UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

COMMISSION FILE NUMBER 0-16934

BOL BANCSHARES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

LOUISIANA	72-1121561
(STATE OF INCORPORATION)	(IRS EMPLOYER IDENTIFICATION NO.)

   300 ST. CHARLES AVENUE, NEW ORLEANS, LA  70130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o   No x

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 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 o

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. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act. 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).              Yes o    No x

As of March 29, 2011, the aggregate market value of the voting common equity stock held by non-affiliates of the registrant was $1,963,895.  For this purpose, certain executive officers and directors are considered affiliates.

The number of shares of Common Stock outstanding as of March 29, 2011 was 179,145.

Cross Reference Index

		Page
Part I
Item 1:	Business	2
Item 2:	Properties	6
Item 3:	Legal Proceedings	7
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	8
Item 6:	Management’s Discussion and Analysis	8
Item 7:	Financial Statements and Supplementary Data	34
Item 8:	Changes in and Disagreements with Accountants and Financial Disclosure	70
Item 8A(T):	Controls and Procedures	70
Item 8B:	Other Information	71
Part III
Item 9:	Directors and Executive Officers of the Registrant	71
Item 10:	Executive Compensation	72
Item 11:	Security Ownership of Certain Beneficial Owners and Management	73
Item 12:	Certain Relationships and Related Transactions	74
Item 13:	Exhibits and Reports on Form 8-K
	(a) Exhibits	74
	(b) Reports on Form 8-K	74
Item 14:	Principal Accountant Fees and Services	74
	Signatures	75

1

Item 1 Description of Business

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 Enforcement Action”.  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 Bank has formed BOL Assets, LLC to engage in the permissible activity of holding real estate from loans which were in default and held past the FDIC’s time limits.  There can be no assurance, however, that the Company will not form or acquire any other entity in the future.  

2

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 “Territory Served and Competition”.

Forward-Looking Statements are Subject to Change

We make certain statements in this document as to what we expect may happen in the future.  These statements usually contain the words “believe”, “estimate”, “project”, “expect”, “anticipate”, “intend” or similar expressions.  Because these statements look to the future, they are based on our current expectations and beliefs.  Actual results or events may differ materially from those reflected in the forward-looking statements.  You should be aware that our current expectations and beliefs as to future events are subject to change at any time, and we can give no assurances that the future events will actually occur.

Critical Accounting Policies

In reviewing and understanding financial information of the Company, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements.  These policies are described in Note A of the notes to our consolidated financial statements included in this Form 10-K.  Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.  Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented.  The following policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results.  These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

3

Allowance for Loan Losses.  

We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation.  The allowance for loan losses is established through a provision for loan losses charged to expense.  Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.  Subsequent recoveries are added to the allowance.  The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio, based on evaluations of the collectability of loans.  The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions.  This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience.  All of these estimates may be susceptible to significant change.

Banking Industry

The Company derives its revenues largely from dividends from the Bank when the Bank upstreams dividends.  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 “Banking Products and Services”, “Supervision and Regulation Enforcement Action”, and “Management’s Discussion and Analysis”.

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, traveler’s checks, credit cards, wire transfer, e-banking, night deposit, and drive-in facilities.  Prices and rates charged for services offered are competitive with the area’s existing financial institutions in the Bank’s primary market area.

The Bank 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 Bank’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 Bank’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.

4

Commercial Loans (Secured and Unsecured).  The Bank’s commercial loans consist of working capital loans, secured and unsecured lines of credit, and small equipment loans.

Credit Cards.  The Bank offers a variety of nationally recognized credit 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, 2010 the Bank held $6,321,000 in credit card debt.

The Bank has a number of proprietary accounts it services which is included above.  These accounts consist largely of small to medium sized merchants who have issued their own private-label credit cards.  The Bank acquires these credit card accounts, typically with reserves posted, and requires the merchant to repurchase accounts 180 days or more past due.  As of December 31, 2010 the Bank held $318,000 in proprietary accounts.

Territory Served and Competition

Market Area.  The market area for the Bank is defined in the Bank’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 Bank has branch offices in Orleans, Jefferson, and St. Tammany Parishes.

Population.  The U.S. Census Bureau’s latest count on the population of New Orleans stands at 343,829 residents a slight increase than estimated. About 1.17 million residents were counted in 2010 in the seven-parish metropolitan area.  

Competition.  The Bank competes with other commercial banks, savings and loan associations, credit unions, and other types of financial services providers in the New Orleans metropolitan area. The Bank is one of the smallest commercial banks in New Orleans in terms of assets and deposits.

Economy.  While there is still a long way to go, considerable measurable progress is being made towards New Orleans region’s gradual economic recovery in the aftermath of the widespread devastation wreaked by Hurricanes Katrina (August 29, 2005) and Rita (September 24, 2005), thanks to the convergence of a number of factors; education reform, an influx of young entrepreneurial talent, a motivated labor force and a business-friendly government.

Governmental agencies and coalitions have crafted and embraced comprehensive plans for rebuilding New Orleans and its surrounding parishes for the near, medium and long term.  Our communities and citizens are working hard to make a solid come-back.  Our vision is one of a more livable, sustainable and safer future for New Orleans, which will include all the rich cultural and architectural heritage that has made the region so beloved to natives and visitors alike.

The recession in the broader economy could have an adverse effect on Bank of Louisiana’s financial condition.  Recessionary conditions and a subsequent period of slow recovery in the broader economy could adversely affect the financial capacity of businesses and individuals in our market area.  These conditions could, among other consequences, increase the credit risk inherent in the current loan portfolio, restrain new loan demand from creditworthy borrowers, prompt the Bank to tighten its underwriting criteria and reduce liquidity in the Bank’s customer base and the level of deposits that they maintain.  These economic conditions could also delay the correction of the imbalance of supply and demand in certain real estate markets. Legislative and regulatory actions taken in response to these conditions could impose additional restrictions and requirements on the Bank.  The current and further deterioration in the residential construction and commercial real estate markets may lead to increased nonperforming assets in Bank of Louisiana’s portfolio and increased provisions for losses on loans, which could have a material adverse effect on our capital, financial condition and results of operation.

5

Employees.As of December 31, 2010, the Bank had 67 full-time and approximately 11 part-time employees, including executive officers, loan and other banking officers, branch personnel, operations personnel and other support personnel.  The Bank considers its relationship with its employees to be very good.  The employee benefit programs provided by the Bank include group life and health insurance, paid vacations, sick leave, and a Section 401(k) savings plan.  The Company has no employees who are not employees of the Bank.  See “Executive Compensation”.

Item 2 Description of Property.  In addition to its main office, the Bank has five branch locations and an operations center.  Set forth below is a description of the offices of the Bank.

Main Office.  The main office of the Company is located at 300 St. Charles Avenue in the central business district of New Orleans, Louisiana.  The building consists of approximately 13,100 square feet of office space, and parking is provided on the streets and commercial lots nearby.  The Bank occupies the ground floor and the fourth floor.  The second and third floors are leased to a single entity.  Rental income received is $2,543 per month.  The lease commenced December 15, 2003 and terminates on December 15, 2018.  The Bank owns the building.

Severn Branch.  The Severn Branch of the Bank 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.  Rental income received during 2010 and 2009 was $267,386 and $260,464, respectively.

Oakwood Branch.  The Oakwood Branch of the Bank is located in the Oakwood Shopping Center at 197 Westbank Expressway, Gretna, Louisiana.  The premise consists of approximately 3,730 total square feet of office space, which includes 1,560 square feet designated for its drive-in facility.  The Bank leases the lobby and drive-in facility from Oakwood Shopping Center, Ltd.  There was heavy storm damage to this shopping center and the Bank has relocated its branch to another location within the shopping center and reopened during the 4th quarter of 2007.  The lease will expire November 14, 2016 with a monthly lease amount of $13,905 per month.

Lapalco Branch.  The Lapalco Branch of the Bank 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 lease will expire March, 2017 with a monthly lease amount of $6,384 per month.  

Gause Branch.  The Gause Branch of the Bank is located in the central business district of Slidell at 636 Gause Boulevard, Slidell, Louisiana.  The building consists 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 Bank owns the building and underlying land upon which it is situated.  The Bank 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 2010 totaled $70,931.

6

Tammany Mall Branch.  The Tammany Mall Branch of the Bank 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 Bank owns the building.

Operations Center.  The Bank’s operations center, which houses its accounting, audit, 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.  

Item 3 Legal Proceedings

Because of the nature of the banking industry in general, the Company and the Bank are each party 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.  Reserves for such litigation, if the Company deems such litigation to have sufficient merit or which may subject the Company to significant exposure have been posted and are reflected in the Company’s consolidated financial statements.

The following actions, however, have been brought against the Bank and, if the claimants were wholly successful on the merits, could result in significant exposure to the Bank:

1. The Bank is a defendant in a lawsuit involving the clearing of a safety deposit box at the Gause branch by a notary with authority from the court to do so in the succession of the owner of the box. This matter is pending on appeal to the First Circuit Court of Appeals in Baton Rouge. The appeal process has just begun and the matter will probably pend for at least 12 months. The appeal has absolutely no merit and its doubtful that the Bank has any exposure.

2.  The Bank entered into an agreement with a company for disaster protection.  The company had a contract to provide technical and physical backup in the event the Bank’s data systems were impaired by a natural disaster.  When Katrina hit, however, the company woefully failed to provide the services agreed and the Bank made a demand for payment of $901,992.50.  The Bank filed suit and the case resulted in a judgment in favor of the company. In May of 2010 a final settlement was reached and the Bank paid $90,000.  

3.  The Bank originally sued for declaratory relief regarding the Bank’s right to suspend some of the lease payments made for the Oakwood branch due to damages caused by Katrina. The stay on this litigation is no longer applicable since the owner’s parent company has reorganized in the bankruptcy proceedings. Recently the owner’s parent company’s counsel made an offer to resolve this litigation on a business proposition. In this case there is no exposure and the matter is simply one of renegotiating the lease payment schedule to hopefully place as much of the payment at the tail of the lease.

Item 4 Submission of Matters to a Vote of Security Holders

There were no matters submitted, during the fourth quarter of fiscal year 2010 to a vote of security holders, through the solicitation of proxies.

7

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 2009, 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 Company Stock would trade.  As of December 31, 2010, the Company had approximately 576 shareholders of record.  There were no dividends declared on the Company common stock for the years ended 2010 or 2009.

	2010				2009
	High		Low		High		Low
First Quarter		—		—		—		—
Second Quarter		—		—		—		—
Third Quarter		31.50		27.75		—		—
Fourth Quarter		—		—		32.00		25.65

No dividends were paid on shares of Company Common stock in 2010 or 2009.

Annual Shareholders Meeting

The Annual Meeting of the shareholders of Registrant will be held at 300 St. Charles Avenue, 4th Floor, New Orleans, Louisiana, on Tuesday April 12,2011 at 3:30 p.m.

Independent Auditors

LaPorte, Sehrt, Romig & Hand, 111 Veterans Memorial Blvd., Suite 600, Metairie, LA 70005-4958.

Item 6 MANAGEMENT’S DISCUSSION AND ANALYSIS

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, 2010, 2009, and 2008.  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.

8

This discussion may contain certain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated.  Readers are cautioned not to place undue reliance on these forward-looking statements.

Quantitative and Qualitative Disclosures about Market Risk, Catastrophic Events, and Future Growth

Management considers interest rate risk to be a market risk that could have a significant effect on the financial condition of the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.  Difficult conditions in the financial services markets may materially and adversely affect the business and results of operations of the Bank and the Company.

Dramatic declines in the housing market during the past year, along with falling home prices and increasing foreclosures and unemployment, have resulted in significant write downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks.  These write-downs, initially of mortgage-backed securities by spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions, and, in some cases, to fail.  Many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions.  This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally, which could have a material adverse effect on our business and operations.  A worsening of these conditions would likely exacerbate any adverse effects of these difficult market conditions on us and others in the financial institutions industry.  As a rule however, the majority of small community banks, such as Bank of Louisiana, have strong reserve positions and are well capitalized.

The occurrence of catastrophic events such as hurricanes, tropical storms, earthquakes, windstorms, floods, severe winter weather, fires and other catastrophes could adversely affect our consolidated financial condition or results of operations.  Unpredictable natural and other disasters could have an adverse effect on us in that such events could materially disrupt our operations or the ability or willingness of our customers to access financial services offered by us.  The incidence and severity of catastrophic events could nevertheless reduce our earnings and cause volatility in our financial results for any fiscal quarter or year and have a material adverse effect on our financial condition or results of operation.

The Company is a customer-focused organization.  Future growth is expected to be driven in a large part by the relationships maintained with customers.  While the Company has assembled an experienced management team, and has management development plans in place, the unexpected loss of key employees could have a material adverse effect on the Company’s business and may result in lower revenues.

9

Hurricane Katrina Disclosure

Insurance proceeds received for storm damages caused by Hurricane Katrina has covered the damages sustained to the Bank’s branches.  Of the 7 branch locations that were affected by Hurricane Katrina, only the Carrollton branch was not reopened. The remaining funds totaling $817,077 were taken into income in 2009 after the completion of all repairs.  

Overview

The Company provides a full range of quality financial services in selected market areas.  As of December 31, 2010, the Company’s total assets were $94,376,000 as compared to $92,652,000 at December 31, 2009.  This is due to deposits returning to their pre-Katrina levels absent of FEMA and insurance proceeds.  

Loans comprise the largest single component of the Bank’s interest-earning assets and provide a far more favorable return than other categories of earnings assets.  The Bank’s loans totaled $60,236,000, and $58,303,000 net of unearned discount and Allowance for Loan Losses at December 31, 2010, and 2009.  The Bank’s net interest margin was 6.86% for the year ended December 31, 2010 as compared to 6.79% for the year ended December 31, 2009.

Historically, credit card loans have been an important part of the Bank’s total loan portfolio.  However, the Bank has been diversifying its earning assets into commercial and installment loans.  At December 31, 2010, credit card loans were $6,321,000 and represented 10.49% of the Bank’s net loan portfolio of $60,236,000.

At December 31, 2009, credit card loans were $7,113,000 and represented 12.20% of the Bank’s loan portfolio of $58,303,000.  

The Bank’s current strategy is to continue to grow its traditional banking operations primarily in the metropolitan New Orleans area and to expand its proprietary accounts, so long as it can maintain the minimum required Tier 1 leverage ratio required.  The Bank 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 - December 31, 2010 Compared to December 31, 2009

The Company’s net income for the year 2010 was $299,000, or $1.67 per share, an increase of $164,000, or an increase of $0.92 per share from the Company’s net income of $135,000 in 2009.  

Net interest income which is total interest income (including fees) less total interest expense was $5,613,000 in 2010 compared to $5,627,000 in 2009.   

Interest on earning assets decreased $51,000 from $6,111,000 in 2009 to $6,060,000 in 2010.  Interest income on investment securities decreased $25,000 from $34,000 earned in 2009 to $9,000 in 2010. This interest decrease was due to the yields derived on security investments falling from an average of 1.35% received in 2009 to an average interest rate of 0.42% in 2010.  In addition, due to the falling rates, the Bank reduced the average amount invested in securities from $2,510,000 in 2009 down to $2,036,000 in 2010, until such time as the market improves. Interest income generated by the loan portfolio decreased a total of $18,000 from $5,994,000 in 2009 to $5,976,000 in 2010, due to the decrease in rates charged from 10.09% in 2009 to 9.77% charged in 2010. Federal funds interest income decreased by $5,000 and certificate of deposits decrease by $3,000.

10

Interest on deposits decreased $18,000 from $391,000 in 2009 to $373,000 in 2010.   This decrease resulted primarily from a decrease in the average rates paid on deposits from an average rate of 0.87% in 2009 to 0.79% in 2010, even with an increase in the average balance of interest bearing deposits from $44,654,000 in 2009 to $44,936,000 in 2010.

The provision for loan losses decreased $231,000 from $536,000 in 2009 to $305,000 in 2010. In 2010 Personal loans ended with a net charge-off of $6,736, Commercial loans had a net recovery of $22,168, Overdrafts had a net charge-off of $14,240 and Credit cards with a net charge-off of $305,879.

Non-interest income decreased $496,000 from $1,989,000 in 2009 to $1,493,000 in 2010. This decrease was due to a mix of a decrease in Other income of $929,000 due primarily to Katrina insurance proceeds remaining and taken into income in 2009 and a decrease of $13,000 in Cardholder income, Membership fees and Other commissions and fees. The overall decrease was offset by an increase in Service charges of $14,000, an increase in NSF charges of $47,000, and a net increase of $385,000 on income from ORE pertaining to the sale of three lots on Morrison Road.

Non-interest expense decreased $291,000.  The major components were a decrease of $150,000 in Salaries and Employee Benefits, a decrease in Insurance and Assessments of $44,000, a decrease in Miscellaneous Losses of $156,000 and a decrease in Other operating expenses of $241,000. The primary offset to the decreases were an increase in the maintenance, repairs and upkeep of ORE properties of $203,000, an increase in Professional fees of $30,000, an increase in Outsourcing fees of $30,000, an increase in Occupancy expense of $20,000 and Other expenses of $17,000.

The Company recognized an income tax benefit of $76,023 for 2010, as compared to income tax expense of $77,182 for 2009. The income tax benefit for 2010 was a result of an increase in the Company’s dividend received deduction, as well as adjustments to the Company’s current and deferred income tax liability accounts.

Net Income - December 31, 2009 Compared to December 31, 2008

The Company’s net income for the year 2009 was $135,000, or $0.75 per share, a decrease of $589,000, or a decrease of $3.29 per share, from the Company’s net income of $724,000 in 2008.  

Net interest income, which is total interest income (including fees) less total interest expense, was $5,627,000 in 2009 compared to $6,358,000 in 2008.   

11

Interest on earning assets decreased $1,105,000 from $7,216,000 in 2008 to $6,111,000 in 2009.  $623,000 of the interest reduction on earning assets was due to the decrease in interest income earned on the sale of Federal Funds from $648,000 earned in 2008 to $25,000 earned in 2009.  This interest income reduction was due in part by the Federal Reserve’s adoption of a Zero Interest Rate Policy thereby decreasing the rates earned on Federal Funds Sold from an average of 2.00% paid in 2008 down to an average of 0.15% paid in 2009.  In addition, the average amount of Federal Funds available to sell in 2009 decreased from $32,448,000 in 2008 to $16,677,000 in 2009. Interest income on investments decreased $74,000 from $108,000 earned in 2008 to $34,000 in 2009. This interest income decrease was due to the yields derived on security investments falling from an average of 2.73% received in 2008 to 1.35% received in 2009.  In addition, due to the falling rates, the Bank reduced the average amount invested in securities from $3,957,000 in 2008 down to $2,510,000 in 2009, until such time as the market improves. As an alternative investment the Bank invested in several time deposits with various banks totaling an average of $4,294,000 earning $58,000 due to a yield of 1.35%. Interest income generated by the loan portfolio decreased a total of $461,000 from $6,460,000 in 2008 to $5,994,000 in 2009, due to the decrease in rates charged from 11.24% in 2008 to 10.09% charged in 2009.

Interest on deposits decreased $354,000 from $745,000 in 2008 to $391,000 in 2009.  This decrease was due to a drop in interest bearing deposits of $4,702,000, from $49,356,000 in 2008 as compared to $44,654,000 in 2009.  In addition the average rates paid on deposits decreased from an average of 1.51% in 2008 to 0.87% in 2009.

The provision for loan losses increased $279,000 from $257,000 in 2008 to $536,000 in 2009.  Net charge-offs on Commercial loans increased $157,000 from a net recovery of ($20,000) in 2008 to a net charge-off of $137,000 in 2009.  Credit Card net charge-offs increased $112,000 from $268,000 in 2008 to $380,000 in 2009.

Non-interest income increased $273,000 from $1,716,000 in 2008 to $1,989,000 in 2009.  This increase was due to a mix of an increase of $387,000 in the other miscellaneous income category, from $580,000 in 2008 due to a gain on the sale of Visa stock, to $967,000 in 2009 which consisted primarily of Katrina insurance proceeds remaining and taken into income, after all storm damage repairs were completed, and a decrease of $88,000 in service charge income from $505,000 in 2008 to $417,000 in 2009.  In addition, credit card fees decreased $70,000 from $294,000 in 2008 to $224,000 in 2009 and other credit card income decreased $87,000 from $492,000 in 2008 to $405,000 in 2009.  The decreases in credit card noninterest income are due to a decrease in outstanding credit card balances totaling approximately $1,575,000 from an average of $8,602,000 average outstanding in 2008 to an average of $7,027,000 outstanding in 2009.

12

Non-interest expense increased $212,000 from $6,656,000 in 2008 to $6,868,000 in 2009.  This increase was primarily due to an increase in salaries and benefits, which increased $67,000 from $2,697,000 in 2008 to $2,764,000 in 2009, as well as an increase in insurance and assessments, which increased $131,000 from $93,000 in 2008 to $224,000 in 2009, due to the special assessments imposed by the FDIC for failed banks.  In addition, other losses increased $180,000 in part due to the Bank having to pay a contract for services to a major company designated as a back-up during Katrina disaster.  When the company failed to perform according to the contract, the Bank sued for breach of contract.  However, the judge ruled from the bench that the Bank was liable to pay the remainder of the service contract in the amount of $84,000.  Additional other loses incurred by the Bank included $24,000 in fraud at the branch level and credit card fraud of $21,000 during 2009.  These increases were partially offset by a decrease in outsourcing expense of $147,000, from $1,468,000 in 2008 to $1,321,000 in 2009, as a result of the reduction in outstanding credit card balances for 2009.

The following table shows interest income on earning assets and related average yields, as well as interest expense on interest bearing liabilities and related average rates paid for the years 2010, 2009 and 2008.

TABLE 1 Average Balances, Interests and Yields

	2010											2009								2008
(Dollars in Thousands)	Average Balance			Interest		Yield/Rate			Average Balance			Interest		Yield/Rate			Average Balance			Interest		Yield/Rate
ASSETS
INTEREST-EARNING ASSETS:
Loans, net of Unearned income (1)(2)		61,173			5,976		9.77	%		59,382			5,994		10.09	%		57,456			6,460		11.24	%
Certificates of Deposits		4,672			55		1.17	%		4,294			58		1.35	%		0			0		0.00	%
Investment securities		2,036			9		0.42	%		2,510			34		1.35	%		3,957			108		2.73	%
Federal funds sold		13,915			20		0.14	%		16,677			25		0.15	%		32,448			648		2.00	%
Total Interest-Earning Assets		81,797			6,060		7.41	%		82,863			6,111		7.37	%		93,861			7,216		7.69	%
Cash and due from banks		2,950								3,021								3,431
Allowance for loan Losses		(1,797	)							(1,794	)							(1,813	)
Premises and equipment		6,003								6,332								6,811
Other Real Estate		2,812								1,398								1,077
Other assets		1,280								1,071								1,311
TOTAL ASSETS		93,045								92,893								104,678
LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST-BEARING LIABILITIES:
Deposits:
Demand Deposits		15,402			89		0.58	%		13,649			75		0.55	%		15,802			150		0.95	%
Savings deposits		20,753			75		0.36	%		21,441			79		0.37	%		22,918			215		0.94	%
Time deposits		10,781			209		1.94	%		9,564			238		2.49	%		10,636			380		3.57	%
Total Int-Bearing Deposits		46,936			373		0.79	%		44,654			391		0.87	%		49,356			745		1.51	%
Long-Term debt		1,144			74		6.43	%		1,410			94		6.65	%		1,543			113		7.32	%
Total Interest-Bearing Liabilities		48,080			447		0.93	%		46,065			484		1.05	%		50,899			858		1.69	%
Non-interest-bearing deposits		32,274								33,967								40,168
Other liabilities		911								1,270								2,185
Shareholders’ equity		11,779								11,591								11,426
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		93,045								92,893								104,678
Net Interest Income					5,613								5,627								6,358
Net Interest Spread							6.48	%							6.32	%							6.00	%
Net Interest Margin							6.86	%							6.79	%							6.77	%
(1) Fee income relating to loans of $343,000 in 2010, $374,000 in 2009 and $513,000 in 2008 is included in interest income.
(2) Non-accrual loans are included in average balances and income on such loans, if recognized, is recognized on the cash basis.

13

The below table presents changes in interest income and interest expense, and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate) for the years ended December 31.

Table 2 Rate/Volume Analyses (1)

	2010 vs 2009									2009 vs 2008
	Increase (Decrease)									Increase (Decrease)
	Due to Change in:									Due to Change in:
(Dollars in Thousands)	Rate			Volume			Total			Rate			Volume			Total
Net Loans		(199	)		181			(18	)		(682	)		217			(466	)
Cert of Deposits		(8	)		5			(3	)		58			0			58
Investment Securities		(19	)		(6	)		(25	)		(35	)		(40	)		(74	)
Federal Funds Sold		(1	)		(4	)		(5	)		(308	)		(315	)		(623	)
Total Interest Income		(227	)		176			(51	)		(967	)		(138	)		(1,105	)
Deposits:
Demand Deposits		4			10			14			(56	)		(20	)		(76	)
Savings Deposits		(1	)		(3	)		(4	)		(122	)		(14	)		(136	)
Time Deposits		(59	)		30			(29	)		(104	)		(38	)		(142	)
Total Int-Bearing Dep		(56	)		37			(19	)		(282	)		(72	)		(354	)
Long-Term Debt		(2	)		(18	)		(20	)		(10	)		(10	)		(20	)
Total Interest
Expense		(58	)		19			(39	)		(292	)		(82	)		(374	)
Change in net interest income		(169	)		157			(12	)		(675	)		(56	)		(731	)

14

Interest Sensitivity Gap Analysis

The major elements management utilizes monthly 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 Bank’s policy not to invest in derivatives in the ordinary course of business.  The Bank performs a quarterly 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 instruments’ next repricing date or contractual maturity, whichever occurs first.  Through such analysis, the Bank 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, 2010, has a net interest sensitive asset gap of 28.54% when projecting out one year.  In the near term, defined as 90 days, the Company currently has a net interest sensitive liability gap of -2.36%.  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 Bank’s interest rate sensitivity analysis at December 31, 2010, as well as the cumulative position at December 31, 2010:

TABLE 3 Asset/Liability and Gap Analysis

							December 31, 2010
	1-30			31-60			61-90			91-365			1 Year-			Over
	Days			Days			Days			Days			5 Years			5 Years			Total
(Dollars in Thousands)
Earning Assets
Securities-HTM		—			—			—			—			—			—			—
Securities - AFS		—			—			—			—			—			31			31
Loans		10,906			4,735			4,195			30,978			9,111			313			60,238
Cert of Deposits		990									2,715			498			—			4,203
Federal Funds sold		14,950			—			—			—			—			—			14,950
Total Earning Assets		26,846			4,735			4,195			33,693			9,609			344			79,422
Non Earning Assets		—			—			—			—			—			14,011			14,011
TOTAL ASSETS		26,846			4,735			4,195			33,693			9,609			14,355			93,433
Interest-Bearing Liabilities
Savings & Now accounts		31,853			—			—			—			—			—			31,853
Money market		3,705			—			—			—			—			—			3,705
CD’s < $100,000		604			781			394			3,481			5,002			—			10,262
CD’s > $100,000		441			206			—			1,335			1,174			—			3,156
Total Interest-
Bearing Liabilities		36,603			987			394			4,816			6,176			—			48,976
Non-Costing Liabilities		209			—			—			—			—			44,248			44,457
TOTAL LIABILITIES AND EQUITY		36,812			987			394			4,816			6,176			44,248			93,433
Interest Sensitivity Gap		(9,757	)		3,748			3,801			28,877			3,433			344			30,446
Cumulative Gap		(9,757	)		(6,009	)		(2,208	)		26,669			30,102			30,446
Cumulative Gap/
Total Assets		-10.44	%		-6.43	%		-2.36	%		28.54	%		32.22	%		32.59	%

15

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, 2010 and December 31, 2009 the allowance for possible loan losses was $1,800,000.  In 2010, the provision for loan losses was $305,000 compared to $536,000 in 2009.  Net charge-offs were $305,000 in 2010 compared to $536,000 in 2009.  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 4 Allowance for Loan Losses

	2010			2009
	(Dollars in Thousands)
Balance at beginning of period	$	1,800		$	1,800
Charge-Offs:
Commercial		0			86
Real estate		4			57
Consumer		23			18
Credit Cards		477			540
Total Charge-offs		505			702
Recoveries:
Commercial		25			6
Real estate		1			1
Consumer		2			23
Credit Cards		171			137
Total Recoveries		200			167
Net charge-offs		305			536
Provision for loan losses		305			536
Balance at end of period	$	1,800		$	1,800
Ratio of net charge-offs during period to average loans outstanding		0.50	%		0.90	%
Allowance for possible loan losses as a percentage of loans		2.90	%		2.99	%

Non-interest Income

An important source of the Company’s revenue is derived from non-interest income.  

For the year 2010 non-interest income decreased $496,000. This decrease was due to a mix of a decrease in Cardholder & Other Credit Card Income of $8,000, Other Comm & Fees of $7,000 and the largest being Other Income of $928,000 primarily due to Katrina insurance proceeds in the amount of $817,077 remaining after all storm damage repairs were completed. Offset by increases in Services Charges of $14,000, NSF Charges of $47,000 and Gain on Sale of ORE of $386,000 on the sale of three lots on Morrison Rd.

For the year 2009 non-interest income increased $273,000. This increase was due to a mix of an increase in the Other Income category, the largest being Katrina insurance proceeds in the amount of $817,077 remaining after all storm damage repairs were completed. Services Charges decreased by $37,000, NSF Charges by $62,000, Cardholder by $67,000 and Other Comm & Fees by $18,000.

16

The following table sets forth the major components of non-interest income for the last two years.

TABLE 5 Non-interest Income

	December 31,
	2010		2009		$ Change
	(Dollars in Thousands)
Service Charges		214		200		14
NSF Charges		253		206		47
Gain on Sale of Securities		0		0		0
Cardholder & Other Cr Card Inc		423		431		(8	)
Other Comm. & Fees		48		55		(7	)
ORE Income		0		0		0
Gain on Sale of ORE		395		9		386
Gain on Insurance Settlement		0		0		0
Other Income		160		1,088		(928	)
Total Non-interest Income	$	1,493	$	1,989	($	496	)

Non-interest Expense

The major categories of non-interest expense include salaries and employee benefits, occupancy and equipment expenses and other operating costs associated with the day-to-day operations of the Company.

For the year 2010 non-interest expense decrease $291,000. The major components were a decrease of $150,000 in Salaries and Employee Benefits, a decrease in Insurance and Assessments of $44,000, a decrease in Miscellaneous Losses of $242,000, a decrease in Other operating expenses of $119,000 and a decrease of $25,000 on all other expenses. The primary offset to the decreases were an increase in maintenance, repairs and upkeep of ORE properties of $ 201,000, an increase in Professional fees of $30,000, an increase in Outsourcing fees of $30,000, an increase in Occupancy expense of $20,000 and all other expenses of $8,000.

For the year 2009 non-interest expense increased $212,000. The major components of this increase were an increase of $68,000 in salaries and employee benefits, an increase of $132,000 in insurance and assessments due to FDIC’s increase in rate assessments and an increase of $246,000 in misc Losses in part due to the Bank having to pay a contract for services to a major company designated as a back up during Katrina disaster.  When the company failed to perform according to the contract, the Bank sued for breach of contract.  However, the judge ruled from the bench that the Bank was liable to pay the remainder of the service contract in the amount of $84,000.  Additional other loses incurred by the Bank included $24,000 in fraud at the branch level and credit card fraud of $21,000 during 2009. The offsets being Occupancy expense with a decrease of $104,000, Outsourcing fees, a decrease of $146,000 and Other Operating expense a decrease of $82,000.

17

The following table sets forth the major components of non-interest expense for the last two years:

TABLE 6 Non-interest Expenses

	December 31,
	2010		2009		$ Change
	(Dollars in Thousands)
Salaries & Benefits		2,615		2,765		(150	)
Occupancy Expense		1,060		1,040		20
Estimated Loss (Recovery) Contingency		0		0		0
Loan & Credit Card Expense		116		126		(10	)
Communications		216		219		(3	)
Outsourcing Fees		1,352		1,322		30
Stationery, Forms & Supply		84		92		(8	)
Professional Fees		287		257		30
Insurance & Assessments		181		225		(44	)
Advertising Expense		11		2		9
Misc. Losses		3		245		(242	)
Promotional Expenses		57		61		(4	)
ORE Expenses		335		134		201
Other Operating Expense		261		380		(119	)
Total Non-interest Expense	$	6,577	$	6,868	($	291	)

Provision for Income Taxes

The Company recognized an income tax benefit of $ 76,000 for 2010, as compared to income tax expense of $77,000 for 2009. The income tax benefit for 2010 was a result of an increase in the Company’s dividend received deduction, as well as adjustments to the Company’s current and deferred income tax liability accounts.

Financial Condition

The Bank 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 Bank’s asset liability committee meets regularly to review both the interest rate sensitivity position and liquidity.

18

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.  These are sources of liquidity that the Bank has not fully utilized.  The Bank, nevertheless, has maintained adequate liquidity through the sale of federal funds.  Traditionally, liquidity sources for the Bank are generated from operating activities and financing activities.

Net cash from operating activities primarily results from net income adjusted for the following non-cash items:  the provision for loan losses; depreciation and amortization; fair value adjustments on foreclosed property; and deferred income taxes or benefits.  

Significant financing activities generally include core deposits, securities sold under agreements to repurchase, and long-term debt.  The Bank anticipates capital needs will be met from the growth in retained earnings.

Financing activity cash flows from deposits increased 1.88% to $80,577,000 in 2010 from $79,087,000 in 2009, or $1,490,000 and short term investments and other marketable assets decreased, resulting in a slight decrease in liquidity.  The Bank has unused sources of liquidity in the form of unused federal funds lines of $4,400,000 from a correspondent bank, and borrowing availability from the FRB discount window equal to the Bank’s principal amount of unpledged investment securities.  The Bank manages asset and liability growth through pricing strategies within regulatory capital constraints.  Management believes that its core deposit strength minimizes the risk of deposit runoff.

Loans

The loan portfolio is the largest category of the Bank’s earning assets.  The following table summarizes the composition of the loan portfolio for the last two years:

TABLE 7 Loans Net by Category

	2010		2009
	(Dollars in Thousands)
Real estate-mortgage		51,520		48,939
Commercial, financial, & agricultural		2,726		2,444
Consumer		1,191		1,371
Credit cards		6,321		7,113
Overdrafts		276		235
Loans		62,036		60,103
Less:
Allowance for possible loan losses		1,800		1,800
Loans, net	$	60,236	$	58,303

19

At December 31, 2010 total loans outstanding, net of allowance for loan losses, were $60,236,000 and $58,303,000 at December 31, 2009.  Average total loans during 2010 increased $1,791,000, or 3.02%, to $61,173,000 from $59,382,000 at December 31, 2009.

The Bank experienced an increase of $2,581,000 in real estate loans from $48,939,000 in 2009 to $51,520,000 in 2010, which was offset by a decrease in credit card loans of $792,000, and a decrease in consumer loans of $180,000.  

The following table shows the maturity distribution and interest rate sensitivity of the Bank’s loan portfolio at December 31, 2010:

TABLE 8 Loan Maturity and Interest Rate Sensitivity

	December 31, 2010
			Maturing
	Within		One To		Over
	One Year		5 Years		5 Years		Total
	(Dollars in Thousands)
Loan Maturity by Type
Real estate construction, land & land dev.		43,587		7,302		631		51,521
Commercial, financial & agricultural		2,291		436		0		2,726
All other loans		1,373		6,416		0		7,788
Total	$	47,251	$	14,154	$	631	$	62,036
Rate Sensitivity of Loans
Loans:
Fixed rate loans		43,554		14,154		631		58,339
Variable rate loans		1,421		0		0		1,421
Non-Accrual Loans		2,276		0		0		2,276
Total	$	47,251	$	14,154	$	631	$	62,036

As of December 31, 2010 and 2009, the Bank’s recorded investment in loans that are considered impaired totaled $2,276,000 and $1,158,000, respectively.

Non-performing Assets

Non-performing assets consist of non-accrual and restructured loans and other real estate owned.  Non-accrual 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.  Other real estate owned is real property acquired by foreclosure or deed taken in lieu of foreclosure.

Non-performing assets at December 31, 2010 were $5,413,000 and $3,170,000 at December 31, 2009.  During 2010, non-accrual loans increased by $1,118,000 and other real estate owned increased $1,125,000 due to foreclosure on loans which defaulted.  At December 31, 2010, and 2009, there were no restructured loans.  

The ratio of past due loans to total loans has increased from 2.60% at December 31, 2009 to 3.05% at December 31, 2010.  During that time, the Bank increased its ratio of non-performing assets to loans and other real estate owned from a low of 5.10% at December 31, 2009, to a high of 8.31% at December 31, 2010.  The allowance for possible loan losses as a percent of net period-end loans decreased to 2.90% at December 31, 2010, compared to 2.99% at December 31, 2009.  Management believes the allowance for possible loan losses is adequate to provide for losses inherent in the loan portfolio.

When a loan is classified as non-accrual, 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.  The gross amount of interest income that would have been recorded on non-accrual loans, if all such loans had been accruing interest at the original contract rate, at December 31, 2010 was $222,000 compared to December 31, 2009 was $117,000.

TABLE 9 Non-performing Assets

	2010			2009
(Dollars in Thousands)
Non-accrual Loans		2,276			1,158
Restructured Loans		0			0
Other Real Estate Owned		3,137			2,012
Total Non-performing Assets	$	5,413		$	3,170
Loans past due 90 days or more		1,895			1,564
Ratio of past due loans to loans		3.05	%		2.60	%
Ratio of non-performing assets to loans and other real estate owned		8.31	%		5.10	%

20

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.

Approved credit card accounts are reviewed on a monthly basis to assure compliance with the Bank’s credit policy.  Review procedures include determination that the appropriate verification process has been completed, recalculation of the borrower’s debt ratio, and analyses of the borrower’s credit history to determine if it meets established Bank criteria.  Policy exceptions are carefully analyzed monthly.  Delinquent accounts are monitored daily and charged off before 180 days, which is the industry standard.  Prior to charge-off, interest on credit card loans continue to accrue.  A monthly provision for credit card losses is included in the Bank’s overall provision for loan losses.

Table 10 Allocation of Allowance for Possible Loan Losses

	December 31, 2010				December 31, 2009
	Allowance		% *		Allowance		% *
	(Dollars in Thousands)
Non-accrual loans		255	3.67	%		122	1.93	%
Substandard/Impaired/Doubtful		1,042	4.02	%		1,011	25.49	%
Construction loans		—	0.00	%		71	9.84	%
Commercial, financial and agricultural		89	71.68	%		151	41.86	%
Consumer loans		15	9.99	%		68	8.65	%
Credit Cards		368	10.19	%		364	11.83	%
Overdrafts		31	0.45	%		13	0.39	%
Total		1,800				1,800
* 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 Bank’s Board of Directors reviews such 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 $5,081,000 at December 31, 2010, and $6,008,000 at December 31, 2009.  The majority of the holdings are backed by U.S. Government or federal agency guarantees limiting the credit risks associated with these securities.  Although credit risks are minimal, interest rates and their respective interest income is subject to risk due to fluctuating interest rates.  The average maturity of the securities portfolio was one year or less at December 31, 2010.  At year-end 2010, $878,000 of the Company’s investment securities were classified as available-for-sale, compared to $814,000 at December 31, 2009.  The gross unrealized holding gains on these securities at December 31, 2010 were $576,000 and $512,000 at December 31, 2009.

21

There were no investments and no obligations of any one state or municipality at December 31, 2010, or 2009.

At December 31, 2010, and 2009 the Bank had no U.S. Treasury securities or obligations of U. S. government corporations or federal agencies, as available for sale.

The following table sets forth the carrying and approximate market values of investment securities for the last two years:

TABLE 11 Investment Securities

			December 31,
	2010				2009
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in Thousands)
Certificate of Deposit		4,203		4,203		5,194		5,194
U.S. Treasury securities and obligations of U.S. government corporations and agencies		—		—		1,000		1,000
Other investments		302		878		302		814
Total	$	4,505	$	5,081	$	6,496	$	7,008

TABLE 12 Securities Maturities and Yields

	December 31, 2010
	Amortized		Fair		Average
	Cost		Value		Yield (2)
(Dollars in Thousands)
Available-for-Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies
Due in 1 year or less		—		—		0.00	%
Due 1-5 years		—		—		0.00	%
Total		—		—		0.00	%
Held-to-Maturity
Certificate of Deposit
Due in 1 year or less		4,203		4,203		1.03	%
U.S. Treasury securities and obligations of U.S. government corporations and agencies
Due in 1 year or less		—		—		0.00	%
Due 1-5 years
Total	$	4,203	$	4,203		1.03	%

22

Below is a table of equity securities at fair value that are included in Investment Securities at December 31, 2010 (dollars in thousands):

TABLE 13 Other Securities      

Mississippi River Bank		765
Liberty Financial Services, Inc.		82
Business Resource Capital		20
MasterCard International		11
Total Other Securities	$	878

Deposits

Total deposits at December 31, 2010 were $80,577,000 which represented an increase of $1,490,000, or 1.88%, from $79,087,000 at December 31, 2009.  During 2010, interest bearing deposits increased by $1,730,000.  Core deposits, the Bank’s largest source of funding, consist of all interest bearing and non-interest bearing deposits except certificates of deposits over $100,000.  Core deposits are obtained from a broad range of customers.  Average core deposits increased $592,000, or .78%, to $76,156,000 from $75,564,000 in 2009.  Average market rate core deposits, primarily CD’s of less than $100,000 and money market accounts, increased $2,182,000 from $9,448,000 in 2009 to $11,630,000 in 2010.  

Non-interest bearing deposits are comprised of business accounts, including correspondent bank accounts, escrow deposits, as well as individual accounts.  Average non-interest bearing demand deposits represented 42.38% of average core deposits in 2010 compared to 44.95% in 2009.

The average amount of, and average rate paid on deposits by category for the period shown are presented below:

TABLE 14 Selected Statistical Information

			December 31,
	2010					2009
	Average					Average
	Amount		Rate			Amount		Rate
	(Dollars in Thousands)
Non-interest-bearing Deposits	$	32,274		N/A		$	33,967		N/A
Interest-bearing Demand Deposits		15,402		0.58	%		13,649		0.55	%
Savings Deposits		20,753		0.36	%		21,441		0.37	%
Time Deposits		10,781		1.94	%		9,564		2.49	%
Total Average Deposits	$	79,210				$	78,621

23

The composition of average deposits for the last two years is presented below:

TABLE 15 Deposit Composition

DEPOSIT COMPOSITION

	December 31,
	2010					2009
			(Dollars in Thousands)
	Average		% Of			Average		% Of
	Balances		Deposits			Balances		Deposits
Demand, non-interest-bearing		32,274		40.75	%		33,967		43.20	%
NOW accounts		11,499		14.52	%		10,708		13.62	%
Money market deposit accounts		3,903		4.93	%		2,941		3.74	%
Savings accounts		20,753		26.20	%		21,441		27.27	%
Other time deposits		7,727		9.75	%		6,507		8.28	%
Total core deposits		76,156		96.14	%		75,564		96.11	%
Certificates of deposit of $100,000 or more		3,055		3.86	%		3,057		3.89	%
Total deposits	$	79,210		100.00	%	$	78,621		100.00	%

The following table sets forth maturity distribution of Time Deposits of $100,000 or more for the past two years:

24

TABLE 16 Maturity Distribution of Time Deposits $100,000 or More

	December 31,
	2010			2009
	(Dollars in Thousands)
Three months or less			1,130			1,130
After three months through one year			2,302			2,302
Over one year through three years			378			378
Total		$	3,810		$	3,810

Other Assets and Other Liabilities

Other Assets decreased $316,000 in 2010, due primarily to the decrease in prepaid FDIC assessments. During 2009 the FDIC required institutions to prepay three years worth of assessments.

   Other Liabilities decreased $49,000 in 2010. This decrease was primarily due to an overall decrease of our accrued expenses.  

The following are summaries of other assets and other liabilities for the last two years:

TABLE 17 Other Assets & Other Liabilities

Other Assets	December 31,
	2010		2009
(Dollars in Thousands)
Interest Receivable		254		268
Prepaid Expenses		602		807
Accounts Receivable		161		131
Cash Surrender Value		167		183
Other Assets		8		119
Total Other Assets	$	1,192	$	1,508
Other Liabilities	December 31,
		2010		2009
(Dollars in Thousands)
Accrued Expenses Payable		132		290
Deferred Membership Fees		13		14
Blanket Bond Fund		50		50
Other Liabilities		112		2
Total Other Liabilities	$	307	$	356

25

Borrowings

The Company’s long-term debt is comprised primarily of debentures which will be due July 5, 2012 totaling $1,000,000.  Each $500 debenture is secured by a pledge of 71.50 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 $4,400,000 with a correspondent bank.  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 at December 31, 2010 was $11,773,000, an increase of $320,000, or 2.79%, from $11,453,000 at December 31, 2009, and amounted to 12.47% of total assets.  Realized shareholders’ equity which includes preferred and common stock, capital in excess of par, and retained earnings increased $278,000, or 2.53%, to $11,259,000 at December 31, 2010 from $10,982,000 at December 31, 2009.

During 2010, the increase in shareholder’s equity was primarily attributable to net income of $299,000, partially offset by a decrease in Preferred Stock of $27,000, and an increase in capital in excess of par-retired Preferred Stock of $5,000.  In addition, there was an increase in accumulated other comprehensive income, which is used to refer to revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income, in the amount of $42,000.

No dividends were paid on shares of Company Common Stock in 2010 or 2009.

The Company maintains an adequate capital position that exceeds all minimum regulatory capital requirements.  The Company’s internal capital growth rate (net income less dividends declared as a percentage of total shareholders’ equity) for 2010 was 2.54% compared to 1.18% in 2009.  The ratio of average shareholders’ equity to average assets was 12.66% and 12.48% in 2010 and 2009, respectively.

At December 31, 2010, the Company’s primary capital ratio as defined by the FRB was 13.59%, compared to 13.53% in 2009.  The total capital ratio was 13.59% at December 31, 2010, and 13.53% in 2009, compared to the guidelines, which mandate a minimum primary capital ratio of 5.50% and total capital ratio of 6.00% for bank holding companies and banks.

The Bank’s leverage ratio (Tier 1 capital to total assets) at December 31, 2010, was 12.83% compared to 13.06% at December 31, 2009, which are compared to the minimum capital requirement of 4.00% for well-managed Banking organizations.

26

The Company’s ratios are in excess of the FRB’s requirements, as indicated in the Capital Adequacy schedule below:

	2010					2009
	Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Tier I capital
Actual	$	12,096		18.58	%	$	11,856		18.32	%
Minimum		2,603		4.00	%		2,520		4.00	%
Excess		9,493		14.58	%		9,336		14.32	%
Total risk-based capital
Actual		12,922		19.85	%		12,677		19.59	%
Minimum		5,207		8.00	%		5,035		8.00	%
Excess		7,715		11.85	%		7,642		11.59	%
Tier I capital leverage ratio
Actual		12,096		12.83	%		11,856		13.06	%
Minimum		3,771		4.00	%		4,180		4.00	%
Excess		8,325		8.83	%		7,676		9.06	%

Dividends that may be paid by the Bank to the Company are subject to certain regulatory limitations.  Under Louisiana banking law, the approval of the OFI will be required if the total of all dividends declared in any calendar year by the Bank exceed the Bank’s net profits to date and retained net profits for the year in which such dividend is declared and the immediately preceding year, subject to maintenance of minimum required regulatory capital.

Supervision and Regulation Enforcement Action

Bank Holding Company Regulation

Federal

The Company is a bank holding company within the meaning of the BHC Act, and is registered with the FRB.  It is required to file annual reports with the FRB and such additional information as the FRB may require pursuant to the BHC Act.  The FRB may also perform periodic examinations of the Company and its subsidiaries.  The following summary of the BHC Act and of the other acts described herein is qualified in its entirety by express reference to each of the particular acts.  

The BHC Act requires every bank holding company to obtain the prior approval of the FRB before acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank which is already not majority owned by the Company.  The BHC Act prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company which is not a bank and from engaging in any business other than banking or furnishing services to or performing services for its subsidiaries.  The 5% limitation is not applicable to ownership of shares in any company the activities of which the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.  As set forth below, however, the Gramm-Leach-Bliley Financial Modernization Act of 1999, enacted on November 12, 1999, broadens the ability of a bank holding company to own or control companies other than banks.  

27

Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) allows the FRB to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company’s home state, without regard to whether the transaction is prohibited by the laws of any state.  The FRB may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the target bank’s state.  The Riegle-Neal Act also prohibits the FRB from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank’s home state or in any state in which the target bank maintains a branch.  The Riegle-Neal Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies.  Individual states may also waive the 30% statewide concentration limit contained in the Riegle-Neal Act.  

Additionally, the federal banking agencies are authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks has opted out of the Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997, which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks.  Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions.  Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above.  

The Riegle-Neal Act authorizes the FDIC to approve interstate branching de novo by national and state banks, respectively, only in states that specifically allow for such branching.  The Riegle-Neal Act also requires the appropriate federal banking agencies to prescribe regulations that prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production.

The Bank is an “affiliate” of the Company within the meaning of the Federal Reserve Act.  This act places restrictions on a bank’s loans or extensions of credit to purchases of or investments in the securities of, and purchases of assets from an affiliate, a bank’s loans or extensions of credit to third parties collateralized by the securities or obligations of an affiliate, the issuance of guarantees, acceptances, and letters of credit on behalf of an affiliate, and certain bank transactions with an affiliate, or with respect to which an affiliate acts as agent, participates, or has a financial interest.  Furthermore, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishings of services.  

28

Under FRB policy, the Company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support its subsidiary.  This support may be required at times when, absent such FRB policy, the Company may not be inclined to provide it.  Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (a) the default of a commonly controlled FDIC-insured depository institution or (b) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution “in danger of default.”  “Default” is defined generally as the appointment of a conservator or receiver and “in danger of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.  Under FDICIA (see discussion below) a bank holding company may be required to guarantee the capital plan of an undercapitalized depository institution.  Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank.  In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.  

Louisiana

Under the Louisiana Bank Holding Company Act of 1962, as amended (the “Louisiana BHC Act”), bank holding companies are authorized to operate in Louisiana provided the activities of the non bank subsidiaries thereof are limited to the ownership of real estate and improvements, computer services, equipment leasing, and other directly related banking activities.  In addition, a bank holding company and its subsidiaries may not engage in any insurance activity in which a bank may not engage.  The Commissioner of the OFI is authorized to administer the Louisiana BHC Act by the issuance of orders and regulations.  At present, prior approval of the Commissioner would not be required for the formation and operation of a nonblank subsidiary of the Company if its activities meet the requirements of the Louisiana BHC Act.  

Bank Regulation

The Bank is subject to examination and regulation by the FDIC.   The Bank is chartered under the banking laws of the State of Louisiana and is subject to the supervision of, and regular examination by, the OFI.  As an affiliate of the Bank, the Company is also subject to examination by the OFI.  In addition, the deposits of the Bank are insured by the Deposit Insurance Fund (“DIF”) thereby rendering the Bank subject to the provisions of the Federal Deposit Insurance Act (“FDIA”) and, as a state nonmember bank, to supervision and examination by the FDIC.  The FDIA requires the FDIC approval of any merger and/or consolidation by or with an insured bank, as well as the establishment or relocation of any bank or branch office.  The FDIC also supervises compliance with the provisions of federal law and regulations that place restrictions on loans by FDIC-insured banks to their directors, executive officers, and other controlling persons.  

29

In December 1991, a major banking bill entitled the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) was enacted, which substantially revises the bank regulatory and funding provisions of the FDIA and makes revisions to several other federal banking statues.  Among other things, the FDICIA requires the federal banking regulators to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements.  The Bank has capital levels above the minimum requirements.  In addition, an institution that is not well capitalized is generally prohibited form accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market and also may not be able to “pass through” insurance coverage for certain employee benefit accounts.  The FDICIA also requires the holding company of any undercapitalized depository institution to guarantee, in part, certain aspects of such depository institution’s capital plan for such plan to be acceptable.  The FDICIA contains numerous other provisions, including new account, audit and reporting requirements, termination of the “too big to fail” doctrine except in special cases, limitations on the FDIC’s payment of deposits at foreign branches, new regulatory standards in such areas as asset quality, earnings and compensation and revised regulatory standards for, among other things, powers of state banks, real estate lending and capital adequacy.  The FDICIA also required that a depository institution provide 90 days prior notice of the closing of any branches.  

Furthermore, all banks are affected by the credit policies of other monetary authorities, including the FRB, which regulate the national supply of bank credit.  Such regulation influences overall growth of bank loans, investments, and deposits and may also affect interest rates charged on loans and paid on deposits.  The FRB’s monetary policies have had a significant effect on the operating results of commercial banks in the past, and the Company expects this trend to continue in the future.  

Dividends

The FRB has issued a policy statement on the payment of cash dividends by bank holding companies.  In the policy statement, the FRB expressed its view that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing.  Additionally, the FRB possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statues and regulations.  Among these powers is the ability to prohibit or limit the payment of dividends by banks and bank holding companies.

In addition to the restrictions on dividends imposed by the FRB, Louisiana law also places limitations on the Company’s ability to pay dividends.  For example, the Company may not pay dividends to its shareholders if, after giving effect to the dividend, the Company would not be able to pay its debts as they become due.  Because a major source of the Company’s revenue is dividends that it receives and expects to receive from the Bank, the Company’s ability to pay dividends to its shareholders will depend on the amount of dividends paid by the Bank to the Company.  The Company cannot be sure that the Bank will, in any circumstances, pay such dividends to the Company, as Louisiana banking law provides that a Louisiana bank may not pay dividends if it does not have, or will not have after the payment of such dividend, unimpaired surplus equal to 50% of the outstanding capital stock of the bank.  In addition, OFI approval is required to declare or pay any dividend that would bring the total of all dividends paid in any one calendar year to an amount greater than the total of such bank’s net profits for such year combined with the net profits of the immediately preceding year.  

30

Effect of Governmental Policies

The Company and the Bank are affected by the policies of regulatory authorities, including the FRB.  An important function of the Federal Reserve System is to regulate the national money supply.  Among the instruments of monetary policy used by the Federal Reserve are: purchases and sales of U.S. Government securities in the marketplace; changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal Reserve; and changes in the reserve requirements of depository institutions.  These instruments are effective in influencing economic and monetary growth, interest rate levels, and inflation.  

The monetary policies of the Federal Reserve and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.  Because of changing conditions in the national economy and in the financial markets, as well as the result of actions by monetary and fiscal authorities, it is not possible to predict with certainty future changes in interest rates, deposit levels, loan demand or the business and earnings of the Company or whether the changing economic conditions will have a positive or negative effect on operations and earnings.  

Code of Ethics

The Company has adopted a code of ethics that applies to all directors, officers and employees that is designed to deter wrongdoing and promote the following:

    1.) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

   2.) Full, fair, accurate, timely and understandable disclosure in reports and documents;

   3.) Compliance with applicable governmental laws, rules and regulations;

   4.) The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

   5.) Accountability for adherence to the code.

A copy of the Company’s code of ethics may be obtained by writing to:

Bank of Louisiana

Accounting Department

300 St. Charles Avenue

New Orleans, LA 70130-3104

31

Community Reinvestment Act (CRA)

In connection with its lending activities, the Bank is subject to a variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and populations.  

The CRA requires FDIC insured banks to define the assessment areas that they serve, identify the credit needs of those assessment areas and take actions that respond to the credit needs of the community.  The FDIC must conduct regular CRA examinations of the Bank and assign it a CRA rating of “outstanding,” “satisfactory,” “needs improvement” or “unsatisfactory.”  The Bank has received a “satisfactory” rating from the FDIC.

Indemnification of Directors and Officers

The Board of Directors of the Bank of Louisiana, on June 8, 1988, adopted a resolution to amend the Articles of Incorporation of the Bank by adding a new Article VII as follows:

No director or officer of the corporation shall be personally liable to the corporation or its shareholder for monetary damages for breach of fiduciary duty as a director or officer, except for liability (i) for breach of the director’s or officer’s duty of loyalty to the corporation or its shareholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for any unlawful dividend or any other unlawful distribution, payment or return of assets made to shareholders, or (iv) for any transaction from which the director or officer derived an improper personal benefit.

Sarbanes-Oxley Act of 2002

The following is a brief summary of some of the provision of the Sarbanes-Oxley Act of 2002 (“SOX”) that affect the Company and the Bank.  It is not intended as an exhaustive description of SOX or its impact on us.

SOX instituted or increased various requirements for corporate governance, board of director and audit committee composition and membership, board duties, auditing standards, external audit firm standards, additional disclosure requirements, including CEO and CFO certification of financial statements and related controls, and other new requirements.

Board of directors are now required to have a majority of independent directors, and audit committees are required to be wholly independent, with greater financial expertise.  Such independent directors are not allowed to receive compensation from the company on whose board they serve except for directors’ fees.  Additionally, requirements for auditing standards and independence of external auditors were increased and included independent audit partner review, audit partner rotation, and limitations over non-audit services.  Penalties for non-compliance with existing and new requirements were established or increased.

32

In addition, Section 404 of SOX currently requires that by the end of 2006, our management perform a detailed assessment of internal controls and report thereon as follows:

1. We must state that we accept the responsibility for maintaining an adequate internal control structure and procedures for financial reporting

2. We must present an assessment, as of the end of each December 31 fiscal year, of the effectiveness of the internal control structure and procedure for our financial reporting, and

3. We must have our auditors attest to, and report on, as of the end of each December 31 fiscal year, the assessment made by management.  The attestation must be made in accordance with standards for attestation engagements issued or adopted by the Public Company Accounting Oversight Board.

We have taken steps with respect to achieving compliance.

Financial Modernization Act

The Gramm-Leach-Bliley Act, (“GLB”) of 1999 permits bank holding companies meeting certain management, capital, and community reinvestment act standards to engage in a substantially broader range of non-banking activities than permitted previously, including insurance underwriting and merchant banking activities.  This act repeals the provision of the Glass Steagall Act, thus permitting affiliations of banks with securities firms and registered investment companies.  The act authorizes financial holding companies, which permits banks to be owned by or to own securities firms, insurance companies, and merchant banking companies.  The act gives the FRB authority to regulate financial holding companies, but provides for functional regulation of subsidiary activities.

In addition, the GLB Act also provided significant new protections for the privacy of customer information that are applicable to the Company.  Accordingly, we must (1) adopt and disclose a privacy policy; (2) give customers the right to prevent us from making disclosure of non-public financial information, subject to specified exceptions; and (3) follow regulatory standards to protect the security and confidentiality of customer information.

Temporary Liquidity Guarantee Program (“TLGP”)

On October 13, 2008, the FDIC announced the TLGP to strengthen confidence and encourage liquidity in the banking system.  The TLGP consists of two components: a temporary guarantee of newly-issued senior unsecured debt (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in non-interest-bearing transaction and regular checking accounts at FDIC-insured institutions (the Transaction Account Guarantee Program).  The Bank chose not to participate in the program.

Troubled Asset Relief Program (“TARP”)

On October 14, 2008, the U.S. Department of Treasury announced the TARP Capital Purchase Program. The TARP Capital Purchase Program contemplates the U.S. Treasury purchasing senior preferred shares in qualified U.S. financial institutions. The program is intended to encourage participating financial institutions to build capital in order to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Companies participating in the program must accept standardized terms as outlined by the U.S. Treasury and must adopt the Treasury Department’s standards for executive compensation and corporate governance. Additionally, participants must agree to accept future program requirements as may be promulgated by the U.S. Congress and regulatory authorities.  The Bank chose not to participate in TARP.

33

Emergency Economic Stabilization of 2008 (“EESA”)

On October 3, 2008, the United States government passed the EESA, which provides the United States Department of the Treasury with broad authority to implement certain actions intended to help restore stability and liquidity to the U.S. financial markets.

Deposit Insurance

As part of the EESA, the basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2013 by the FIDC. Deposit insurance coverage for retirement accounts was not changed and remains at $250,000.

The FDIC imposed an additional assessment against institutions for deposit insurance.  This assessment is based on the risk category of the institution and ranges from 5 to 43 basis points of the institution’s deposits.  In December, 2008, the FDIC adopted a rule that raises the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) for the first quarter of 2009.  The rule also gives the FDIC the authority to alter the way it calculates federal deposit insurance assessment rates to adjust for an institution’ risk beginning in the second quarter of 2009 and thereafter, and as necessary to implement emergency special assessments to maintain the deposit insurance fund.

Item 7 Financial Statements

34

To the Board of Directors

BOL Bancshares, Inc. & Subsidiary

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheets of BOL BANCSHARES, INC. (the Company) and its wholly-owned subsidiary, Bank of Louisiana, as of December 31, 2010 and 2009, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2010, 2009 and 2008.  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 the standards of the Public Company Accounting Oversight Board in the United States of America.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BOL BANCSHARES, INC. and its wholly-owned subsidiary, Bank of Louisiana, as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years ended December 31, 2010, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, included in the Form 10-K and, accordingly, we do not express an opinion thereon.

A Professional Accounting Corporation

Metairie, Louisiana

March 5, 2011

111 Veterans Memorial Boulevard, Suite 600, Metairie, LA 70005  •  504.835.5522  •  Fax 504.835.5535

5100 Village Walk, Suite 300, Covington, LA 70433-4012  •  985.892.5850  •  Fax 985.892.5956

Town Hall West, 10000 Perkins Rowe, Ste. 200, Baton Rouge, LA 70810-1797  •  225.296.5150  •  Fax 225.296.5151

www.laporte.com

35

BOL BANCSHARES, INC. & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31,
	2010		2009
Cash and Cash Equivalents
Cash and Due from Banks	$	3,833,920	$	3,040,757
Treasury Bills		—		999,655
Federal Funds Sold		14,950,000		14,550,000
Total Cash and Cash Equivalents		18,783,920		18,590,412
Investment Securities
Certificates of Deposit with Other Institutions		4,203,007		5,193,897
Securities Available-for-Sale, at Fair Value		878,100		814,300
Loans - Less Allowance for Loan Losses of $1,800,000 in 2010 and 2009		60,236,121		58,302,510
Property, Equipment and Leasehold Improvements (Net of Depreciation and Amortization)		5,855,711		6,141,196
Other Real Estate		3,137,074		2,011,887
Other Assets		1,191,997		1,507,973
Letters of Credit		90,120		90,120
Total Assets	$	94,376,050	$	92,652,295

The accompanying notes are an integral part of these consolidated financial statements.

36

BOL BANCSHARES, INC. & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

	December 31,
	2010		2009
LIABILITIES
Deposits
Non-Interest Bearing	$	31,866,902	$	32,107,271
Interest Bearing		48,709,841		46,980,059
Notes Payable		1,144,201		1,144,201
Other Liabilities		306,562		355,635
Deferred Taxes		380,652		382,185
Letters of Credit Outstanding		90,120		90,120
Accrued Interest		104,980		139,842
Total Liabilities		82,603,258		81,199,313
STOCKHOLDERS’ EQUITY
Preferred Stock - Par Value $1
1,810,296 Shares Issued and Outstanding in 2010
1,837,089 Shares Issued and Outstanding in 2009		1,810,296		1,837,089
Common Stock - Par Value $1
179,145 Shares Issued and Outstanding in 2010 and 2009		179,145		179,145
Accumulated Other Comprehensive Income		513,305		471,191
Capital in Excess of Par - Retired Stock		195,205		189,846
Retained Earnings		9,074,841		8,775,711
Total Stockholders’ Equity		11,772,792		11,452,982
Total Liabilities and Stockholders’ Equity	$	94,376,050	$	92,652,295

The accompanying notes are an integral part of these consolidated financial statements.

37

	For the Years Ended December 31,
	2010			2009		2008
INTEREST INCOME	$	6,059,698		$	6,110,909	$	7,215,507
INTEREST EXPENSE		447,238			484,314		857,525
Net Interest Income		5,612,460			5,626,595		6,357,982
PROVISION FOR LOAN LOSSES		304,688			535,543		256,622
Net Interest Income After Provision for Loan Losses		5,307,772			5,091,052		6,101,360
OTHER INCOME
Service Charges on Deposit Accounts		476,647			416,897		505,009
Gain on Katrina Insurance Recovery		—			817,077		—
Other Non-Interest Income		1,016,014			755,246		1,211,079
Total Other Income		1,492,661			1,989,220		1,716,088
OTHER EXPENSES
Salaries and Employee Benefits		2,615,106			2,764,527		2,696,966
Occupancy Expense		1,059,723			1,040,332		1,143,742
Other Non-Interest Expense		2,902,497			3,063,055		2,815,263
Total Other Expenses		6,577,326			6,867,914		6,655,971
INCOME BEFORE INCOME TAX EXPENSE		223,107			212,358		1,161,477
INCOME TAX (BENEFIT) EXPENSE		(76,023	)		77,182		437,391
NET INCOME	$	299,130		$	135,176	$	724,086
EARNINGS PER SHARE OF COMMON STOCK	$	1.67		$	0.75	$	4.04

The accompanying notes are an integral part of these consolidated financial statements.

38

BOL BANCSHARES, INC. & SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the Years Ended December 31,
	2010		2009			2008
NET INCOME	$	299,130	$	135,176		$	724,084
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized Holding Gains (Losses) on Investment Securities Available-for-Sale, Arising During the Period		42,114		(5,726	)		54,983
OTHER COMPREHENSIVE INCOME (LOSS)		42,114		(5,726	)		54,983
COMPREHENSIVE INCOME	$	341,244	$	129,450		$	779,067

The accompanying notes are an integral part of these consolidated financial statements.

39

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 Stock		Earnings		Total
BALANCE - January 1, 2008	$	2,081,857		$	179,145	$	421,934		$	140,892		7,916,449		10,740,277
Preferred Stock Retired		(84,497	)		—		—			16,900		—		(67,597	)
Other Comprehensive Income, Net of Applicable Deferred Income Taxes		—			—		54,983			—		—		54,983
Net Income for the Year 2008		—			—		—			—		724,086		724,086
BALANCE - December 31, 2008		1,997,360			179,145		476,917			157,792		8,640,535		11,451,749
Preferred Stock Retired		(160,271	)		—		—			32,054		—		(128,217	)
Other Comprehensive Loss, Net of Applicable Deferred Income Taxes		—			—		(5,726	)		—		—		(5,726	)
Net Income for the Year 2009		—			—		—			—		135,176		135,176
BALANCE - December 31, 2009		1,837,089			179,145		471,191			189,846		8,775,711		11,452,982
Preferred Stock Retired		(26,793	)		—		—			5,359		—		(21,434	)
Other Comprehensive Income, Net of Applicable Deferred Income Taxes		—			—		42,114			—		—		42,114
Net Income for the Year 2010		—			—		—			—		299,130		299,130
BALANCE - December 31, 2010	$	1,810,296		$	179,145	$	513,305		$	195,205	$	9,074,841	$	11,772,792

The accompanying notes are an integral part of these consolidated financial statements.

40

BOL BANCSHARES, INC. & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2010			2009			2008
OPERATING ACTIVITIES
Net Income	$	299,130		$	135,176		$	724,086
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
Provision for Loan Losses		304,688			535,543			256,622
Depreciation and Amortization Expense		384,632			399,722			425,495
Deferred Income Taxes		(23,222	)		257,523			179,939
Gain on Sale of Other Real Estate		(394,997	)		—			—
Decrease (Increase) in Other Assets		315,976			(630,415	)		46,723
Decrease in Other Liabilities and Accrued Interest Payable		(83,935	)		(862,458	)		(1,867,090	)
Net Cash Provided by (Used in) Operating Activities		802,272			(164,909	)		(234,225	)
INVESTING ACTIVITIES
Decrease (Increase) in Certificates of Deposit with Other Institutions		990,890			(5,193,897	)		—
Proceeds from Held-to-Maturity Investment Securities Released at Maturity		—			2,001,349			5,998,651
Proceeds from Sale or Disposal of Property and Equipment		—			592			—
Purchases of Property and Equipment		(99,147	)		(25,148	)		(18,808	)
Proceeds from Sale of Other Real Estate		395,000			—			—
Net Increase in Loans		(3,363,486	)		(4,088,977	)		(161,726	)
Net Cash (Used in) Provided by Investing Activities		(2,076,743	)		(7,306,081	)		5,818,117

The accompanying notes are an integral part of these consolidated financial statements.

41

BOL BANCSHARES, INC. & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	For the Years Ended December 31,
	2010			2009			2008
FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing and Interest Bearing Deposits		1,489,413			(1,889,979	)		(8,689,105	)
Preferred Stock Retired		(21,434	)		(128,217	)		(67,597	)
Proceeds from Issuance of Long-Term Debt		—			1,000,000			—
Principal Payments on Long-Term Debt		—			(1,399,000	)		—
Net Cash Provided by (Used in) Financing Activities		1,467,979			(2,417,196	)		(8,756,702	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		193,508			(9,888,186	)		(3,172,810	)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		18,590,412			28,478,598			31,651,408
CASH AND CASH EQUIVALENTS - END OF YEAR	$	18,783,920		$	18,590,412		$	28,478,598
SUPPLEMENTAL DISCLOSURES:
Additions to Other Real Estate Through Foreclosure	$	1,125,187		$	858,963		$	117,000
Cash Paid During the Year for Interest	$	482,100		$	506,903		$	1,050,869
Cash Paid During the Year for Income Taxes	$	—		$	—		$	425,000
Market Value Adjustment for Unrealized Gain on Securities Available-for-Sale	$	63,800		$	(8,676	)	$	83,308

The accompanying notes are an integral part of these consolidated financial statements.

42

NOTE A

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS OF THE COMPANY

BOL BANCSHARES, INC. (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.  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 (the Bank) and its wholly-owned subsidiary, BOL Assets, LLC.  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.

43

NOTE A

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Buildings, office equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization computed principally on the straight-line and modified accelerated cost recovery methods over the estimated useful lives of the assets.  Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.  Gains and losses on dispositions are included in current operations.

INCOME TAXES

The Company and its consolidated subsidiary file a consolidated Federal income tax return. Federal income taxes are allocated between the companies, in accordance with a written agreement. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions taken are not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above would be reflected as a liability for unrecognized tax benefits in the consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.  Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the statement of operations.

MEMBERSHIP FEES

Membership fees are collected in the anniversary month of the cardholder and are amortized over a twelve-month period using the straight-line method.

CASH AND DUE FROM BANKS

The Company considers all amounts due from banks, certificates of deposit with an original maturity of 90 days or less, Treasury Bills, and Federal Funds Sold, to be cash equivalents.

The 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 $955,000 and $1,113,769 for the years ended December 31, 2010 and 2009, respectively.

NON-DIRECT RESPONSE ADVERTISING

The Bank expenses advertising costs as incurred.

44

NOTE A

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred tax assets.

SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

Most of the Bank’s activities are with customers located within the New Orleans area, except for credit card lending, which is nationwide.  Note C discusses the types of lending that the Bank engages in and Note E discusses the type of securities that the Company invests in.  The Bank does not have any significant concentrations in any one industry or customer.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance that requires an acquirer in a business combination, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date.  Any contingent consideration is also required to be recognized and measured at fair value on the date of acquisition.  Acquisition related costs are to be expensed as incurred.  Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated.  This authoritative guidance became effective for business combinations closing on or after January 1, 2009.

In June 2009, the FASB changed the accounting guidance for the consolidation of variable interest entities. The current quantitative-based risks and rewards calculation for determining which enterprise is the primary beneficiary of the variable interest entity will be replaced with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The new guidance became effective for the Company on January 1, 2010 with no impact on its financial statements.

In June 2009, the FASB changed the accounting guidance for transfers of financial assets. The new guidance increases the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its statement of financial condition, financial performance and cash flows; and a continuing interest in transferred financial assets.  In addition, the guidance amends various concepts associated with the accounting for transfers and servicing of financial assets and extinguishments of liabilities including removing the concept of qualified special purpose entities. This new guidance was adopted by the Company on January 1, 2010 with no impact on its financial statements.

45

NOTE A

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In January 2010, the FASB issued authoritative guidance expanding disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements.  The new guidance further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) disclosures should be provided about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy.  The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy is effective for the Company on January 1, 2011.  The remaining disclosure requirements and clarifications made by the new guidance became effective January 1, 2010 with no impact on its financial statements.

In July 2010, the FASB issued authoritative guidance that requires entities to provide enhanced disclosures in the financial statements about their loans including credit risk exposures and the allowance for loan losses.  Included in the new guidance are a roll forward of the allowance for loan losses as well as credit quality information, impaired loan, nonaccrual and past due information.  Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for loan losses, and class of loans.  The Company adopted this guidance on December 31, 2010, with no impact on its financial statements except for additional financial statement disclosures.

In December 2010, the FASB issued authoritative guidance that modified Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  In determining whether it is more likely than not  that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  This new authoritative guidance will be effective on January 1, 2011 and is not expected to have a significant impact on the Company’s financial statements.

In January 2011, the FASB issued authoritative guidance that deferred the effective date of disclosure requirements for public entities about troubled debt restructurings to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, which is concurrently being addressed by the FASB.  The guidance is anticipated to be effective for interim and annual reporting periods ending after June 15, 2011.

46

NOTE B

OTHER REAL ESTATE

The 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 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 $59,392 in 2010, ($124,855) in 2009, and ($34,500) in 2008.

NOTE C

LOANS

Major classifications of loans are as follows:

	December 31,
	2010		2009
Real Estate Mortgages:
Residential 1-4 Family	$	19,541,387	$	16,112,751
Commercial		20,281,907		20,115,147
Construction		9,023,499		9,667,745
Second Mortgages		948,686		1,224,181
Other		1,724,934		1,819,219
		51,520,413		48,939,043
Commercial		2,726,278		2,443,637
Personal		1,191,139		1,370,976
Credit Cards		6,321,359		7,112,566
Overdrafts		276,932		236,288
		62,036,121		60,102,510
Allowance for Loan Losses		1,800,000		1,800,000
	$	60,236,121	$	58,302,510

The following is a classification of loans by rate and maturity: (Dollar amounts in thousands)

	December 31,
	2010		2009
Fixed Rate Loans:
Maturing in 3 Months or Less	$	13,785	$	12,358
Maturing Between 3 and 12 Months		29,769		31,412
Maturing Between 1 and 5 Years		14,154		13,113
Maturing After 5 Years		631		690
		58,339		57,573

47

NOTE C

LOANS (Continued)

	December 31,
	2010		2009
Variable Rate Loans:
Maturing Quarterly or More Frequently		723		622
Maturing Between 3 and 12 Months		698		—
Maturing Between 3 and 12 Months		—		749
Non-Accrual Loans		2,276		1,159
		62,036		60,103
Less: Allowance for Loan Losses		1,800		1,800
Net Loans	$	60,236	$	58,303

Loans are considered past due of the required principal and interest payments have not been received as of the date of such payments were due.  Loans are placed on non-accrual status, when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.  Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due.

Non-accrual loans, segregated by class of loans, as of December 31, 2010 and 2009, are as follows:

	December 31,
	2010		2009
Real Estate	$	2,264,423	$	1,157,800
Commercial		—		—
Personal		11,793		—
Credit Cards		—		—
Overdrafts		—		—
Total	$	2,276,216	$	1,157,800

48

NOTE C

LOANS (Continued)

An aging analysis of past due loans, segregated by class of loans, as of December 31, 2010 is as follows:

	Loans		Loans								Accruing
	30-89		90 or More		Total						Loans 90 or
	Days		Days		Past Due		Current		Total		More Days
	Past Due		Past Due		Loans		Loans		Loans		Past Due
Real Estate	$	2,508,894	$	3,881,653	$	6,390,547	$	45,129,866	$	51,520,413	$	1,617,230
Commercial		461,279		1,441		462,720		2,263,558		2,726,278		1,441
Personal		62,838		22,493		85,331		1,105,808		1,191,139		10,700
Credit Cards		129,317		55,518		184,835		6,136,524		6,321,359		55,518
Overdrafts		3,800		210,101		213,901		63,031		276,932		210,101
Total	$	3,166,128	$	4,171,206	$	7,337,334	$	54,698,787	$	62,036,121	$	1,894,990

Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.  If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Impaired loans as of December 31, 2010 are set forth in the following table:

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment				Total
	Principal		with No			with		Recorded				Related
	Balance		Allowance		Allowance			Investment			Allowance
Real Estate	$	4,750,186	$	—		$	4,750,186		$	4,750,186		$	925,983
Commercial		7,303		—			7,303			7,303			820
Personal		108,894		—			108,894			108,894			5,362
Credit Cards		—		—			—			—			—
Overdrafts		205,751		—			205,751			205,751			30,863
Total	$	5,072,134	$	—		$	5,072,134		$	5,072,134		$	963,028

As of December 31, 2009, the Company’s recorded investment in loans that are considered impaired totaled $10,869,535.  Specific allowances pertaining to impaired loans totaled $1,220,967 at December 31, 2009.

49

NOTE D

NON-PERFORMING ASSETS

Non-performing assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure.  These assets are included on the accompanying consolidated balance sheets under the account caption, “Other Real Estate,” and amount to $3,137,074 at December 31, 2010, and $2,011,887 at December 31, 2009.

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, 2010, $2,276,218 of loans were in non-accrual status and $116,198 of interest was foregone in the year then ended.  At December 31, 2009, $1,157,800 of loans were in non-accrual status and $140,064 of interest was foregone in the year then ended.  Interest income recognized on non-accrual loans totaled $-0- during the years ended December 31, 2010, 2009 and 2008.

NOTE E

INVESTMENT SECURITIES

There were no securities classified as held-to-maturity at December 31, 2010 or at December 31, 2009.

Securities available-for-sale consisted of the following:

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Equity Securities	$	302,180	$	575,920	$	—	$	878,100
	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Equity Securities	$	302,180	$	512,120	$	—	$	814,300

A summary of the Bank’s pledged securities as of December 31, 2010 and 2009, are as follows:

	2010		2009
Pledged to Secure Public Funds	$	—	$	500,000
Pledged to Secure Treasury Tax and Loan Accounts		—		500,000

50

NOTE F

INCOME TAXES

The components of the provision for income tax expense (benefit) are:

	2010			2009			2008
Current	$	(36,244	)	$	(193,165	)	$	257,189
Deferred		(23,226	)		270,347			180,202
Total (Benefit) Provision for Income Tax	$	(59,470	)	$	77,182		$	437,391

A reconciliation of income tax at the statutory rate to income tax expense at the Company’s effective rate is as follows:

	2010			2009			2008
Computed Tax Expense (Benefit) at the Expected Statutory Rate	$	75,856		$	72,202		$	394,902
Katrina Tax Credits		(2,164	)		(35,513	)		(63,060	)
Other Adjustments		(133,162	)		40,493			105,549
Income Tax Expense for Operations	$	(59,470	)	$	77,182		$	437,391

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.

The major temporary differences, which created deferred tax assets and liabilities, are as follows:

	2010			2009
Deferred Tax Assets:
Other Real Estate	$	199,748		$	199,748
Allowance for Loan Loss		195,757			195,757
Expenses Accrued for Books		—			71,400
Total Deferred Tax Assets		395,505			466,905
Deferred Tax Liabilities:
Section 481A Adjustment - Prepaid Expenses		(84,563	)		(148,397	)
Unrealized Gain on Securities		(245,509	)		(223,817	)
Fixed Assets		(446,085	)		(476,876	)
Total Deferred Tax Liabilities		(776,157	)		(849,090	)
Net Deferred Tax Liability	$	(380,652	)	$	(382,185	)

51

NOTE F

INCOME TAXES (Continued)

The Company had no amount of interest and penalties recognized in the consolidated statements of operations for neither the years ended December 31, 2010 and 2009, respectively, nor any amount of interest and penalties recognized in the consolidated balance sheets as of December 31, 2010 and 2009, respectively.

The Company files U.S. federal income tax returns and a Louisiana state income tax return. Returns filed in these jurisdictions for tax years ended on or after December 31, 2007 are subject to examination by the relevant taxing authorities.  The Company is not currently under examination by any taxing authority.  As of December 31, 2010 and 2009, the Company had no uncertain tax positions.

NOTE G

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

	December 31,
	2010		2009
Furniture and Equipment	$	2,762,402	$	2,683,978
Bank Owned Vehicles		62,491		62,491
Leasehold Improvements		460,980		440,254
Land		1,092,425		1,092,425
Buildings		5,859,133		5,859,133
		10,237,431		10,138,281
Less: Accumulated Depreciation and Amortization		4,381,720		3,997,085
Total Property, Equipment and Leasehold Improvements, Net	$	5,855,711	$	6,141,196

Depreciation and amortization expense aggregated $384,632 in 2010, $399,722 in 2009, and $425,495 in 2008.

52

NOTE H

ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2010 are as follows:

	Real Estate			Commercial			Personal			Credit Cards			Overdrafts			Unallocated		Total
Beginning Balance	$	1,229,554		$	125,487		$	67,616		$	360,976		$	13,033		$	3,334	$	1,800,000
Provision for Possible Loan losses		(256,220	)		(105,250	)		(43,117	)		312,444			32,382			364,449		304,688
Charge-Offs		(4,371	)		—			(6,736	)		(476,737	)		(16,704	)		—		(504,548	)
Recoveries		1,489			25,050			—			170,861			2,460			—		199,860
Net Charge-Offs		(2,882	)		25,050			(6,736	)		(305,876	)		(14,244	)		—		(304,688	)
Ending Balance	$	970,452		$	45,287		$	17,763		$	367,544		$	31,171		$	367,783	$	1,800,000
Period-End Amount Allocated To:
Loans Individually Evaluated for Impairment	$	925,985		$	820		$	5,363		$	—		$	30,862		$	—	$	963,030
Loans Collectively Evaluated for Impairment		44,467			44,467			12,400			367,544			309			367,783		836,970
Ending Balance	$	970,452		$	45,287		$	17,763		$	367,544		$	31,171		$	367,783	$	1,800,000

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any loan type.

Changes in the allowance for loan losses for the year ended December 31, 2009 are as follows:

Balance - January 1, 2009	$	1,800,000
Provision Charged to Operations		535,543
Loans Charged Off		(702,043	)
Recoveries		166,500
Balance - December 31, 2009	$	1,800,000

From a credit risk standpoint, the Company classifies it loans in one four categories:  (i) pass, (ii) watch, (iii) substandard or (iv) doubtful.

The classification of loans reflect a judgment about the risks of default and loss associated with the loan.  The Company reviews the ratings on credits monthly.  Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period.  The methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

53

NOTE H

ALLOWANCE FOR LOAN LOSSES (Continued)

Credits rated watch show clear signs of financial weakness or deterioration in credit worthiness; however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term.  Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been jeopardized by reason of adverse trends or developments in financial, managerial, economic or political nature, or important weaknesses exist in collateral.  Corrective action is required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower.  Credit exposure becomes more likely in such credits.

Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt.  Based upon available information, positive action by the Company is required to avert or minimize loss.  Credits rated doubtful are generally also placed on nonaccrual.

At December 31, 2010, the following table summarizes the Company’s internal ratings of its loans:

	Real						Credit
	Estate		Commercial		Personal		Cards		Overdrafts		Total
Pass	$	44,399,289	$	1,546,798	$	1,082,245	$	6,321,359	$	—	$	53,349,691
Watch		2,382,733		1,160,384		—		—		71,181		3,614,298
Substandard		2,473,968		7,303		108,894		—		205,751		2,795,916
Doubtful		2,264,423		11,793		—		—		—		2,276,216
Totals	$	51,520,413	$	2,726,278	$	1,191,139	$	6,321,359	$	276,932	$	62,036,121

NOTE I

STOCKHOLDERS’ EQUITY

PREFERRED STOCK

8%, non-cumulative, non-participating, non-convertible, par value $1; 3,000,000 shares authorized, 1,810,296 shares issued and outstanding in 2010, and 3,000,000 shares authorized, 1,837,089 shares issued and outstanding in 2009.  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 2010 and 2009.

54

NOTE I

STOCKHOLDERS’ EQUITY (Continued)

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 either ten days following certain actions designed to acquire 20% or more of the Company’s voting securities or ten days following a determination by the Board of Directors that a person having beneficial ownership of at least 10%, is an adverse person.  The rights expired on August 9, 2009 and none were exercised.

NOTE J

EARNINGS PER COMMON SHARE

Earnings per share are computed using the weighted average number of shares outstanding, which were 179,145 in 2010, 2009 and 2008.  There was no provision for dividends for the years ended December 31, 2010, 2009 or 2008.

NOTE K

CONTINGENT LIABILITIES AND COMMITMENTS

The 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:

	2010		2009
Credit Card Arrangements	$	14,625,844	$	16,758,000
Commitments to Extend Credit		1,762,870		2,627,000

Commitments to extend credit, credit card arrangements and standby 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 consolidated balance sheets.  Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank.

The Bank, in the course of conducting its business, becomes involved as a defendant or plaintiff in various lawsuits.  In 2009 and early 2010, the Bank was a defendant in a lawsuit filed by a disaster protection company for bills received post Hurricane Katrina.  During 2008, the matter was tried before a judge and a verdict of approximately $84,000 was issued against the Bank.  The company also sued the Bank for legal fees incurred as a result of the case.  The Bank was exposed to $90,000 which had been charged to operations in the accompanying consolidated financial statements for 2009.  In May of 2010, a settlement was reached and the Bank received a refund of approximately $18,000.

55

NOTE K

CONTINGENT LIABILITIES AND COMMITMENTS (Continued)

In August 2005, Hurricane Katrina impacted the New Orleans area.  Several of the Bank’s branches sustained significant damage as a result of the hurricane.  In addition, due to concessions made to customers to facilitate the timely processing of transactions, the Bank has estimated that it has sustained losses.  As a result of these losses, the Bank received approximately $2,090,000 of insurance proceeds.  Due to the uncertainty of the financial impact of Katrina, these proceeds were recorded as an escrow account on the balance sheet of the Bank.  Impairment losses and expenditures associated with repairs to the Bank’s facilities were applied against this account.  During 2009, the Bank recognized into income the remaining balance in the escrow account, which totaled approximately $817,000.

NOTE L

RELATED PARTY TRANSACTIONS

In the ordinary course of business, the 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:

	2010			2009
Balance - January 1	$	1,186,284		$	1,072,451
New Loans Made		508,722			372,791
Repayments		(617,704	)		(258,958	)
Balance - December 31	$	1,077,302		$	1,186,284

During the years ended December 31, 2010, 2009, and 2008, legal fees paid to a director totaled $8,795, $12,352 and $55,754, respectively.

At December 31, 2010 and 2009, amounts due to Directors of the Company, including accrued interest, totaled $152,655 and $173,081, 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, 2010 and 2009, $105,000 were to Directors of the Company (see Note S).

56

NOTE M

LEASES

The Bank leases office space under agreements expiring in various years through December 31, 2016.  In addition, the Bank rents office space on a month-to-month basis from non-related groups.

The total minimum rental commitment at December 31, 2010, under the leases is due as follows:

December 31,
2011	$	177,551
2012		179,416
2013		181,281
2014		183,146
2015		185,011
Thereafter		172,889
	$	1,079,294

For the years ended December 31, 2010, 2009 and 2008, $243,701, $227,714 and $233,635 was charged to rent expense, respectively.

The Bank is the lessor of office space under operating leases expiring in various years through 2018.

Minimum future rentals to be received on non-cancelable leases as of December 31, 2010, are:

December 31,
2011	$	181,925
2012		88,229
2013		66,573
2014		30,522
2015		30,522
Thereafter		90,294
	$	488,065

NOTE N

LETTERS OF CREDIT

Standby Letters of Credit obligate the Bank to meet certain financial obligations of its clients, if, under the contractual terms of the agreement, the clients are unable to do so.  These instruments are primarily issued to support public and private financial commitments, including commercial paper, bond financing, initial margin requirements on futures exchanges and similar transactions.  Outstanding letters of credit were $90,120 as of December 31, 2010 and 2009.  Of the $90,120 in letters of credit at December 31, 2010 and 2009, $57,700 was secured by real property, $7,420 was secured by cash and $25,000 was unsecured.  All of the letters of credit are scheduled to mature in 2011.

57

NOTE O

INTEREST BEARING DEPOSITS

Major classifications of interest bearing deposits are as follows:

	December 31,
	2010		2009
NOW Accounts	$	11,184,196	$	11,815,842
Money Market Accounts		3,948,540		3,772,486
Savings Accounts		20,156,625		20,779,833
Certificates of Deposit Greater Than $100,000		5,247,747		3,810,265
Other Certificates of Deposit		8,172,733		6,801,633
	$	48,709,841	$	46,980,059

The maturities of Certificates of Deposit Greater than $100,000 at December 31, 2010 follows:  (Dollar amounts in thousands)

Three Months or Less	$	797,434
After Three Months Through One Year		1,606,403
Over One Year Through Three Years		2,643,910
Over Three Years		200,000
	$	5,247,747

NOTE P

FUNDS AVAILABLE FOR DIVIDENDS

The 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 Bank’s earnings.

No dividends were paid by the Bank to BOL Bancshares, Inc. during the years ended December 31, 2010, 2009, and 2008.

NOTE Q

CONCENTRATIONS OF CREDIT

All of the Bank’s loans, commitments, and commercial and standby letters of credit have been granted to customers in the Bank’s market area.  All such customers are depositors of the Bank.  The concentrations of credit by type of loan are set forth in Note C.  Commercial letters of credit were granted primarily to commercial borrowers.

58

NOTE R

EMPLOYEE BENEFITS

Effective January 1, 2001, theBank adopted a Section 401(k) savings plan.  The Plan covers substantially all employees who are at least eighteen years old and have completed six months of continuous service.  The Bank may make discretionary contributions and is not required to match employee contributions under the plan.  The Bank made no contributions to the plan during the years ended December 31, 2010, 2009 or 2008.

NOTE S

NOTES PAYABLE

The following is a summary of notes payable at December 31, 2010 and 2009:

	December 31,
	2010		2009
Notes payable to a current Director of the Company, payable on demand, interest at 10%.	$	144,201	$	144,201
Debentures payable, due July 2012, interest at 6%, 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 71.50 shares of the Bank’s stock.		1,000,000		1,000,000
	$	1,144,201	$	1,144,201

Following are maturities of long-term debt:

December 31,
2011	$	144,201
2012		1,000,000
	$	1,144,201

59

NOTE T

INTEREST INCOME AND INTEREST EXPENSE

Major categories of interest income and interest expense are as follows:

	December 31,
	2010		2009		2008
INTEREST INCOME
Interest and Fees on Loans:
Real Estate Loans	$	3,588,326	$	3,531,844	$	3,584,393
Installment Loans		138,452		132,183		135,124
Credit Cards and Related Plans		1,985,136		2,092,520		2,490,538
Commercial and All Other Loans		264,302		237,431		249,774
Interest on Certificates of Deposit		54,790		58,028		—
Interest on Investment Securities -
U.S. Treasury and Other Securities		8,541		33,933		107,507
Interest on Federal Funds Sold		20,151		24,970		648,171
	$	6,059,698	$	6,110,909	$	7,215,507
INTEREST EXPENSE
Interest on Time Deposits of $100,000 or More	$	59,406	$	81,297	$	101,709
Interest on Other Deposits		313,248		309,235		643,158
Interest on Notes Payable		74,584		93,782		112,658
	$	447,238	$	484,314	$	857,525

60

NOTE U

NON-INTEREST INCOME AND NON-INTEREST EXPENSES

Major categories of other non-interest income and non-interest expenses are as follows:

	December 31,
	2010		2009		2008
OTHER NON-INTEREST INCOME
Cardholder and Other Charge Card Income	$	428,254	$	436,458	$	498,265
Other Commission and Fees		57,749		64,062		72,342
Other Real Estate Income		395,022		9,271		300
Other Income		134,989		245,455		640,172
	$	1,016,014	$	755,246	$	1,211,079
OTHER NON-INTEREST EXPENSES
Loan and Charge Card Expenses	$	115,551	$	125,737	$	120,575
Communications		215,654		218,627		230,858
Outsourcing Fees		1,352,124		1,321,717		1,468,480
Stationery, Forms and Supplies		83,737		91,985		96,491
Professional Fees		286,517		257,246		251,802
Insurance and Assessments		181,347		224,677		93,346
Advertising		10,870		1,702		6,670
Miscellaneous Losses		2,943		710		(546	)
Promotional Expenses		57,042		61,307		50,010
Other Real Estate Expenses		335,630		134,126		34,800
Other Expenses		261,082		625,221		462,777
	$	2,902,497	$	3,063,055	$	2,815,263

61

NOTE V

CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

BOL BANCSHARES, INC.

CONDENSED BALANCE SHEETS

	December 31,
	2010		2009
ASSETS
Due from Banks	$	268,465	$	281,506
Securities Available-for-Sale, at Fair Value		847,320		783,520
Other Assets		1,114		1,858
Due from Subsidiary Bank		2,456		—
Investment in Bank of Louisiana		12,094,914		11,855,033
	$	13,214,269	$	12,921,917
LIABILITIES AND STOCKHOLDERS’ EQUITY
Due to Subsidiary Bank	$	—	$	23,696
Notes Payable		1,144,201		1,144,201
Deferred Taxes		195,813		174,121
Accrued Interest		33,604		58,305
Shareholders’ Equity		11,840,651		11,521,594
	$	13,214,269	$	12,921,917

62

NOTE V

CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)

BOL BANCSHARES, INC.

STATEMENTS OF INCOME

	December 31,
	2010		2009			2008
INCOME
Interest Income	$	2,473	$	5,412		$	7,828
Miscellaneous Income		115,862		78,635			41,003
		118,335		84,047			48,831
EXPENSES
Interest		74,584		93,782			112,658
Other Expenses		4,746		5,630			5,617
		79,330		99,412			118,275
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY		39,005		(15,365	)		(69,444	)
Equity in Undistributed Earnings of Subsidiary		240,629		145,250			765,876
INCOME BEFORE INCOME TAX BENEFIT		279,634		129,885			696,432
INCOME TAX BENEFIT		19,496		5,291			27,654
NET INCOME	$	299,130	$	135,176		$	724,086

63

NOTE V

CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)

BOL BANCSHARES, INC.

STATEMENTS OF CASH FLOWS

	December 31,
	2010			2009			2008
OPERATING ACTIVITIES
Net Income	$	299,130		$	135,176		$	724,086
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities
Equity in Undistributed Earnings of Subsidiary		(240,629	)		(145,250	)		(765,876	)
Net Decrease (Increase) in Other Assets		744			(1,489	)		737
Net Decrease (Increase) in Other Liabilities		(24,701	)		2,795			(208,822	)
Net Cash Provided by (Used in) Operating Activities		34,544			(8,768	)		(249,875	)
FINANCING ACTIVITIES
Preferred Stock Retired		(21,434	)		(128,217	)		(67,597	)
Decrease in Due to/from Subsidiary		(26,151	)		51,350			28,999
Proceeds from Issuance of Long-Term Debt		—			1,000,000			—
Repayment of Long-Term Debt		—			(1,399,000	)		—
Net Cash Used in Financing Activities		(47,585	)		(475,867	)		(38,598	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(13,041	)		(484,635	)		(288,473	)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		281,506			766,141			1,054,614
CASH AND CASH EQUIVALENTS - END OF YEAR	$	268,465		$	281,506		$	766,141

64

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 2010, 2009 and 2008.  The following represents the tax effects associated with the components of comprehensive income:

	December 31,
	2010			2009			2008
Gross Unrealized Holding Gains (Losses) Arising During the Period	$	63,800		$	(8,676	)	$	83,308
Tax (Expense) Benefit		(21,686	)		2,950			(28,325	)
		42,114			(5,726	)		54,983
Reclassification Adjustment for Gains Included in Net Income		—			—			—
Tax Benefit		—			—			—
		—			—			—
Net Unrealized Holding Gains (Losses)Arising During the Period	$	42,114		$	(5,726	)	$	54,983

NOTE X

REGULATORY MATTERS

As of December 31, 2010, 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 set forth in the table.  Management philosophy and plans are directed to enhancing the financial stability of the Bank to ensure the continuity of operations.

65

NOTE X

REGULATORY MATTERS (Continued)

The Bank’s actual capital amounts and ratios are also presented in the table.  (Dollars in thousands)

	December 31, 2010
											Required
											to be Well
						Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier I Capital (to Average Assets)	$	12,096		12.83	%	$	3,771		4.00	%	$	4,714		5.00	%
Tier I Capital (to Risk-Weighted Assets)	$	12,096		18.58	%	$	2,603		4.00	%	$	3,905		6.00	%
Total Capital (to Risk-Weighted Assets)	$	12,922		19.85	%	$	5,207		8.00	%	$	6,509		10.00	%

	December 31, 2009
											Required
											to be Well
						Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier I Capital (to Average Assets)	$	11,856		13.06	%	$	3,632		4.00	%	$	4,540		5.00	%
Tier I Capital (to Risk-Weighted Assets)	$	11,856		18.32	%	$	2,589		4.00	%	$	3,883		6.00	%
Total Capital (to Risk-Weighted Assets)	$	12,677		19.59	%	$	5,178		8.00	%	$	6,472		10.00	%

66

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.

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, 2010
	Carrying			Fair
	Amount			Value
Financial Assets:
Cash and Short-Term Investments	$	3,833,920		$	3,833,920
Certificates of Deposit		4,203,006			4,203,006
Investment Securities		302,180			878,100
Loans		62,036,121			62,053,562
Less: Allowance for Loan Losses		(1,800,000	)		(1,800,000	)
	$	68,575,227		$	69,168,588
Financial Liabilities:
Deposits	$	80,576,743		$	80,674,660
Unrecognized Financial Instruments:
Commitments to Extend Credit	$	1,762,870		$	1,762,870
Credit Card Arrangements		14,625,844			14,625,844
	$	16,388,714		$	16,388,714

67

NOTE Y

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

	December 31, 2009
	Carrying			Fair
	Amount			Value
Financial Assets:
Cash and Short-Term Investments	$	4,040,412		$	4,040,412
Certificates of Deposit		5,193,897			5,193,897
Investment Securities		302,180			814,300
Loans		60,102,510			60,294,273
Less: Allowance for Loan Losses		(1,800,000	)		(1,800,000	)
	$	67,838,999		$	68,542,882
Financial Liabilities:
Deposits	$	79,087,330		$	79,197,095
Unrecognized Financial Instruments:
Commitments to Extend Credit	$	2,627,000		$	2,627,000
Credit Card Arrangements		16,758,000			16,758,000
	$	19,385,000		$	19,385,000

NOTE Z

FINANCIAL INSTRUMENTS

The Company adopted ASC No. 820 on January 1, 2008 for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  ASC No. 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC No. 820 defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.  The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.  In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.

68

NOTE Z

FINANCIAL INSTRUMENTS (Continued)

In addition to defining fair value, ASC No. 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs.  The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.  Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety.  These levels are:

● Level 1 - Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

● Level 2 - Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market date for substantially the full term of the assets or liabilities.

● Level 3 - Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.  The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis.

December 31, 2010	Level 1		Level 2		Level 3		Net Balance
Assets
Equity Securities	$	—	$	878,100	$	—		$	878,100
Total	$	—	$	878,100	$	—		$	878,100

December 31, 2009	Level 1		Level 2		Level 3		Net Balance
Assets
Equity Securities	$	—	$	814,300	$	—		$	814,300
Total	$	—	$	814,300	$	—		$	814,300

69

NOTE AA

EVALUATION OF SUBSEQUENT EVENTS

In accordance with ASC No. 855, the Company has evaluated subsequent events through March 5, 2011, the date these financial statements were available to be issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements.

Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None

Item 8A(T) Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure.  Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

With the participation of management, the certifying officers of the Company have evaluated the effectiveness of the design and operation of 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.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial report for the Company.  Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America.  Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material affect on our financial statements would have been prevented or detected on a timely basis.  Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, with the participation of the certifying officers of the Company, assessed the effectiveness of our internal control over financial reporting as of December 31, 2010.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.  Based on this assessment, management, with the participation of the certifying officers of the Company, believes that, as of December 31, 2010, the Company’s internal control over financial reporting is effective based on those criteria.

70

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Item 8B Other Information

None

Item 9 Directors and Executive Officers of the Company

Directors and executive officers of the Company each serve for a term of one year.

		BOL BANCSHARES, INC.
		Directors & Executive Officers
Name	Age	Position with the Company and Bank of Louisiana (the “Bank”) and Principal Occupation	Director Since
G. Harrison Scott	87	Director; Chairman of the Board of	1981
		the Company and the Bank, and President
		of the Company and the Bank.
Franck F. LaBiche	64	Director of the Company and the Bank.	2004
		President, Executone Systems Co. of La. Inc.
Johnny C. Crow	59	Director of the Company and the Bank.	2005
		Insurance Agent, New York Life Ins. Co.
Sharry R. Scott	40	Director of the Company and the Bank.	2005
		Assistant Attorney General, Louisiana
		Department of Justice
A. Earle Cefalu, Jr.	72	Director of the Company and the Bank.	2009
		General Manager, Hood Automotive

Non-Director Executive Officer
		Position with the Company and the
Name	Age	Bank and Principal Occupation
Peggy L. Schaefer	59	Ms. Schaefer has served as Treasurer of
		the Company since 1988 and Senior Vice
		President and Chief Financial Officer of
		the Bank since 1996.

71

No family relationships exist among the executive officers of the Company or the Bank.  There is one family relationship that exists among the current directors, that of Mr. G. Harrison Scott and his daughter Sharry R. Scott.  Except for service as a director 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.

Item 10 Executive Compensation

The Company pays no salaries or other compensation to its directors and executive officers.  The Bank paid each director, other than Mr. Scott, a fee 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 fees to the Company.  During the year 2006, the Company paid off the loans to the former directors for a total of $563,091, including principal and interest.  During the year 2008, the Company paid one current director $223,282.  As of December 31, 2009, the balance due was $171,856, 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 officer for the calendar years 2010, 2009, and 2008.  No other executive officer received total compensation in excess of $100,000 during 2010.  

		Annual Compensation						Long Term Compensation
								Awards				Payouts
Name and Principal	Year	Salary		Bonus		Other Annual Compensation		Restricted Stock Award(s)		Options/ SARs		LTIP Payouts		All Other Compensation
Position		($)		($)		($)		($)		(#)		($)		($)
G. Harrison Scott,	2010		89,800		0		82,000		0		0		0		0
Chairman of the	2009		89,800		0		82,000		0		0		0		0
Board & President of the Bank	2008		89,800		0		82,000		0		0		0		18,000

In addition to the cash compensation shown in the foregoing table, the Bank provided an automobile to Mr. Scott.  Annual compensation does not include amounts attributable to miscellaneous benefits received by Mr. Scott.  The cost to the Bank of providing such benefits did not exceed 10% of the total annual salary and bonus paid to Mr. Scott.  

Committees of the Board of Directors of the Company and the Bank

The Company does not have standing audit 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.

During fiscal year 2010, the Board of Directors of the Company held a total of 4 meetings.  Each director attended at least 75% of the aggregate of the meetings of the Board of Directors.

The Bank 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.

72

During fiscal year 2010, 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.

The Board of Directors of the Bank has an Executive Committee consisting of five permanent members.  The permanent members of the Executive Committee in 2009 were Messrs. Scott (chairman), Crow, Klein, LaBiche, and Ms. S. Scott, and the rotating member was A. Earle Cefalu, Jr. 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 28 times in 2010.

The Board of Directors of the Bank does have an Audit and Finance Committee and does not have a charter.  This committee meets monthly on the first Tuesday of the month.  By Bank policy, 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 charged off loans.  The Audit and Finance Committee met 12 times in 2010.

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 as issued by the independent auditors be included in the Annual Report.

The permanent members of the Audit and Finance Committee were Messrs. LaBiche (chairman), and Crow, and the rotating member was Ms. S. Scott.

Item 11 Security Ownership of Certain Beneficial Owners and Management

The following table sets forth as of December 31, 2010, certain information as to the Company Stock beneficially owned by (i) each person or entity, including any “group” as that term is used in Section 13(d) (3) of the Exchange Act, who or which was known to the Company to be the beneficial owner of more that 5% of the issued and outstanding Stock, (ii) the directors of the Company, (iii) all directors and executive officers of the Company and the Bank as a group.

	Common						Preferred
Name of Beneficial Owner	Number		Percent				Number		Percent
Directors:
G. Harrison Scott (Direct)		518		0.29	%			157,673		8.08	%
G. Harrison Scott (Beneficial owner of Scott Family, LLP)		104,687		58.43	%			—		—
Franck F. LaBiche		500		—		(*)		—		—
Johnny C. Crow		1,899		1.06	%	(*)		—		—
Sharry R. Scott		—		—		(2)		—		—
A. Earle Cefalu, Jr.		500		—		(*)		—		—
All Directors & Executive Officers of the Company and the Bank as a group (6 persons)		108,374		60.50	%			160,445		8.22	%

73

(*)	Represents less than 1% of the shares outstanding.
(1)	Based upon information furnished by the respective persons.  Pursuant to rules promulgated under the 1934 Act, a person is deemed to beneficially own shares of stock if he or she directly or indirectly has or shares (a) voting power, which includes the power to vote or to direct the voting of the shares; or (b) investment power, which includes the power to dispose or direct the disposition of the shares.  Unless otherwise indicated, the named beneficial owner has sole voting power and sole investment power with respect to the indicated shares.
(2)	Sharry R. Scott, through ownership of an interest in Scott Family LLP, owns 7,151 shares of common stock.

Item 12 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.  At December 31, 2010, two directors had aggregate loan balances in excess of $60,000, which amounted to approximately $698,690 in the aggregate.

Item 13 Exhibits and Reports on Form 8-K

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

Item 14 Principal Accountant Fees and Services

AUDIT FEES

The aggregate fees billed by LaPorte, Sehrt, Romig and Hand for its audit of the Company’s annual financial statements for 2010 and for its reviews of the Company’s unaudited interim financial statements included in Form 10-Q filed by the Company and other related audit fees during 2010 was $73,530.  The fees billed for 2009 were $72,542.

Tax Fees

The aggregate fees billed by LaPorte, Sehrt, Romig and Hand for tax compliance, tax preparation, and tax review for 2010 were $20,302.  The fees billed for 2009 were $14,420.

All Other Fees

The aggregate fees billed by LaPorte, Sehrt, Romig & Hand for other accounting services for 2010 were $741.  The fees billed for 2009 were $1,587.

74

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/ G. Harrison Scott
March 31, 2011	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)

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 31, 2011.

/s/ G. Harrison Scott	/s/ Johnny C. Crow
G. Harrison Scott – Director	Johnny C. Crow – Director
/s/ Franck F. LaBiche	/s/ Sharry R, Scott
Franck F. LaBiche – Director	Sharry R. Scott - Director
/s/ A. Earle Cefalu, Jr.
A. Earle Cefalu, Jr.

75