ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition of BOL Bancshares, Inc.
and its bank subsidiary at September 30, 2007 compared to December 31, 2006
and the results of operations for the three and nine month periods ended
September 30, 2007 with the same periods in 2006. This discussion and
analysis should be read in conjunction with the interim consolidated
financial statements and footnotes included herein.
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.
The Bank purchased the land and improvements which housed the bank's
Severn branch and operations. This was purchased from an affiliate on August
20, 2007 for the price of $4,650,000. The property consists of a four story
building located at 3340 Severn Avenue, Metairie, LA. with offices that are
leased to other businesses. The purchase was approved by FDIC (Federal
Deposit Insurance Corp) and OFI (Office of Financial Institutions, State of
Louisiana) on August 6, 2007 with the stipulation that the investment in
fixed assets not exceed 50 percent of its equity capital and reserves by
December 31, 2008. The percentage as of October 31, 2007 was 52.46%.
Management feels certain that the required 50% will be reached within the 18
month time frame allowed by the agencies.
Internal Control and Assessment Disclosure
Hurricane Katrina Disclosure
Management expects insurance proceeds for storm damages caused by
Hurricane Katrina to cover the majority of damages sustained to the Bank's
branches. All branch locations are open and operating, with the Oakwood
branch reopening during the month of October 2007. The Company's management
team and employees have and are continuing to work diligently to control
operating expenses and costs while restoring normal business operations.
SEPTEMBER 30, 2007 COMPARED WITH DECEMBER 31, 2006
BALANCE SHEET
Total Assets at September 30, 2007 were $106,883,000 compared to
$105,171,000 at December 31, 2006 for an increase of $1,712,000 or 1.63%.
Federal Funds Sold increased $975,000 at September 30, 2007 from $23,750,000
at December 31, 2006 to $24,725,000 at September 30, 2007. Securities
decreased $3,000,000 to $11,000,000 at September 30, 2007 from $14,000,000 at
December 31, 2006. This was attributable to securities of $3,000,000 that
were called during the third quarter. Total loans increased $63,000, or 0.11%,
to $57,398,000 at September 30, 2007 from $57,335,000 at December 31, 2006.
This increase in the loan portfolio is due mainly to an increase of
$3,750,000 in interim construction loans, an increase of $152,000 in
multifamily loans and an increase of $68,000 in personal loans. This was
offset by a decrease in 1-4 family loans of $1,319,000, a decrease of
$898,000 in business loans, a decrease in non-farm non-residential loans of
$123,000, a decrease in overdrafts of $753,000, and a decrease in the
credit card portfolio of $814,000. The credit card portfolio decrease was
largely attributable to (i) competition from other banks and non-traditional
credit card issuers; (ii) tightening of the Bank's underwriting standards;
and (iii) normal attrition, in addition to the cyclical nature of the
business.
Total deposits decreased $1,611,000, or 1.72%, to $91,920,000 at
September 30, 2007 from $93,531,000 at December 31, 2006. Total non-interest
bearing deposits decreased $2,676,000 and interest-bearing accounts increased
$1,065,000, all largely attributable to deposits of Louisiana Road Home
monies being withdrawn to repair storm damages or assist in the purchase of
another residence.
Shareholder's Equity increased $1,285,000 due mainly to net income at
September 30, 2007 of $1,133,000.
NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2006
INCOME
The Company's net income for the nine months ended September 30, 2007
was $1,133,000 or $6.33 per share, a decrease of $537,000 from the Company's
total net income of $1,670,000 for the same period last year.
Interest income decreased $364,000 for the nine months ended September
30, 2007 over the same period last year. Interest on federal funds sold
decreased $425,000 due to a decrease of $13,841,000 in the average balance
from $39,306,000 at September 30, 2006 to $25,465,000 at September 30, 2007.
Interest on investment securities decreased $48,000 due to a decrease of
$5,215,000 in the average balance from $18,741,000 at September 30, 2006 to
$13,526,000 at September 30, 2007 due to calls and maturities of securities.
This was offset by an increase of $109,000 in interest in the loan portfolio,
whereby the average balance of loans increased $1,180,000 from $57,367,000 at
September 30, 2006 to $58,547,000 at September 30, 2007. Interest expense
increased $148,000 for the nine months ended September 30, 2007 over the same
period last year. This was caused by an increase in the interest rate on
interest-bearing liabilities from 1.00% at September 30, 2006 to 1.65% as of
September 30, 2007. Net interest income decreased $512,000 due to the
decrease in the average balance of Federal Funds sold which was offset by the
higher interest rates on interest bearing deposits. The interest rate spreads
increased from 6.93% at September 30, 2006 to 7.24% at September 30, 2007.
Non-interest income decreased $859,000 for the nine month period from
$1,953,000 at September 30, 2006 to $1,094,000 at September 30, 2007. Other
income decreased $909,000 for the nine months ended September 30, 2007. This
decrease was due mainly to $600,000 in insurance proceeds received on an OREO
property in 2006 that the Bank had no plans to repair. The Bank had a
purchase offer and the property was sold in July, 2006. In addition,
$369,000 in insurance proceeds was received as reimbursement of expenses
incurred and the excess of disposal of fixed assets due to Hurricane Katrina
in 2006.
Non-interest expense decreased $265,000 for the nine month period as
compared to the same period last year. ORE expenses decreased $293,000 due
mainly to the $265,000 write-down of one ORE property in 2006. Professional
fees increased $60,000 mainly due to audit accruals and work performed by our
CPA firm over the same period last year.
The provision for income taxes decreased $270,000 compared to the same
period last year from $861,000 at September 30, 2006 to $591,000 at September
30, 2007 due to a decrease in income before taxes.
THIRD QUARTER 2007 COMPARED WITH THIRD QUARTER 2006
INCOME
Net income for the third quarter of 2007 was $394,000 compared to
$274,000 for the same period last year for a decrease of $120,000.
Interest income decreased $95,000 over the same period last year. This
was caused mainly by a decrease of $91,000 in interest on federal funds sold
due mainly to a decrease of $6,156,000 in the average balance from
$34,052,000 at September 30, 2006 to $27,896,000 at September 30, 2007 and a
decrease of $28,000 in interest on investment securities caused by a decrease
of $4,755,000 in the average balance from $16,424,000 at September 30, 2006
to $11,669,000 at September 30, 2007 due to calls and maturities of
securities. Interest on the loan portfolio increased $24,000 from $1,694,000
at September 30, 2006 to $1,718,000 at September 30, 2007 due mainly to an
increase of $1,000,000 in the average outstanding loans from $57,391,000 at
September 30, 2006 to $58,391,000 at September 30, 2007. Interest expense
increased $70,000 for the three months ended September 30, 2007 over the same
period last year. This was caused by an increase in the interest rate on
interest-bearing liabilities from 1.02% at September 30, 2006 to 1.72% as of
September 30, 2007. Net interest income decreased $165,000 due to the
decrease in the average balance of Federal Funds sold which was offset by the
higher interest rates on interest bearing deposits. The interest rate spreads
decreased from 7.43% at September 30, 2006 to 7.20% at September 30, 2007.
Non-interest income increased $40,000 for the three-month period as
compared to the same period last year. This increase was due mainly to a
gain of $88,000 on the sale of an ORE property. This was offset by a
decrease of $35,000 in service charges on deposit accounts.
Non-interest expense decreased $249,000 for the three-month period as
compared to the same period last year. ORE expenses decreased $293,000 due
mainly to the $265,000 write-down of one ORE property in 2006.
The provision for income taxes increased $30,000 compared to the same
period last year from $141,000 at September 30, 2006 to $171,000 at September
30, 2007 due to an increase in income before taxes.