100.00% $92,830 100.00% $90,098 100.00%
The following table sets forth maturity distribution of Time Deposits of $100,000 or more for the past three years:
TABLE 18 Maturity Distribution of Time Deposits $100,000 or More December 31, 2000 1999 1998 (Dollars in Thousands) Three months or less 801 633 614 After three months through one year 400 851 830 After one year through three years 0 200 200 Total $1,201 $1,684 $1,644
Other Assets and Other Liabilities The following are summaries of other assets and other liabilities for the last three years:
TABLE 19 Other Assets & Other Liabilities December 31, 2000 1999 1998 (Dollars in Thousands) Interest Receivable 64 108 213 Prepaid Expenses 358 314 296 Accounts Receivable 254 1,122 364 Cash Surrender Value 411 394 393 Other Assets 39 31 45 Total Other Assets $1,126 $1,969 $1,311 December 31, 2000 1999 1998 (Dollars in Thousands) Accrued Expenses Payable 229 228 150 Accounts Payable 0 0 0 Deferred Membership Fees 40 53 64 Blanket Bond Fund 50 50 50 Other Liabilities 698 920 85 Total Other $1,017 $1,251 $349 Liabilities
Borrowings The Company's long-term debt is comprised primarily of debentures. Each $500 debenture is secured by a pledge of 40.79 shares of the Bank's stock. The Bank has no long-term debt. It is the Bank's policy to manage its liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions. The Bank maintains a Federal Funds line of credit in the amount of $1,000,000 with a correspondent bank and also has a commitment from an upstream correspondent that will increase our Federal Funds line of credit over and above the normal amount by pledging unused securities. The Bank can borrow the amount of unpledged securities at the discount window at the Federal Reserve Bank by pledging those securities. Shareholders' Equity Shareholders' equity increased $393,000 or 7.37% to $5,722,000 at December 31, 2000 from $5,329,000 at December 31, 1999. This increase in shareholders' equity since December 31, 2000, was attributable to $379,000 in net income and an increase in accumulated other comprehensive income of $14,000. Shareholders' equity increased $144,000 or 2.77% to $5,329,000 at December 31, 1999 from $5,185,000 at December 31, 1998. This increase in shareholders' equity since December 31, 1998, was attributable to $94,000 in net income and an increase in accumulated other comprehensive income of $50,000. The leverage ratio (Tier 1 capital to total assets) at December 31, 2000, was 7.81% compared to 6.80% at December 31, 1999, which are compared to the minimum capital requirement of 4.00%. The leverage ratio (Tier 1 capital to total assets) at December 31, 1999, was 6.80% compared to 6.89% at December 31, 1998, which are compared to the minimum capital requirement of 4.00%. At December 31, 2000, based on the Federal Reserve Board's guidelines, the Company's Tier 1 risk based capital ratio was 12.27, and the risk based capital ratio was 13.54%. At December 31, 1999, the Company's Tier 1 risk based capital ratio was 10.50, and the risk based capital ratio was 11.77%. The ratio of average shareholders' equity to average assets was 5.83% in 2000, 4.81% in 1999, and 5.51% in 1998. Supervision and Regulation Enforcement Action The Bank is currently subject to an enforcement action from its primary regulators, the Federal Deposit Insurance Corporation (FDIC), and the Office of Financial Institutions (OFI), in the form of a Memorandum of Understanding. See Note X "Regulatory Matters." Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure LaPorte, Sehrt, Romig and Hand, Certified Public Accountants perform all audit services for the Company and the subsidiary. The same firm will be retained to perform audit services in 2001.
Item 10 Directors and Executive Officers of the Company Principal Occupation For Company Stock Beneficially Owned Last Five Years Common Preferred If Not With Name (Age) Position Number Percent Number Percent The Company Held G. Harrison Scott Director; 58,480 32.64% 104,798 4.55% N/A (77) Chairman of the Board of the Company and the Bank James A. Comiskey Director; 36,559 20.41%(1) 101,520 4.41% N/A (74) President of the Company and the Bank Douglas A. Director of 2,740 1.53%(2) 18,537 (*) President, Schonacher the (70) Company and the Bank V.I.P. Dist. Gordon A. Burgess Director of 1,015 (*) 36,164 1.57% President, the (67) Company and the Bank Tangipahoa Parish Council Lionel J. Favret, Director of 571 (*) 31,656 1.38% Retired Sr. the (89) Company and the Bank Leland L. Landry Director of 3,800 2.12% 2,387 (*) President, the (74) Company and the Bank Landry Realty Edward J. Soniat Director of 9,495 5.30% 249,448 10.83% President, the (88) Company and the Bank Blaise and Secretary of the Parking Company Enterprise Corp. Non-Director Executive Officers Peggy L. Treasurer 50 (*) 2,772 (*) N/A Schaefer of (49) the Company and Senior Vice President, and Chief Financial Officer of the Bank All Directors & Executive 112,710 62.92% 547,282 23.77% Officers as a group (8 persons)
(*) Represents less than 1% of the shares outstanding. (1) Includes 47 common shares and 2,661 preferred shares owned by Director Comiskey's spouse. (2) Includes 2,525 common shares and 9,213 preferred shares owned by Director Schonacher's spouse. Directors 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, 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 and as a Bank officer since 1983. 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 nominating, or compensation committees of the Board of Directors, or committees performing similar functions. In lieu thereof, the Board of Directors as a group performs the foregoing functions. Item 11 Executive Compensation The Company pays no salaries or other compensation to its directors and executive officers. The Bank pays each director, other than Messrs. Scott and Comiskey, an honorarium for attending each meeting of the Board of Directors, and each meeting of the Bank's Audit and Finance Committee and Executive Committee, in the amount of $400, $300, and $300, respectively. From October 1, 1990, through June 30, 1992, the director-recipients loaned these honorariums to the Company. The total amount loaned to the Company since October 1, 1990, and as of December 31, 2000, was $545,652, including accrued and unpaid interest at the rate of 10% per annum. At this time, there is no maturity date on these loans. The following table sets forth compensation for the Bank's executive officers for the calendar years 2000, 1999, and 1998:
Annual Compensation Other Annual All Other Name and Principal Year Salary Compensation Compensation Position ($) ($) ($) G. Harrison Scott, 2000 89,800 41,000 19,494 Chairman of the 1999 93,254 41,000 19,494 Board 1998 89,800 20,500 19,494 James A. Comiskey, 2000 89,800 41,000 19,000 President 1999 93,254 41,000 19,000 1998 89,800 20,500 19,000
In addition to the cash compensation shown in the foregoing table, the Bank provides an automobile and certain club memberships for Messrs. Scott and Comiskey. The Bank also provides life insurance policies for Messrs. Scott and Comiskey. Upon the death of the insured, the Company is entitled to receive, from the death proceeds, all of the premiums it has paid for such policy, but in no event more than $150,000 per man, with the remaining death benefit being paid to the named beneficiary. The Bank has also provided Messrs. Scott and Comiskey with life insurance policies in which each is entitled to name their own respective beneficiaries. The cost of these benefits borne by the Bank in 2000 were $19,494 for Mr. Scott's policy and $19,000 for Mr. Comiskey's policy as reflected in the "All Other Compensation" column in the foregoing table. Committees of the Board of Directors of the Company and the Bank During fiscal year 2000, the Board of Directors of the Company held a total of 5 meetings, and the Board of Directors of the Bank held a total of 12 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 has an Audit and Finance Committee. This committee also serves as the Audit and Finance Committee for the Company. It is a five-member body consisting of three permanent members and two rotating members. The permanent members are Messrs. Favret (chairman), Landry, and Soniat. The two rotating members are Messrs. Burgess, and Schonacher. By its charter, this committee meets monthly on the first Tuesday of the month. The Audit and Finance Committee reviews information from management; reviews financial and delinquency reports; reviews the work performed by the Bank's internal auditor and by the independent certified public accountant firm. In addition this committee also reviews capital expenditures in excess of $5,000; analyzes the Loan Loss Reserve adequacy; and approves charge offs. The Audit and Finance Committee met 12 times in 2000. The Audit and Finance Committee discloses the following: 1. They have reviewed and discussed the audited financial statements with management, and with the independent auditors. 2. They have received a letter and written disclosure from the independent auditors, and have discussed the independence of the auditors. 3. They have recommended to the Board of Directors that the financial statements prepared by the independent auditors be included in the Annual Report. The Bank also has an Executive Committee consisting of five permanent members and two rotating members. The permanent members of the Executive Committee in 2000 were Messrs. Scott (chairman), Comiskey, Favret, Soniat, and Burgess, and the rotating members were selected from Messrs. 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 26 times in 2000. Item 12 Security Ownership Of Certain Beneficial Owners and Management As of December 31, 2000, the following persons were known to be the beneficial owners of more than 5% of the Company's stock.
Name & Address Of Title Of Amount Percent Beneficially Beneficial Owners Class Owned Of Class G. Harrison Scott Common 58,480 32.64% 55481 Hwy. 433 Preferred 104,798 4.55% Slidell, LA 70461 James A. Comiskey Common 36,559 (1) 20.41% 1100 City Park Preferred 101,520 4.41% Ave. New Orleans, LA 70119 Edward J. Soniat Common 9,495 5.30% 49 Oriole Street Preferred 249,448 10.83% New Orleans, LA 70124
(1) Includes 47 common shares and 2,661 preferred shares owned by Director Comiskey's spouse. Item 13 Certain Relationships and Related Transactions The Bank makes loans in the ordinary course of business to its directors and executive officers, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectability or present other unfavorable features. The aggregate amount borrowed by all officers, directors, and their associates totaled $817,717 at December 31, 2000 and the highest aggregate amount borrowed during the year totaled $1,449,672. These aggregate amounts represented 10.77% and 19.09% of the total capital of the Bank, respectively. 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, which in turn sold the building to the Bank. As of December 31, 2000, there was a balance of $62,073 in principal and accrued but unpaid interest on the loan, which bears interest at the rate of 13.50% per annum. The loan matured on September 30, 1996, however, Mr. Soniat 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 such loan on September 30, 2006. The 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, 2000, 1999 and 1998 totaled $478,970, $490,244, and $479,388 respectively. An annual rent of $74,400 was paid to Tammany Mall Partnership for the years ended December 31, 2000, 1999 and 1998. Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K BOL BANCSHARES, INC. & SUBSIDIARY December 31, 2000 Audits of Financial Statements December 31, 2000 and December 31, 1999 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, 2000 and 1999, and the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders' equity, and cash flows for the years ended December 31, 2000, 1999 and 1998. 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. The Company had excluded from income in the accompanying consolidated income statement for the year ended December 31, 1999, an amount received from litigation settlement, that in our opinion, should have been included to conform with generally accepted accounting principles. This settlement has been included in the consolidated income statement for the year ended December 31, 2000. If the settlement was accounted for properly, other liabilities would be decreased by $201,292, deferred tax assets would be decreased by $68,440, retained earnings would be increased by $132,852 as of December 31, 1999, and net income would be increased by $132,852 ($.75 per share), for the year then ended. In addition, net income for the year ended December 31, 2000, would be decreased by $132,852 ($.75 per share). In our opinion, except for the effects of not including the amount received from litigation settlement, as discussed in the preceding paragraph, 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, 2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000, 1999 and 1998, in conformity with generally accepted accounting principles. A Professional Accounting Corporation /s/ LAPORTE, SEHRT, ROMIG & HAND Metairie, LA January 15, 2001 A Professional Accounting Corporation 110 Veterans Memorial Boulevard, Suite 200, Metairie, LA 70005-4958 (504)835-5522 FAX (504)835-5535 724 East Boston Street Covington, LA 70433(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 Affiliation with CPAmerica International
BOL BANCSHARES, INC. & SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS December 31, 2000 1999 Cash and Due from Banks Non-Interest Bearing Balances and Cash $ 4,909,060 $ 8,703,964 Federal Funds Sold 25,905,000 24,785,000 Investment Securities Securities Held-to-Maturity (Fair Value of $2,984,427 in 2000 and $2,999,061 in 1999) 2,981,849 3,003,546 Securities Available-for-Sale, at Fair Value 387,960 366,545 Loans - Less Allowance for Loan Losses of $1,800,000 in 2000 and 1999, and Unearned Discounts of $358,437 in 2000 and $276,804 in 1999 55,926,682 56,980,651 Property, Equipment and Leasehold Improvements (Net of Depreciation and Amortization) 2,131,262 2,540,585 Other Real Estate 1,074,012 1,274,013 Other Assets 1,126,435 1,968,500 Deferred Taxes 210,740 382,308 Letters of Credit 53,980 103,888 $94,706,980 $100,109,000
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2000 1999 LIABILITIES Deposits Non-Interest Bearing $34,030,683 $35,305,878 Interest Bearing 51,133,401 55,249,817 Notes Payable 2,225,827 2,232,528 Other Liabilities 1,017,113 1,251,449 Accrued Litigation Settlement 0 150,000 Letters of Credit Outstanding 53,980 103,888 Accrued Interest 524,194 486,363 Total Liabilities 88,985,198 94,779,923 STOCKHOLDERS' EQUITY Preferred Stock - Par Value $1 2,302,811 Shares Issued and Outstanding in 2000 and 1999 2,302,811 2,302,811 Common Stock - Par Value $1 179,145 Shares Issued and Outstanding in 2000 and 1999 179,145 179,145 Accumulated Other Comprehensive Income 196,917 182,783 Capital in Excess of Par - Retired Stock 14,888 14,888 Retained Earnings 3,028,021 2,649,450 Total Stockholders' Equity 5,721,782 5,329,077 $94,706,980 $100,109,000
BOL BANCSHARES, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (LOSS) For the Years Ended December 31, 2000 1999 1998 INTEREST INCOME $9,357,443 $9,348,210 $9,813,783 INTEREST EXPENSE 1,630,450 1,846,456 1,986,681 Net Interest Income 7,726,993 7,501,754 7,827,102 PROVISION FOR (RECOVERY OF) LOAN LOSSES 308,194 (154,231) 1,085,625 Net Interest Income After Provision for Loan Losses 7,418,799 7,655,985 6,741,477 OTHER INCOME Service Charges on Deposit Accounts 1,125,943 1,228,330 1,318,419 Other Non-Interest Income 847,275 906,224 930,992 Reversal of Litigation Settlement 150,000 0 0 Total Other Income 2,123,218 2,134,554 2,249,411 OTHER EXPENSES Salaries and Employee Benefits 4,327,373 4,148,212 3,669,949 Occupancy Expense 1,969,464 1,978,669 1,956,172 Loss on Litigation 0 0 50,000 Other Non-Interest Expense 2,696,115 3,523,229 3,447,384 Total Other Expenses 8,992,952 9,650,110 9,123,505 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 549,065 140,429 (132,617) INCOME TAX EXPENSE 170,494 46,272 95,650 NET INCOME (LOSS) $378,571 $94,157 ($228,267) EARNINGS (LOSS) PER SHARE OF COMMON STOCK $2.11 $0.53 ($1.27)
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, 2000 1999 1998 NET INCOME (LOSS) $378,571 $94,157 ($228,267) OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized Holding Gains on Investment Securities Available-for- Sale, Arising During the Period 14,134 49,596 133,806 Less: Reclassification Adjustment for Gains Included in Net Income 0 0 (50) OTHER COMPREHENSIVE INCOME 14,134 49,596 133,756 COMPREHENSIVE INCOME (LOSS) $392,705 $143,753 ($94,511)
The accompanying notes are an integral part of these financial statements.
BOL BANCSHARES, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Accumulated Capital In Other Excess of Preferred Common Comprehensive Par Retained Stock Stock Income Retired Earnings Total Stock BALANCE - December 31, $2,302,811 $179,145 ($569) $14,888 $2,783,560 $5,279,835 Other Comprehensive Income, Net of Applicable Deferred Income Taxes 133,756 - - - - 133,756 Net (Loss) for the Year - - 1998 - - (228,267) (228,267) BALANCE - December 31, 133,187 14,888 1998 2,302,811 179,145 2,555,293 5,185,324 Other Comprehensive Income, Net of Applicable Deferred Income Taxes 49,596 - - - - 49,596 Net Income for the Year - - 1999 - - 94,157 94,157 BALANCE - December 31, 182,783 14,888 1999 2,302,811 179,145 2,649,450 5,329,077 Other Comprehensive Income, Net of Applicable Deferred Income Taxes 14,134 - - - - 14,134 Net Income for the Year - - 2000 - - 378,571 378,571 BALANCE - December 31, $2,302,811 $179,145 $196,917 $14,888 $3,028,021 $5,721,782
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, 2000 1999 1998 OPERATING ACTIVITIES Net Income (Loss) $378,571 $94,157 ($228,267) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Provision for (Recovery of) Loan Losses 308,194 (154,231) 1,085,625 Depreciation and Amortization Expense 510,066 540,745 454,298 Amortization of Investment Security 3,546 18,220 2,170 Premiums Accretion of Investment Security (3,833) (2,263) (20,221) Discounts Decrease in Deferred Income Taxes 164,287 46,272 95,651 Gain on Sale of Other Real Estate (13,114) (27,206) (19,733) (Increase) Decrease in Other Assets 830,987 (657,181) 1,223,789 Increase (Decrease) in Other Liabilities, Accrued Interest and Accrued Loss Contingency (346,506) 126,387 670,271 Net Cash Provided by (Used in) Operating Activities 1,832,198 (15,100) 3,263,583 INVESTING ACTIVITIES Proceeds from Available-for-Sale Securities Released at Maturity - - 1,000,000 Proceeds from Held-to-Maturity Investment Securities Released at Maturity 5,917,843 4,500,000 5,500,000 Purchases of Held-to-Maturity Investment (5,895,858)(3,021,562) (501,250) Securities Proceeds from Sale of Property and 244 410 858 Equipment Purchases of Property and Equipment (89,909) (576,000) (263,313) Proceeds from Sale of Other Real Estate 244,500 168,000 136,000 Purchases of Loans (418,500) (764,353)(4,792,309) Net (Increase) Decrease in Loans 1,132,890 3,621,850 (216,033) Net Cash Provided by Investing 891,210 3,928,345 863,953 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, 2000 1999 1998 FINANCING ACTIVITIES Net Increase (Decrease) in Non-Interest Bearing and Interest Bearing Deposits ($5,391,611) ($4,027,417) $642,575 Proceeds from Issuance of Long-Term Debt 1,753,000 - - Principal Payments on Long-Term Debt (1,759,701) (39,859) (11,121) Net Cash Provided by (Used in) Financing Activities (5,398,312) (4,067,276) 631,454 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,674,904) (154,031) 4,758,990 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 33,488,964 33,642,995 28,884,005 CASH AND CASH EQUIVALENTS - END OF YEAR $30,814,060 $33,488,964 $33,642,995 SUPPLEMENTAL DISCLOSURES: Additions to Other Real Estate through $31,385 $62,663 $0 Foreclosure Cash Paid During the Year for Interest $1,592,619 $1,886,062 $1,988,981 Cash (Paid) Received During the Year for ($5,000) $0 $876,831 Income Taxes Market Value Adjustment for Unrealized Gain (Loss) on Securities Available-for-Sale $21,415 $75,145 $202,660
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 loans are recognized as income over the term of the loans on the interest method. Interest on other loans is calculated and credited to operations on a simple interest basis. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Loan origination fees and certain direct origination costs, when material, are capitalized and recognized as an adjustment of the yield on the related loan. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluation of the collectibility of loans and prior loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. Accrual of interest is discontinued and accrued interest is charged off on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrowers' financial condition is such that collection of interest is doubtful. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Buildings, office equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization computed principally on the straight-line and modified accelerated cost recovery methods over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 June 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 $1,491,885 and $1,595,000 for the years ended December 31, 2000 and 1999, 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 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. 138 (SFAS 138), "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment of SFAS 133, is effective for the quarter beginning after June 15, 2000. This statement addresses a limited number of issues causing implementation difficulties for entities that apply SFAS 133, which requires 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 had no effect on the financial position and results of operations of the Company. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ACCOUNTING STANDARDS NOT YET ADOPTED (Continued) Statement of Financial Accounting Standards No. 140 (SFAS 140), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", a replacement of SFAS 125. This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for years ending after December 15, 2000. The adoption of this pronouncement had no effect on the financial position and results of operations of the Company. NOTE B RESTATEMENT OF PRIOR PERIOD During 1999, the Banks' regulators advised that the Company incorrectly applied the full accrual method of accounting for the sale of Other Real Estate in 1998. Accordingly, the accompanying consolidated financial statements have been restated from those originally reported to reflect the change to the cost recovery method. The effect of the restatement for 1998 was a decrease in income before income tax expense of $901,282 ($5.03 per share), a decrease in income tax expense of $166,852 ($.93 per share), for an overall decrease in net income of $734,430 ($4.10 per share). Under the cost recovery method, the bank does not recognize the gain on the sale of this piece of other real estate or interest income on the loan made to the purchasers, until the total payments made by the purchaser reach certain levels. If all scheduled payments are made in accordance with the loan agreement, the transaction will revert to the full accrual method on January 25, 2001, resulting in recognition of a $686,026 gain and approximately $145,000 in interest income. NOTE C 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 ($32,309) in 2000, ($31,640) in 1999, and ($100,058) in 1998. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D LOANS
Major classification of loans are as follows: December 31, 2000 1999 Real Estate Mortgages $32,621,620 $30,960,725 Commercial 3,094,802 1,830,551 Personal 3,916,773 5,125,223 Credit Cards 18,291,947 21,012,608 Overdrafts 159,977 128,348 58,085,119 59,057,455 Unearned Discounts 358,437 276,804 57,726,682 58,780,651 Allowance for Loan Losses 1,800,000 1,800,000 $55,926,682 $56,980,651
The following is a classification of loans by rate and maturity: (Dollar amounts in thousands)
December 31, 2000 1999 Fixed Rate Loans: Maturing in 3 Months or Less $5,563 $6,800 Maturing Between 3 and 12 Months 15,271 12,612 Maturing Between 1 and 5 Years 31,540 33,502 Maturing After 5 Years 2,969 2,713 55,343 55,627 Variable Rate Loans: Maturing Quarterly or More Frequently 2,599 3,391 Maturing Between 3 and 12 Months 94 - Non-Accrual Loans 49 40 58,085 59,058 Less: Unearned Discount 358 277 Less: Allowance for Loan Losses 1,800 1,800 Net Loans $55,927 $56,981
As of December 31, 2000 and 1999, there was no recorded investment in loans that are considered impaired under SFAS 114 and 118. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D LOANS (Continued) The Bank purchases credit card portfolios occasionally resulting in premiums or discounts. Premiums and discounts are being amortized as an adjustment to interest income over a three year period following the purchase date. Unamortized premiums at December 31, 2000 and 1999 totaled $93,044 and $290,207, respectively. NOTE E NON-PERFORMING ASSETS Non-performing assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure. These assets are included on the accompanying consolidated balance sheets under the account caption, "Other Real Estate", and amount to $1,074,012 at December 31, 2000 and $1,274,013 at December 31, 1999. 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, 2000, $49,177 of loans were in the non-accrual status and $4,298 of interest was foregone in the year then ended. At December 31, 1999, $39,698 of loans were in the non-accrual status and $1,909 of interest was foregone in the year then ended. NOTE F 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, 2000:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury Securities $2,981,849 $2,578 $ - $2,984,427
Securities available-for-sale consisted of the following at December 31, 2000:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity Securities $291,400 $96,560 $- $387,960
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F INVESTMENT SECURITIES (Continued) Securities held-to-maturity consisted of the following at December 31, 1999:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury Securities $3,003,546 $ - $ 4,485 $2,999,061
Securities available-for-sale consisted of the following at December 31, 1999:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Equity Securities $89,601 $276,944 $- $366,545
The maturities of investment securities at December 31, 2000 are as follows:
Securities Held-to-Maturity Securities Available-for-Sale Amortized Market Amortized Market Cost Value Cost Value Amounts maturing in: One year or less $2,981,849 $2,984,427 $ 291,400 $387,960
Securities of $995,212 at December 31, 2000 and $1,101,300 at December 31, 1999 were pledged to secure public funds. NOTE G INCOME TAXES The components of the provision for income tax expense are:
2000 1999 1998 Current $ 6,207 $ - $- Deferred 164,287 46,272 95,650 Total Provision for Income Tax $170,494 $ 46,272 $95,650
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G 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:
2000 1999 1998 Computed Tax at the Expected Statutory Rate $186,682 $ 47,746 $(45,090) Tax Exempt Income - - 139,584 Other Adjustments (16,188) (1,474) 1,156 Income Tax Expense (Benefit) for Operations $170,494 $ 46,272 $ 95,650
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 $210,740 and $382,308 as of December 31, 2000 and 1999, respectively. The major temporary differences, which created deferred tax assets and liabilities, are as follows:
2000 1999 Deferred Tax Assets: Other Real Estate $ 41,752 $ 28,880 Allowance for Loan Loss 71,921 - Deferred Gain on Sale of Other Real Estate 166,852 166,852 Accruals not Deductible Until Paid - 24,025 Net Operating Loss and Tax Credit Carryforward 77,183 310,713 Contributions Carryforward 21,181 16,893 Accrued Litigation Settlement - 51,000 Total Deferred Tax Assets 378,889 598,363 Deferred Tax Liabilities: Unrealized Gain on Securities FASB 115 Adjustment (81,680) (76,772) Accumulated Depreciation (86,469) (106,418) Allowance for Loan Loss - (32,865) Total Deferred Tax Liabilities (168,149) (216,055) Deferred Tax Assets, Net of Deferred Tax Liabilities $210,740 $382,308
The net operating loss carryforwards totaling $88,700 and the tax credit carryforwards totaling $47,025 expire in the years 2014 through 2015. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE H PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
December 31, 2000 1999 Furniture and Equipment $4,462,555 $4,393,886 Bank Owned Vehicles 77,357 77,357 Leasehold Improvements 404,106 383,110 Land 468,425 468,425 Buildings 1,334,075 1,334,075 6,746,518 6,656,853 Less: Accumulated Depreciation and Amortization 4,615,256 4,116,268 $2,131,262 $2,540,585
Depreciation and amortization expense aggregated $510,066 in 2000, $540,745 in 1999 and $454,298 in 1998. NOTE I ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows:
For The Years Ended December 31, 2000 1999 1998 Balance - January 1 $1,800,000 $1,800,000 $1,800,000 Provision Charged to: Operations 308,194 (154,231) 1,085,625 Loans Charged Off (1,146,684) (1,581,595) (1,950,067) Recoveries 838,490 1,735,826 864,442 Balance - December 31 $1,800,000 $1,800,000 $1,800,000
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J 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 2000 and 1999. 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 2000 and 1999. On August 10, 1999, the Company declared a dividend distribution of one purchase right for each outstanding share of common stock. Each right entitles the holder, at any time following the "Distribution Date" to purchase one share of common stock of the Company at an exercise price of $7.50 per share. A "Distribution Date" occurs ten days following certain actions designed to acquire 20% or more of the Company's voting securities. The rights will expire on August 9, 2009. NOTE K EARNINGS PER COMMON SHARE Earnings per share are computed using the weighted average number of shares outstanding, which were 179,145 in 2000, 1999 and 1998. There was no provision for dividends for the years ended December 31, 2000, 1999 or 1998. NOTE L 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:
2000 1999 1998 Credit Card Arrangements $62,401,000 $52,025,000 $54,089,000 Commitments To Extend Credit 1,373,000 2,017,293 557,000
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. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE L CONTINGENT LIABILITIES AND COMMITMENTS (Continued) 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 has filed a counter-claim in this case and believes the suits are without merit and intends to defend vigorously its position. The Subsidiary Bank is a defendant in a lawsuit filed by one of its proprietary customers for alleged breach of contract. In 1997, a judgment was rendered against the bank, and accordingly, a provision for loss of $150,000 was charged to operations. During 2000, the subsidiary bank was successful in its appeal, resulting in a reversal of the $150,000 litigation settlement in the accompanying consolidated financial statements for 2000. NOTE M 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:
2000 1999 Balance - January 1 $986,583 $1,053,824 New Loans Made and Renewals 463,089 61,524 Reclassifications - (16,697) Repayments and Maturities (631,955) (112,068) Balance - December 31 $817,717 $ 986,583
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, 2000, 1999 and 1998 totaled $478,970, $490,244 and $479,388, respectively. An annual rent of $74,400 was paid to Tammany Mall Partnership for the years ended December 31, 2000, 1999 and 1998. At December 31, 2000 and 1999 amounts due to Officers and Directors of the Company, including accrued interest, totaled $545,652 and $649,781, respectively. These amounts which are included in Notes Payable and Accrued Interest Payable in the accompanying consolidated balance sheets, are payable on demand and bear interest at 10% per annum. Of the debentures payable at December 31, 2000 and 1999, $140,500 and $196,000, respectively, were to Officers and Directors of the Company (see Note R). Another note payable to Director totaled $62,073 and $68,774 at December 31, 2000 and 1999, respectively, and is also disclosed in Note R. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE N LEASES The Subsidiary Bank leases office space under agreements expiring in various years through December 31, 2006. Two of the leases are with related parties, as discussed in Note M. 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, 2000, under the leases is $2,207,503, which is due as follows:
December 31, 2001 $663,943 2002 669,295 2003 397,274 2004 393,276 2005 83,715 $2,207,503
For the years ended December 31, 2000, 1999 and 1998, $800,947, $792,323 and $805,605 was charged to rent expense, respectively. The Subsidiary Bank is the lessor of office space under operating leases expiring in various years through 2003. Minimum future rentals to be received on non-cancelable leases as of December 31, 2000 are:
December 31, 2001 $ 94,124 2002 39,256 2003 25,976 $159,356
NOTE O LETTERS OF CREDIT Outstanding letters of credit were $53,980 and $103,888 as of December 31, 2000 and 1999, respectively. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE P INTEREST BEARING DEPOSITS Major classifications of interest bearing deposits are as follows:
December 31, 2000 1999 NOW Accounts $12,738,496 $13,654,393 Money Market Accounts 5,004,015 5,458,005 Savings Accounts 24,834,795 25,816,343 Certificates of Deposit Greater Than $100,000 1,200,954 1,684,337 Other Certificates of Deposit 7,355,141 8,636,739 $51,133,401 $55,249,817
The maturities of Certificates of Deposit Greater than $100,000 at December 31, 2000 are as follows: (Dollar amounts in thousands)
Three Months or Less $ 801 $ 633 After Three Months Through One Year 400 851 After One Year Through Three Years - 200 $1,201 $1,684
NOTE Q 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 without prior regulatory approval. Refer to Note X. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R NOTES PAYABLE The following is a summary of notes payable at December 31, 2000 and 1999:
December 31, 2000 1999 Notes payable to current and past 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. 62,073 68,774 Debentures payable, due July 2003, 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 40.79 shares of the Subsidiary Bank's stock. 1,753,000 1,753,000 $2,225,827 $2,232,528
Following are maturities of long-term debt: December 31, 2001 $418,417 2002 8,763 2003 1,763,023 2004 11,462 2005 13,109 Subsequent to 2005 11,053 $2,225,827
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S INTEREST INCOME AND INTEREST EXPENSE Major categories of interest income and interest expense are as follows:
December 31, 2000 1999 1998 INTEREST INCOME Interest and Fees on Loans: Real Estate Loans $2,644,013 $2,451,875 $2,423,299 Installment Loans 368,048 358,530 390,419 Credit Cards and Related Plans 3,870,716 4,382,728 4,896,216 Commercial and all Other Loans 520,616 445,326 502,902 Interest on Investment Securities - U.S. Treasury and Other Securities 170,477 191,231 455,529 Interest on Federal Funds Sold 1,783,573 1,518,520 1,145,418 $9,357,443 $9,348,210 $9,813,783 INTEREST EXPENSE Interest on Time Deposits of $100,000 or More $ 60,280 $ 78,057 $ 61,204 Interest on Other Deposits 1,353,433 1,558,521 1,711,816 Interest on Other Borrowed Funds 7,798 - 1,824 Interest on Notes Payable 208,939 209,878 211,837 $1,630,450 $1,846,456 $1,986,681
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE T NON-INTEREST INCOME AND NON-INTEREST EXPENSES Major categories of other non-interest income and non-interest expenses are as follows:
December 31, 2000 1999 1998 OTHER NON-INTEREST INCOME Cardholder and Other Charge Card Income $639,894 $672,941 $679,405 Data Processing and Items Processing - 75 175 Other Commission and Fees 86,248 92,282 87,634 Other Real Estate Income 15,702 36,036 32,905 Other Income 105,431 104,890 130,873 $847,275 $906,224 $930,992 OTHER NON-INTEREST EXPENSE Loan and Charge Card Expenses $932,617 $1,031,232 $1,005,179 Communications 447,126 500,349 565,470 Stationery, Forms and Supplies 238,946 317,017 302,858 Professional Fees 401,413 921,007 741,324 Insurance and Assessments 94,809 98,717 92,049 Advertising 108,496 102,935 116,638 Miscellaneous Losses 22,545 52,977 53,461 Promotional Expenses 166,005 178,902 154,636 Other Real Estate Expenses 48,010 67,677 132,962 Other Expenses 236,148 252,416 282,807 $2,696,115 $3,523,229 $3,447,384
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE U CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
BOL BANCSHARES, INC. CONDENSED BALANCE SHEETS December 31, 2000 1999 ASSETS Due from Banks $384,835 $427,889 Due from Subsidiary 81,892 99,636 Securities Available-for-Sale, at Fair 367,960 346,545 Value Other Assets 39,170 19,312 Investment in Bank of Louisiana 7,593,414 7,128,177 $8,467,271 $8,021,559 LIABILITIES AND STOCKHOLDERS' EQUITY Notes Payable $2,225,827 $2,232,528 Accrued Expenses - - Deferred Taxes 32,830 25,549 Accrued Interest 418,221 365,794 Shareholders' Equity 5,790,393 5,397,688 $8,467,271 $8,021,559
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE U CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC. STATEMENTS OF INCOME (LOSS) December 31, 2000 1999 1998 INCOME Dividend Income - Bank of Louisiana $ - $ - $387,500 Interest Income 8,704 13,595 18,223 Miscellaneous Income 59,972 12,760 0 68,676 26,355 405,723 EXPENSES Interest 208,939 209,878 211,837 Other Expenses 12,675 15,570 35,218 221,614 225,448 247,055 INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) OF SUBSIDIARY (152,938) (199,093) 158,668 Equity in Undistributed Earnings (Loss) of Subsidiary 465,237 222,521 (262,939) INCOME (LOSS) BEFORE INCOME TAX BENEFIT 312,299 23,428 (104,271) INCOME TAX BENEFIT 66,272 70,728 77,803 NET INCOME (LOSS) $378,571 $94,156 ($26,468)
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE U CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
BOL BANCSHARES, INC. STATEMENTS OF CASH FLOWS December 31, 2000 1999 1998 OPERATING ACTIVITIES Net Income (Loss) $378,571 $94,156 ($26,468) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities Equity in Undistributed (Earnings) Loss of Subsidiary (465,237) (222,521) 262,939 Net (Increase) Decrease in Other Assets (19,858) 12,648 889,478 Net Increase (Decrease) in Other 52,427 (34,879) 38,060 Liabilities Net Cash Provided by (Used in) Operating Activities (54,097) (150,596) 1,164,009 INVESTING ACTIVITIES Investment in Available-for-Sale Securities - - (271,400) Net Cash Used in Investing Activities - - (271,400) FINANCING ACTIVITIES Repayments of Advances from Subsidiaries - - (791,065) (Increase) Decrease in Due From Subsidiary 17,744 19,102 (77,803) Proceeds from Issuance of Long-Term Debt 1,753,000 - - Repayment of Long-Term Debt (1,759,701) (39,858) (11,122) Net Cash Provided by (Used in) Financing 11,043 (20,756) (879,990) Activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (43,054) (171,352) 12,619 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 427,889 599,241 586,622 CASH AND CASH EQUIVALENTS - END OF YEAR $384,835 $427,889 $599,241
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V 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 D. Commercial letters of credit were granted primarily to commercial borrowers. NOTE W COMPREHENSIVE INCOME Comprehensive income was comprised of changes in the Company's unrealized holding gains or losses on securities available-for-sale during 2000, 1999 and 1998. The following represents the tax effects associated with the components of comprehensive income:
December 31, 2000 1999 1998 Gross Unrealized Holding Gains Arising During the Period 21,415 75,145 202,736 Tax (Expense) (7,281) (25,549) (68,930) 14,134 49,596 133,806 Reclassification Adjustment for Gains Included in Net Income - - (76) Tax Benefit - - 26 - - (50) Net Unrealized Holding Gains Arising During the Period $14,134 $49,596 $133,756
NOTE X REGULATORY MATTERS On December 14, 1999, the Bank consented to a revised Memorandum of Understanding issued by the Federal Deposit Insurance Corporation (FDIC) and the Office of Financial Institutions (OFI). The Memorandum was issued by the FDIC and OFI as a result of their examination of the Bank as of August 9, 1999 and replaces the Memorandum of Understanding dated March 12, 1996. The Memorandum of Understanding is an arrangement between the Bank and the FDIC and OFI 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, pending regulatory approval, 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 X 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 strategic plan, management plan, management succession plan, and profit plan, e) Perform a quarterly review of the adequacy of the Bank's loan valuation reserve, f) Revision of the Bank's loan policy and loan review program, g) Restatement of 1998 income for accounting for a gain recognized on the sale of other real estate. 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, 1999 their Tier I leverage capital ratio fell below the seven percent threshold to 6.80%. 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, 2000, 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, 2000, 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 12.27% and 13.54%, respectively. Tier I leverage capital ratios for the Subsidiary Bank were 7.81% for 2000 and 6.80% for 1999. NOTE Y DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value: CASH AND SHORT-TERM INVESTMENTS For cash, the carrying amount approximates fair value. For short-term investments, fair values are calculated based upon general investment market interest rates for similar maturity investments. BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Y DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) INVESTMENT SECURITIES For securities and marketable equity securities held-for- investment purposes, fair values are based on quoted market prices. LOAN RECEIVABLES For certain homogeneous categories of loans, such as residential mortgages, credit card receivables and other consumer loans, fair value is estimated using the current U.S. treasury interest rate curve, a factor for cost of processing and a factor for historical credit risk to determine the discount rate. DEPOSIT LIABILITIES The fair value of demand deposits, savings deposits and certain money market deposits are calculated based upon general investment market interest rates for investments with similar maturities. The value of fixed maturity certificates of deposit is estimated using the U.S. treasury interest rate curve currently offered for deposits of similar remaining maturities. COMMITMENTS TO EXTEND CREDIT The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit- worthiness of the counterparties. The estimated fair values of the Company's financial instruments are as follows:
December 31, 2000 Carrying Fair Amount Value Financial Assets: Cash and Short-Term Investments $30,814,060 $30,814,060 Investment Securities 3,369,809 3,372,387 Loans 57,726,682 57,245,981 Less: Allowance for Loan Losses 1,800,000 1,800,000 $90,110,551 $89,632,428 Financial Liabilities: Deposits $85,164,084 $85,132,230 Unrecognized Financial Instruments: Commitments to Extend Credit $1,319,020 $1,319,020 Commercial Letters of Credit 53,980 53,980 Credit Card Arrangements 62,401,000 62,401,000 $63,774,000 $63,774,000
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Y DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
December 31, 1999 Carrying Fair Amount Value Financial Assets: Cash and Short-Term Investments $33,488,964 $33,488,964 Investment Securities 3,370,091 3,365,606 Loans 58,780,651 58,527,842 Less: Allowance for Loan Losses 1,800,000 1,800,000 $93,839,706 $93,582,412 Financial Liabilities: Deposits $90,555,695 $90,606,530 Unrecognized Financial Instruments: Commitments to Extend Credit $1,913,405 $ 1,913,405 Commercial Letters of Credit 103,888 103,888 Credit Card Arrangements 52,025,000 52,025,000 $54,042,293 $54,042,293
BOL BANCSHARES, INC. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Z SELECTED QUARTERLY FINANCIAL DATA (Unaudited) The following sets forth condensed results of operations for 2000 and 1999 (dollar amounts in thousands, except per share data):
First Second Third Fourth 2000 Quarter Quarter Quarter Quarter Interest Income $2,306 $2,349 $2,339 $2,363 Interest Expense 404 402 401 423 Net Interest Income 1,902 1,947 1,938 1,940 Provision for Loan Losses (80) 108 122 158 Other Income 503 474 482 664 Other Expense 2,062 2,274 2,231 2,426 Income Tax Expense 146 13 41 (30) Net Income $277 $26 $26 $50 Net Income per Common Share (1) Basic $1.55 $0.14 $0.14 $0.28 Dilluted $1.55 $0.14 $0.14 $0.28
(1) Quarterly per share amounts do not add to total for the year ended due to rounding.
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter Interest Income $2,340 $2,320 $2,477 $2,211 Interest Expense 470 483 469 424 Net Interest Income 1,870 1,837 2,008 1,787 Provision for Loan Losses 98 327 237 (816) Other Income 534 530 528 543 Other Expense 2,407 2,481 2,414 2,348 Income Tax Expense - - - 46 Net Income ($101) ($441) ($115) $752 Net Income per Common Share (1) Basic ($0.56) ($2.46) ($0.64) $4.20 Dilluted ($0.56) ($2.46) ($0.64) $4.20
(1) Quarterly per share amounts do not add to total for the year ended due to rounding. To the Board of Directors BOL Bancshares, Inc. & Subsidiary Independent Auditor's Report on Supplementary Information Our report on our audits of the basic financial statements of BOL BANCSHARES, INC. and its wholly-owned subsidiary, Bank of Louisiana, for the years ended December 31, 2000 and 1999 appears on page 1. These audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information contained in Schedules I, II and III is presented for the 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. A Professional Accounting Corporation /s/ LAPORTE, SEHRT, ROMIG & HAND January 15, 2001 A Professional Accounting Corporation 110 Veterans Memorial Boulevard, Suite 200, Metairie, LA 70005-4958 (504)835-5522 FAX (504)835-5535 724 East Boston Street Covington, LA 70433(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 Affiliation with CPAmerica International
BANK OF LOUISIANA SUPPLEMENTARY INFORMATION SCHEDULE I BALANCE SHEETS UNCONSOLIDATED ASSETS December 31, 2000 1999 Cash and Due from Banks Non Interest Bearing Balances and Cash $4,909,060 $ 8,703,964 Federal Funds Sold 25,905,000 24,785,000 Investment Securities Securities Held-to-Maturity (Fair Value of $2,984,427 in 2000 and $2,999,061 in 1999) 2,981,849 3,003,546 Securities Available-for-Sale, at Fair Value 20,000 20,000 Loans: Less Allowance for Loan Losses of $1,800,000 in 2000 and 1999 and Unearned Discount of $358,437 in 2000 and $276,804 in 1999 55,926,682 56,980,651 Property, Equipment and Leasehold Improvements (Net of Depreciation and Amortization) 2,131,262 2,540,585 Other Real Estate 1,074,012 1,274,013 Other Assets 1,087,265 1,949,188 Deferred Taxes 312,182 476,469 Letters of Credit 53,980 103,888 $94,401,292 $99,837,304 LIABILITIES Deposits Non-Interest Bearing $34,036,725 $35,309,757 Interest Bearing 51,512,194 55,673,827 Other Liabilities 1,017,114 1,251,450 Letters of Credit Outstanding 53,980 103,888 Due to Parent 81,892 99,636 Accrued Litigation Settlement - 150,000 Accrued Interest 105,973 120,569 Total Liabilities 86,807,878 92,709,127 STOCKHOLDERS' EQUITY Common Stock - 143,000 Shares Issued and Outstanding 1,430,000 1,430,000 Surplus 4,616,796 4,616,796 Retained Earnings 1,546,618 1,081,381 Total Stockholders' Equity 7,593,414 7,128,177 Total Liabilities and Stockholders' Equity $94,401,292 $99,837,304
See independent auditor's report on supplementary information. BANK OF LOUISIANA SUPPLEMENTARY INFORMATION
SCHEDULE II STATEMENTS OF INCOME UNCONSOLIDATED For The Years Ended December 31, 2000 1999 1998 INTEREST INCOME $ 9,357,443 $ 9,348,210 $ 9,813,783 INTEREST EXPENSE 1,430,215 1,650,173 1,793,067 Net Interest Income 7,927,228 7,698,037 8,020,716 PROVISION FOR (RECOVERY OF) LOAN LOSSES 308,194 (154,231) 1,085,625 Net Interest Income After Provision For Loan Losses 7,619,034 7,852,268 6,935,091 OTHER INCOME Service Charges on Deposit Accounts 1,125,943 1,228,330 1,318,419 Other Non-Interest Income 787,303 893,464 930,992 Reversal of Litigation Settlement 150,000 - - Gain on Securities - - 201,799 2,063,246 2,121,794 2,451,210 OTHER EXPENSES Salaries and Employee Benefits 4,327,373 4,148,212 3,669,949 Occupancy Expense 1,969,464 1,978,669 1,956,172 Loss on Litigation - - 50,000 Oher Non-Interest Expense 2,683,440 3,507,660 3,412,166 8,980,277 9,634,541 9,088,287 INCOME BEFORE INCOME TAX EXPENSE 702,003 339,521 298,014 INCOME TAX EXPENSE 236,766 117,000 173,453 NET INCOME EARNINGS PER SHARE OF COMMON STOCK $3.25 $1.56 $0.87
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 31, $1,430,000 ($569) $4,616,796 $1,121,799 $7,168,026 Net Income for the Year - - - 124,561 124,561 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 31, 1,430,000 - 4,616,796 858,860 6,905,656 1998 Net Income for the Year - - - 222,521 222,521 1999 BALANCE - December 31, 1,430,000 - 4,616,796 1,081,381 7,128,177 1999 Net Income for the Year - - - 465,237 465,237 2000 BALANCE - December 31, $1,430,000 $ - $4,616,796 $1,546,618 $7,593,414 2000
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 March 27, 2001 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 27, 2001. /s/ Douglas A. Schonacher /s/ Gordon A. Burgess Director Director /s/ G. Harrison Scott /s/ Lionel J. Favret, Sr. Director Director