10QSB 1 rsec9-03.txt 10QSB 9/2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB /X/ QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 / / TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from to Commission file Number 0-16934 BOL BANCSHARES, INC. (Exact name of small business issuer 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 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: 179,145 SHARES AS OF October 31, 2003 Transitional Small Business Disclosure Format (Check one): Yes /X/ No / / BOL BANCSHARES, INC. & SUBSIDIARY INDEX Page No. PART I. Financial Information Item 1: Financial Statements Consolidated Statement of Condition 3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statement of Cash Flow 6 Item 2: Management's Discussion and Analysis 7 Item 3: Controls and Procedures 9 PART II. Other Information Item 1. Legal Proceedings 9 Item 6: Exhibits and Reports on Form 8-K 10 Signatures 11 Part I. Financial Information BOL BANCSHARES, INC. CONSOLIDATED STATEMENT OF CONDITION (Unaudited) Sept 30 (Amounts in Thousands) 2003 ASSETS Cash and Due from Banks Non-Interest Bearing Balances and Cash $6,410 Federal Funds Sold 7,760 Investment Securities Securities Held to Maturity 20,501 Securities Available for Sale 505 Loans-Less Allowance for Loan Losses of $1,800 and Unearned Discount of $0 60,544 Property, Equipment and Leasehold Improvements (Net of Depreciation and Amortization) 1,582 Other Real Estate 207 Other Assets 1,401 TOTAL ASSETS $98,910 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Non-Interest Bearing $35,431 NOW Accounts 11,953 Money Market Accounts 4,961 Savings Accounts 29,540 Time Deposits, $100,000 and over 544 Other Time Deposits 6,582 TOTAL DEPOSITS 89,011 Notes Payable 2,202 Other Liabilities 1,203 TOTAL LIABILITIES 92,416 STOCKHOLDERS' EQUITY Preferred Stock - Par Value $1 2,188,592 Shares Issued and Outstanding 2,189 Common Stock - Par Value $1 179,145 Shares Issued and Outstanding 179 Accumulated Other Comprehensive Income 257 Capital in Excess of Par - Retired Stock 83 Undivided Profits 3,468 Current Earnings 318 TOTAL STOCKHOLDERS' EQUITY 6,494 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,910 BOL BANCSHARES, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three months ended Nine months ended Sept 30 Sept 30 (Amounts in Thousands) 2003 2002 2003 2002 INTEREST INCOME Interest and Fees on Loans $1,848 $1,729 $5,335 $5,461 Interest on Investment Securities 114 135 340 455 Interest on Federal Funds Sold 22 72 120 226 Total Interest Income 1,984 1,936 5,795 6,142 INTEREST EXPENSE Interest on Deposits 73 144 279 475 Other Interest Expense 11 11 31 31 Interest Expense on Notes Payable 1 1 4 5 Interest Expense on Debentures 32 40 110 118 Total Interest Expense 117 196 424 629 NET INTEREST INCOME 1,867 1,740 5,371 5,513 Provision for Loan Losses 130 115 127 337 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,737 1,625 5,244 5,176 NONINTEREST INCOME Service Charges on Deposit Accounts 290 278 855 809 Cardholder & Other Credit Card Income 189 181 554 546 ORE Income 418 - 418 - Other Operating Income 54 31 159 168 Total Noninterest Income 951 490 1,986 1,523 NONINTEREST EXPENSE Salaries and Employee Benefits 1,028 1,093 3,081 3,209 Occupancy Expense 287 286 1,119 1,127 Communications 105 111 323 323 Loan & Credit Card Expense 298 251 912 837 Professional Fees 85 105 247 319 ORE Expense 76 3 98 3 Other Operating Expense 474 405 968 927 Total Noninterest Expense 2,353 2,254 6,748 6,745 Income Before Tax Provision 335 (139) 482 (46) Provision (Benefit) For Income Taxes 115 (22) 164 (26) NET INCOME $220 ($117) $318 ($20) Earnings Per Share of Common Stock $1.23 ($0.66) $1.78 ($0.11) BOL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Sept 30 Sept 30 (Amounts in thousands) 2003 2002 NET INCOME (LOSS) $318 ($20) OTHER COMPREHENSIVE INCOME, NET OF TAX Unrealized Holding Gains (Losses) on Investment Securities Available-for-Sale, Arising During the Period 36 - COMPREHENSIVE INCOME (LOSS) $354 ($20) BOL BANCSHARES, INC. STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30 (Amounts in thousands) 2003 2002 OPERATING ACTIVITIES Net Income 318 (20) Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses 127 337 Depreciation and Amortization Expense 195 218 Amortization of Investment Security Premiums 85 56 Accretion of Investment Security Discounts 3 (2) (Increase) Decrease in Deferred Income Taxes 182 (55) (Gain) Loss on Sale of Property and Equipment - - (Gain) Loss on Sale of Other Real Estate (418) - (Increase) Decrease in Other Assets (5) 1,053 Increase in Other Liabilities and Accrued Interest 283 209 Net Cash Provided by Operating Activities 770 1,796 INVESTING ACTIVITIES Proceeds from Held-to-Maturity Investment Securities Released at Maturity 15,987 10,998 Purchases of Held-to-Maturity Investment Securities(19,026) (12,153) Proceeds from Sale of Property and Equipment 9 - Purchases of Property and Equipment (103) (30) Proceeds from Sale of Other Real Estate 1,525 - Net (Increase) in Loans (4,696) (981) Net Cash Provided by (Used in) Investing Activities (6,304) (2,166) FINANCING ACTIVITIES Net Increase (Decrease) in Non-Interest Bearing and Interest Bearing Deposits (2,392) (41) Proceeds from Issuance of Long-Term Debt - - Preferred Stock Retired (20) (2) Principal Payments on Long Term Debt (8) (6) Net Cash Provided by (Used in) Financing Activities (2,420) (49) Net (Decrease) in Cash and Cash Equivalents (7,954) (419) Cash and Cash Equivalents - Beginning of Year 22,124 23,301 Cash and Cash Equivalents - End of Period $14,170 $22,882 BOL BANCSHARES, INC. STATEMENTS OF CASH FLOWS (Continued) (Unaudited) SUPPLEMENTAL DISCLOSURES: 2003 2002 Additions to Other Real Estate through Foreclosure 1,107 981 Cash Paid for Interest 437 658 Cash (Paid) Received for Income Taxes - (40) Market Value Adjustment for Unrealized Gain on Securities Available-for-Sale 54 - 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. ITEM 2. Management's Discussion and Analysis NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2002 BALANCE SHEET Total Assets at September 30, 2003 were $98,910,000 compared to $101,041,000 at September 30, 2002 a decrease of $2,131,000. Total loans increased $2,785,000 to $60,544,000 at September 30, 2003 from $57,759,000 at September 30, 2002 and investment securities increased $3,966,000 to $21,006,000 at September 30, 2003 from $17,040,000 at September 30, 2002. Federal Funds Sold were decreased $8,220,000 to $7,760,000 at September 30, 2003 from $15,980,000 at September 30, 2002 to accommodate the rise in loans and investment securities. Until loan demand increases and the market improves, management has adopted the strategy of reducing its deposit structure through increased service charges and reduced interest rates. Total deposits decreased $2,559,000 to $89,011,000 at September 30, 2003 from $91,570,000 at September 30, 2002. Time deposits decreased $1,739,000 from $8,865,000 at September 30, 2002 to $7,126,000 at September 30, 2003. NOW accounts decreased $1,759,000 to $11,953,000 at September 30, 2003 from $13,712,000 at September 30, 2002. Savings accounts increased $1,060,000 to $29,540,000 at September 30, 2003 from $28,480,000 at September 30, 2002. INCOME Income for the nine months ended September 30, 2003 was $318,000 compared to a loss of $20,000 for the same period last year. Interest income decreased $347,000 for the nine months ended September 30, 2003 over the same period last year. This decrease was caused by a reduction in the interest rate on loans, investment securities, and federal funds sold and a reduction in interest rate spreads. The .31% decline in the yields on interest earning assets was partially offset by lower rates paid on interest-bearing liabilities that declined .34% from an average of 1.10% as of September 30, 2002 to .76% as of September 30, 2003. Interest expense decreased $205,000 for the nine months ended September 30, 2003 over the same period last year. Noninterest income increased $463,000 for the nine-month period as compared to the same period last year. The additional income reflects a gain of $418,000 on the sale of an ORE parcel and management's decision to increase the service charges assessed to depository accounts that increased $46,000. Noninterest expense increased $3,000 for the nine-month period as compared to the same period last year. This increase was primarily due to an increase of $75,000 in loan and credit card expenses, an increase of $95,000 in Ore expenses of which $57,000 is due to the sale of an Ore parcel and $38,000 due to expenses associated with the Ore properties and an increase of $109,000 due to contingencies established for 2 legal cases presently being appealed (more fully described under Legal Proceedings). This was offset by a decrease of $128,000 in salaries and employee benefits due to staff reduction, a decrease of $72,000 in professional fees and a decrease of $67,000 in advertising expenses. PROVISION FOR LOAN LOSSES The provision for loan losses charged to expense was $127,000 for the nine months ended September 30, 2003, a decrease of $210,000 compared to a provision of $337,000 for the same period last year. This was due to the recovery of a charged off account in the amount of $270,000 in 2003. INCOME TAXES The income tax expense for the nine months ended September 30, 2003 was $164,000 as compared to a tax benefit of $26,000 for the same period last year. THIRD QUARTER 2003 COMPARED WITH THIRD QUARTER 2002 INCOME Income for the third quarter of 2003 was $220,000 compared to a loss of $117,000 for the same period last year. Interest income increased $48,000 for the third quarter of 2003 over the same period last year. This was due to an increase in the interest rate of loans and offset by a reduction in the interest rate of investment securities and federal funds sold. Net interest spread increased from 1.76% in 2002 to 1.95% in 2003 due to the .06% increase in the yields on interest earning assets and by lower rates paid on interest- bearing liabilities that declined .13% from an average of .34% as of September 30, 2002 to .21% as of September 30, 2003. Interest expense decreased $79,000 for the third quarter of 2003 over the same period last year. Noninterest income increased $461,000 for the three-month period as compared to the same period last year. This increase was primarily due to a gain of $418,000 on the sale of an ORE parcel, an increase of $12,000 in service charges assessed to depository accounts along with an increase of other operating income of $23,000. Noninterest expense increased $99,000 for the three-month period as compared to the same period last year. This increase was primarily due to an increase of $47,000 in loan and credit card expenses, an increase of $73,000 due to the sale of an Ore parcel, and an increase of $109,000 due to contingencies established for 2 legal cases presently being appealed (more fully described under Legal Proceedings). This was offset by a decrease of $65,000 in salaries and employee benefits due to staff reduction and a decrease of $20,000 in professional fees. PROVISION FOR LOAN LOSSES The provision for loan losses charged to expense was $130,000 for the three months ended September 30, 2003 an increase of $15,000 compared to $115,000 for the same period last year. INCOME TAXES The income tax expense for the three months ended September 30, 2003 was $115,000 as compared to a tax benefit of $22,000 for the same period last year. SEPTEMBER 30, 2003 COMPARED WITH DECEMBER 31, 2002 BALANCE SHEET Total Assets at September 30, 2003 were $98,910,000 compared to $100,728,000 at December 31, 2002 a decrease of $1,818,000. Total loans increased $3,461,000 to $60,544,000 at September 30, 2003 from $57,083,000 at December 31, 2002 and investment securities increased $3,006,000 to $21,006,000 at September 30, 2003 from $18,000,000 at December 31, 2002. Federal Funds Sold decreased $8,705,000 to $7,760,000 at September 30, 2003 from $16,465,000 at December 31, 2002 to accommodate the mix of the portfolio. Total deposits decreased $2,392,000 to $89,011,000 at September 30, 2003 from $91,403,000 at December 31, 2002. Shareholder's Equity increased $333,000 to $6,494,000 at September 30, 2003 from $6,161,000 at December 31, 2002. Item 3 Controls and Procedures The certifying officers of the Company have evaluated the Company's disclosure controls and procedures as of a date within 90 days of the filing date of this report and have concluded that such controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II - Other Information Item 1. Legal Proceedings 1. A case involving another bank has been pending since 1992 and is set for trial January 26, 2004 in Civil District Court for the Parish of Orleans. Numerous delays caused by the federal imprisonment of the other bank's ex- president have protracted this litigation. The plaintiff claims damages in the sum of $979,000 together with judicial interest from approximately August 7, 1991 until paid, for a theoretical exposure to the Bank of over $2 Million. The Bank has filed a counterclaim and has raised various affirmative defenses which may result in an actual judgment in favor of the Bank. The counterclaim seeks a recovery of approximately $152,000 which was paid by the Bank in connection with a check-kiting scheme. In addition to seeking recovery of these losses, the Bank claims that the plaintiff interfered with its employee relations regarding 2 officers. It is not believed that the Bank will pay any damages and the likelihood is reasonable that the Bank will obtain some recovery. 2. A proprietor originally obtained a judgment against the Bank in the United States Bankruptcy court for the Southern District of Texas for approximately $450,000. The District Court for the Southern District of Texas dismissed for lack of jurisdiction and the Court of Appeals affirmed. The Bank then filed a motion for the payment of approximately $350,000 held by the Registry of the Court. After the bankruptcy court denied the Bank's motion to release the funds, the District court ordered that the money be paid to the Bank. That decision is on appeal to the United States Fifth Circuit. 3. An employee for a collection service for doctors used the Bank to systematically steal checks that were collected on behalf of two doctors. The court ruled against the Bank for $28,889.68 plus interest and costs. That matter is on appeal to the First Circuit. A contingency has been established and is reflected in the financial statements. 4. A case is pending in the United States Court of Appeals for the Fifth Circuit from an adverse judgment against the Bank. The fiscal impact of the judgment is that it increased the Bank's liability by $150,000 plus interest, to be paid over ten years, beginning 2001. The judgment stemmed from a Deferred Compensation Agreement with Bank of the South that was terminated prior to the merger with Bank of Louisiana. The key issue in the case is prescription. A contingency has been established and is reflected in the financial statements. 5. The Bank has a suit in the United States District Court which began in 2002 against an insurance company arising from the insurance company drafting the Bank for $273,000 in payments under a previously-existing employee's health plan. The Bank has amended its complaint to seek penalties and damages in excess of $273,000. This case is set for trial on January 12, 2004. The Bank is seeking to have the court certify an adverse ruling under ERISA to the Fifth Circuit Court of Appeals. Item 6. Exhibits and Reports on Form 8-K Part II Exhibits 31.1 Section 302 Principal Executive Officer Certification 31.2 Section 302 Principal Financial Officer Certification 32.1 Section 1350 Certification 32.2 Section 1350 Certification Reports on Form 8-K None BOL BANCSHARES, INC. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BOL BANCSHARES, INC. (Registrant) /s/ G. Harrison Scott November 13, 2003 G. Harrison Scott Date Chairman (in his capacity as a duly authorized officer of the Registrant) /s/ Peggy L. Schaefer Peggy L. Schaefer Treasurer (in her capacity as Chief Accounting Officer of the Registrant)