UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 0-133312
FIRST LIBERTY BANK CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2275242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
645 Washington Avenue; P.O. Box 39; Jermyn Pennsylvania 18433-0039
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 717-876-6500
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the 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 __
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding at May 6, 1999
----- --------------------------
Common stock, $1.25 par value 1,605,512
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FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
Page
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS UNAUDITED:
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998 1
Consolidated Statements of Operations - Three Months
Ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 3
Notes to Consolidated Financial Statements-
Three Months Ended March 31, 1999 and 1998 and
December 31, 1998 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II - OTHER INFORMATION 14
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In thousands of dollars, except per share information)
(unaudited)
March 31, December 31,
Assets 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $52,962 20,628
Federal Funds sold 10,000 5,000
Securities available for sale 167,230 196,563
Loans, gross 377,092 376,856
Less: Unearned discount and origination fees (1,399) (941)
Allowance for loan losses (4,694) (4,618)
-----------------------------------------------------------------------------------------------------
Loans, net 370,999 371,297
Accrued interest receivable 3,198 3,914
Bank premises, leasehold improvements and furniture and equipment -net 11,192 10,307
Real estate owned other than bank premises 621 479
Other assets 9,968 7,182
- --------------------------------------------------------------------------------------------------------------
Total assets $626,170 615,370
Liabilities
Deposits:
Noninterest-bearing demand $52,634 55,272
Interest-bearing 459,197 441,328
-----------------------------------------------------------------------------------------------------------
Total deposits 511,831 496,600
- --------------------------------------------------------------------------------------------------------------
Other borrowed money 50,637 55,660
Accrued interest payable 2,160 2,218
Other liabilities 1,453 1,984
- --------------------------------------------------------------------------------------------------------------
Total liabilities 566,081 556,462
- --------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, $1.25 par value, authorized 2,500,000 shares;
Outstanding 1,605,512 shares and 1,602,342, shares respectively 2,007 2,003
Surplus 6,007 5,905
Retained earnings 51,954 50,435
Accumulated other comprehensive income 317 761
Less treasury stock-at cost (15,205) (196) (196)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders equity 60,089 58,908
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 626,170 615,370
==============================================================================================================
</TABLE>
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<TABLE>
<CAPTION>
FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands of dollars, except for per share information )
(unaudited)
Three months ended March 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 7,410 7,530
Interest on interest bearing deposits 255 100
Interest and dividends on securities:
Taxable 1,999 2,225
Exempt from Federal Taxes 625 539
Interest of Fed Funds Sold 9 180
Total interest income 10,298 10,574
- --------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 4,711 4,908
Fed Funds Purchased -- 24
Capitalized lease obligation and borrowed funds 697 684
- --------------------------------------------------------------------------------------------------------------
Total interest expense 5,408 5,616
- --------------------------------------------------------------------------------------------------------------
Net interest income 4,890 4,958
Provision for loan losses 180 135
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,710 4,823
- --------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges and fees 183 179
Gain/loss on sale of securities 74 28
Trust 164 131
Other 31 93
- --------------------------------------------------------------------------------------------------------------
Total noninterest income 552 431
- --------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and benefits1,781 1,681
Net occupancy and furniture/equipment expenses 551 606
Data processing services 115 148
Foreclosures and other real estate expense 56 66
Other expense 826 866
- --------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,329 3,367
- --------------------------------------------------------------------------------------------------------------
Income before income tax provision 1,933 1,887
Income tax provision 415 488
- --------------------------------------------------------------------------------------------------------------
Net income 1,518 1,399
- --------------------------------------------------------------------------------------------------------------
Other comprehensive income net of tax
Unrealized gains/(losses) on securities --
Unrealized holding (loss)/gain arising during the period (395) 100
Less reclassification adjustment for gains included in net income 49 18
Comprehensive income 1,074 1,481
==============================================================================================================
Per share information
Net income-basic .96 .89
Net income-diluted .95 .88
</TABLE>
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<TABLE>
<CAPTION>
FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands of dollars)
(unaudited)
- --------------------------------------------------------------------------------------------------------------
Three months ended March 31,
1999 1998
<S> <C> <C>
Operating activities:
Net income $ 1,518 1,399
Adjustments to reconcile net income to net cash (used) provided by
Operating activities:
Provision for loan losses 180 135
Depreciation and amortization of investment securities, bank
premises, leasehold improvements and furniture and equipm205 231
Increase in interest receivable and other assets (1,918) (217)
(Decrease)/Increase in interest payable and other liabilities (589) 153
- ------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (604) 1,701
- ------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of securities held to maturity -- (13,684)
Proceeds from maturities of securities 22,738 35,517
Purchases of securities available for sale (6,000) (27,131)
Proceeds from sales of securities available for sale 12,000 --
Net (increase) decrease in loans (116) 539
Purchase of bank premises, leasehold improvements and
furniture and equipment-net (1,090) (65)
Sales of assets acquired through foreclosure, net 92 311
- ------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 27,624 (4,513)
- -------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in deposits 15,231 12,784
Repay Fed Funds Purchased (5,000) --
Principal payments on capitalized lease obligation (23) (21)
Borrowed funds -- 7
Proceeds of stock issued through exercise of options 106 6,349
Dividends paid --- (220)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,314 18,899
- ------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 37,334 16,087
Cash and cash equivalents at beginning of period 25,628 21,562
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 62,962 37,649
============================================================================================================
Cash paid during the period:
Interest $ 5,466 5,367
Federal income taxes 494 514
============================================================================================================
Noncash transactions
Net unrealized (loss) gain on securities available for sale, net of tax $ (444) 82
Transfers of loans to real estate owned other than bank premise 234 63
============================================================================================================
</TABLE>
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FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying consolidated financial statements of First Liberty
Bank Corp. and subsidiaries (the Company) were prepared in accordance
with instructions to Form 10-Q, and therefore, do not include
information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. However, all normal,
recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the financial statements, have
been included. These financial statements should be read in conjunction
with the audited financial statements and the notes thereto included in
the Company's Annual Report for the period ended December 31, 1998. The
results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1999.
Business
The Company's principal subsidiary, First Liberty Bank & Trust (the
Bank), conducts business from its branch bank system located in
Lackawanna County, Pennsylvania. The Bank is subject to competition
from other financial institutions and other companies which provide
financial services. The Bank is subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
Principles of Consolidation
On February 16, 1999, the Company merged its two principal subsidiaries
, The First National Bank of Jermyn and NBO National Bank, under the
name First Liberty Bank & Trust. Concurrent with this merger, the
Company converted the charter of the Bank to a State chartered
commercial bank subject to regulation by the Pennsylvania Department of
Banking and the Federal Reserve Bank.
The consolidated financial statements include the accounts of all of
the Company's wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Additionally,
certain reclassifications have been made in order to conform with the
current year's presentation. The accompanying consolidated financial
statements have been prepared on an accrual basis.
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(2) Earnings Per Share
Basic earnings per share were computed based on the weighted average
number of shares outstanding during each period. Diluted earnings per
share include the dilutive effect of the Company's weighted average
stock options outstanding.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands)
<TABLE>
<CAPTION>
3 months ended March 31
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income $ 1,518 $ 1,399
Denominator:
Denominator for basic earnings
per share weighted average
shares 1,588 1,572
Effect of dilutive securities:
Employee stock options 13 18
Denominator for diluted earnings
per share adjusted weighted
average shares and assumed
exercise 1,601 1,590
Basic earnings per share .96 .89
Diluted earnings per share .95 .88
</TABLE>
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company's net income for the three months ended March 31, 1999 was
$1,518,000 or $ .95 per diluted share compared to $1,399,000 and $.88 per
diluted share for the same three-month period in the preceding year. The
increase in net income was primarily attributable to an increase in noninterest
income, as well as decreases in noninterest expense and the federal income tax
provision.
The Company recorded an annualized return on average assets of 1.00 % for the
three-month period ending March 31, 1999, compared to .95% for the same period
in 1998. Return on average equity of 10.43% was recorded for the three-month
period ended March 31, 1999, compared to 10.18% for the same period in 1997.
At March 31, 1999, the Company had total assets of $626 million compared to $615
million at December 31, 1998. The increase in total assets was driven by a $32.4
million increase in cash and due from banks, and a $5.0 million increase in
federal funds sold, which were primarily funded by a $15.2 million increase in
deposits and a $29.4 million decrease in securities available for sale.
The Company is susceptible to a continued increasing interest rate environment
that may erode the net interest margin. Strategies to enhance earnings and
improve the interest rate exposure of the Company will be considered, such as
the sale of existing mortgage-backed securities available for sale and
purchasing higher yielding, rate sensitive assets with the proceeds.
The Company's wholly owned subsidiary, First Liberty Bank & Trust, is one of the
largest community banks in Northeastern Pennsylvania. The Company intends to
increase its market penetration through, among other things, the opening of de
novo branches.
Financial Condition
Cash and Due From Banks and Federal Funds Sold
Cash and due from banks increased approximately $32.4 million to $53.0 million
at March 31, 1999 from $20.6 million at December 31, 1998 as the company
invested excess liquidity with the Federal Home Loan Bank of Pittsburgh. Federal
funds sold increased to $5.0 million at March 31, 1999 from $5.0 million at
December 31, 1998 due to normal fluctuations resulting from the conduct of
customer business.
Securities
Securities available for sale have decreased $29.4 million or 14.9 % to $167.2
million from $196.6 million at December 31, 1998. This decrease was primarily
driven by the maturity of $22.7 million of securities.
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Loans Receivable, Net
Aggregate loans receivable totaled $371.0 million at March 31, 1999, a decrease
of $0.3 million from $371.3 million at December 31, 1998. The mix of loans is
substantially unchanged at those dates.
Non-Performing Assets
The Company's total non-performing assets was relatively constant at
approximately $2.7 million or 0.4% of total assets at March 31, 1999 and
December 31, 1998. Loans greater than ninety days delinquent but still accruing
decreased from $445,000 at December 31, 1998 to $83,000 at March 31, 1999.
However, nonaccrual loans increased approximately $218,000 to $1,958,000.
Real estate owned, increased from $479,000 as of December 31, 1998 to $621,000
as of March 31, 1999, due to three foreclosed residential properties transferred
into real estate owned. There were no significant gains or losses on the sale of
real estate owned during the quarters ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
3/31/99 12/31/98
<S> <C> <C>
Nonaccrual 1,958,000 1,740,000
Loans 90 days or more delinquent 83,000 445,000
Restructured --- ---
---------- ---------
Total non-performing loans $2,041,000 $2,185,000
Real estate owned other than
Bank premises 621,000 479,000
------- -------
Total non-performing assets $2,662,000 $2,664,000
</TABLE>
At March 31, 1999, the Company's allowance for loan losses amounted to $4.69
million or 1.24% of gross loans receivable. At December 31, 1998, the Company's
allowance for loan losses was $4.62 million or l.23% of gross loans receivable.
Deposits
Deposits increased $15.2 million or 3.1% from $496.6 million at December 31,
1998 to $511.8 million at March 31, 1999. The increase in deposits was primarily
due to an increase in Certificate of Deposits from the local market. The Company
believes this increase is due to the Bank's competitive rates.
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Equity
At March 31, 1999, total equity was $60.1 million or 9.6% of total assets
compared to $58.9 million or 9.6 % of total assets as of December 31, 1998.
Total equity increased primarily due to the retention of net income during the
intervening period.
Results of Operations
Net Income
The Company's net income was $1,518,000 for the three months ended March 31,
1999, compared to $1,399,000 recorded in the comparable prior period. In a
competitive rate environment, the Company was able to substantially maintain its
level of core earnings as net interest income before provision for loan losses
approximated $4.9 million for the three months ended March 31, 1999 compared to
$5.0 million for the three months ended March 31, 1998. The Company was able to
increase the level of noninterest income by $121,000 to $552,000 for the period
ending March 31, 1999, while noninterest expense decreased to $3.3 million for
the three months ended March 31, 1999, compared to $3.4 million for the
comparable prior period.
Net Interest Income
Net interest income before provision for loan losses amounted to $4.9 million
for the three-month periods ended March 31, 1999 versus $5.0 million for the
three months ended March 31,1998. A lower interest rate environment lead to
decreases in both interest income and interest expense for 1999 compared to
1998.
Total interest income decreased by $276,000 or 2.6% to $10,298,000 for the three
month period ended March 31, 1999 from $10,574,000 during the comparable prior
period. The average interest-earning assets increased $14,105,000 for the three
months ended March 31, 1999 compared to the three months ended March 31, 1998.
However, this was partially offset by a 16 basis point decline in the yield
earned on average interest-earning assets during the three months ended March
31, 1999 compared to the 1998 period.
Total interest expense decreased by $208,000 or 3.7% to $5,408,000 for the three
months ended March 31, 1999 from $5,616,000 for the comparable prior period. The
decrease was due to a decrease in interest expense associated with deposits. The
average balance of deposits increased by $11,245,000 during the three months
ended March 31, 1999, compared to the comparable 1998 period. However, the
increased volume of deposits was offset by a 25 basis point decrease in the
average rates paid for the three months ended March 31, 1999 over the comparable
1998 period.
Provision for Loan Losses
The Company establishes a provision for loan losses, which is charged to
operations, in order to maintain the allowance for loan losses at a level which
is deemed to be appropriate based upon an assessment of prior loss experience,
the volume and type of lending presently being conducted by the Company,
industry standards, past due loans, economic conditions in the
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Company's market area generally and other factors related to the collectability
of the Company's loan portfolio. For the three-month period ended March 31,
1999, the provision for loan losses amounted to $180,000, an increase of $45,000
compared to $135,000 for the three months ended March 31, 1998.
Although management utilizes its best judgment in providing for potential
losses, there can be no assurance that the Company will not have to increase its
provisions for loan losses in the future as a result of the future increases in
non-performing loans or for other reasons which could adversely affect the
Company's results of operations. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses. Such agencies may require the Company to recognize additions to
the allowance for loan losses based on their judgments of information which is
available to them at the time of their examination.
Noninterest Income
Noninterest income for the period ending March 31, 1999 increased approximately
$121,000 to $552,000 from the comparable prior period, primarily due to a
$46,000 increase in gains on the sale of securities and growth in the Company's
trust business generating a $33,000 increase in trust fee income.
Noninterest Expenses
Noninterest expenses for the period ending March 31, 1999 decreased
approximately $38,000 from the comparable prior period. Salary and benefits
increased $100,000 as a result of employee raises. Net occupancy expense
decrease by $55,000; data processing decreased by $33,000; and other expense
decreased by $40,000 over the prior period as a result of efficiencies gained
from the Company's recent merger with Upper Valley Bancorp.
Income Taxes
Income tax expense totaled $415,000 for the three-month period ended March 31,
1999 compared to $488,000 for the comparable prior period. These amounts
resulted in effective tax rates calculated at 21.5% and 25.9%, respectively. The
1999 effective tax rate decrease primarily due to implementation of the
Company's tax strategy, including increasing tax-exempt income as a percentage
of total net income through investments in tax-exempt securities and bank owned
life insurance as well as low income housing credits.
Liquidity & Capital Adequacy
The Company's primary source of funds on long term and short term basis are
deposits, principal and interest payments on loans, mortgage backed securities,
and FHLB advances. The Company uses the funds generated to support its lending
and investment activities as well as any other demands for liquidity such as
deposit out flows.
The Company has continued to maintain the required levels of liquid assets as
defined by Federal regulations.
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A strong capital position is important to the continued profitability of the
Company and promotes depositor and investor confidence. The Company's capital
consists of shareholders' equity, which provides a basis for future growth and
expansion and also provides a buffer against unexpected losses.
Shareholders' equity increased $1,181,000 to $60,089,000 at March 31, 1999. It
is management's intention to continue paying a reasonable return on
shareholders' investment while retaining adequate earnings to allow for
continued growth.
The Federal Reserve Board measures capital adequacy for bank holding companies
by using a risk-based capital frame-work and by monitoring compliance with
minimum leverage ratio guidelines. The minimum ratio of total risk-based capital
to risk-adjusted assets is 8% at March 31, 1999, of which 4% must be Tier 1
capital. The Company's total risk-based capital ratio was 17.30% at March 31,
1999. The Company's Tier 1 risk-based capital ratio was 16.05% at March 31,
1999.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of 3% for bank holding companies that meet certain criteria,
including that they maintain the highest regulatory rating. All other bank
holding companies are required to maintain a leverage ratio of 3% plus an
additional cushion of at least 100 to 200 basis points. The Federal Reserve
Board has not advised the Company of any specific minimum leverage ratio
applicable to it.
The Company's leverage ratio was 9.61% at March 31, 1999.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) establishes
minimum capital requirements for all depository institutions and established
five capital tiers: "well capitalized", "adequately capitalized,"
"under-capitalized:, "significantly under-capitalized," and "critically
under-capitalized," FDICIA imposes significant restrictions on the operations of
a bank which is not at least adequately capitalized. A depository institutions'
capital tier will depend upon where its capital levels are in relation to
various other capital measures which include a risk-based capital measure, a
leverage ratio capital measure and other factors. Under regulations adopted, for
an institution to be well capitalized it must have a total risk-based capital
ratio of at least 10%, a Tier I risk-based capital ratio of at least 6%, and a
Tier I leverage ratio of at least 5%, and not be subject to any specific capital
order or directive.
At March 31, 1999, the Bank's total risk-based capital, Tier I risk-based
capital and Tier I leverage ratios were 17.30%, 16.05% and 9.61%, respectively.
Market Risk and Interest Rate Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending, investment, and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure.
The Company uses simulation analysis to help monitor and manage interest rate
risk. In this analysis the Company examines the result of 100, 200 and 300 basis
point change in market interest rates and the effect on net interest income. It
is assumed that the change is
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instantaneous and that all rates move in a parallel manner. In addition, it is
assumed that rates on core deposit products such as NOWs, savings accounts, and
the MMDA accounts will be adjusted by 50% of the assumed rate change.
Assumptions are also made concerning prepayment speeds on mortgage loans and
mortgage securities. The results of this rate shock are a useful tool to assist
the Company in assessing interest rate risk inherent in their balance sheet.
The results of this rate shock analysis as of March 31, 1999 are as follows:
Change in Rate Net Interest Income Change (After tax, in thousands)
-------------- ----------------------------------------------------
+300 (1,179)
+200 (776)
+100 (367)
-100 201
-200 270
-300 380
Year 2000 Issues
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use a date after
December 31, 1999. The erroneous date can be interpreted in a number of
different ways, the most common being Year 2000 represented as the year 1900.
Correctly identifying and processing Year 2000 as a leap year may also be an
issue. These misinterpretations of various dates in the Year 2000 could result
in a system failure or miscalculations causing disruptions of normal business
operation including, among other things, a temporary inability to process
transactions, track important customer account information, or provide
convenient access to this information.
Company's State of Readiness
The Company has completed an assessment of its financial and operational
software systems in accordance with the various regulatory agency guidance
documents. The Company is maintaining an inventory of hardware and software
systems, which ranges from mission critical software systems and personal
computers to security and video equipment, backup generators, and general office
equipment. The Company has prioritized its hardware and software systems to
focus on the most critical systems first. In connection with the Company's
assessment, a number of the less significant third party vendors advised the
Company that their software is Year 2000 compliant, and the Company intends to
fully test that software by June 30, 1999.
From a technology perspective, the Company uses application software systems and
receives technical support from one of the world's largest data processing
providers to financial institutions, for nearly all of its mission critical
customer applications.
The Company will devote the necessary resources to test all mission critical
customer systems and resolve all significant Year 2000 issues in a timely
manner. If testing were to uncover any system problems, the vendor would work to
correct the problem and the Company would test again until resolved. At the same
time, the Company is upgrading personal computers to meet both system and Year
2000 requirements.
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Costs of Year 2000
Over the past several years, the Company's Technology Plan has called for an
aggressive schedule for installing new systems or upgrading old systems in order
to build a technology infrastructure which will allow the Company to offer
competitive products while providing for internal efficiencies and customer
service improvement. The Technology Plan has resulted in positioning the Company
to continue its technology improvements while avoiding costly Year 2000 issues.
The Company estimates expenditures associated with Year 2000 at $125,000 (all of
which is for capital expenditures) during the year ending December 31, 1999,
with approximately $45,000 amortized in that same year and the remainder
amortized in subsequent fiscal years.
The Company does not predict for the Year 2000 driven expenditures in the Year
2000. With assistance from its third party vendors, the Company is utilizing
internal staff to perform Year 2000 compliance work, including internal
Information Systems staff.
The Company believes that the cost of addressing the Year 2000 issue will not be
a material event or uncertainty that would cause reported financial information
not to be necessarily indicative of future operating results or financial
conditions. However, if compliance is not achieved in a timely manner by the
Company or any of its significantly related third-parties, be it a supplier of
services or customer, the Year 2000 issue could possibly have a material effect
on the Company's operating and financial position.
Risk of Year 2000
The Year 2000 issue presents potential risks of uncertain magnitude. The risks
arise both with regard to systems purchased by the Company through third party
vendors as well as those outside the control of the Company, such as with ATM
networks or credit card processors. These failures may cause delays in the
ability of customers to access their funds through automated teller machines,
point of sale terminals at retail locations, or other shared networks. The Year
2000 issue also poses the potential risk for business disruption due to a
mission critical software system failure, which could result in inaccurate
interest payment calculations, credit transactions, or record-keeping. The
Company and the banking regulators are closely monitoring the progress of First
Liberty Bank & Trust's major third party vendors and, to date, the Company is
satisfied with their progress. However, if the Company, its customers, or
vendors are unable to resolve Year 2000 issues in a timely manner, it could
result in a material financial risk.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of third
party modification and testing plans and other factors.
Contingency Plans
The Company is in the process of obtaining back-up service providers, working up
contingency plans and assessing the potential adverse risks to the Company. The
Company's contingency plans involve the use of manual labor to compensate for
the loss of certain
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automated computer systems and inconveniences caused by disruption in command
systems.
A contingency plan will be developed for mission-critical and required mainframe
and PC based applications, third-party relationships, environmental systems,
proprietary programs, and non-computer related systems. The contingency plan
will identify scheduled completion dates, test dates and trigger dates.
A business resumption contingency plan is currently under development with a
target completion date of June 1999. The resumption contingency plan will
calculate a risk factor for each core business line and\or project. Based upon
the calculated risk factor, such business resumption contingency plan will be
designed and tested.
Forward Looking Statements
Within these financial statements we have included certain "forward looking
statements" concerning the future operations of the Company. It is management's
desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. This statement is for the express
purpose of availing the Company of the protections of such safe harbor with
respect to all "forward looking statements" contained in our financial
statements. We have used "forward looking statements" to describe the future
plans and strategies including our expectations of the Company's future
financial results. Management's ability to predict results or the effect of
future plans and strategy is inherently uncertain. Factors that could affect
results include interest rate trends, competition, the general economic climate
in Northeastern Pennsylvania, the mid-Atlantic region and country as a whole,
loan delinquency rates, Year 2000 uncertainties, and changes in federal and
state regulation. These factors should be considered in evaluating the "forward
looking statements", and undue reliance should not be placed on such statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information set forth was under the caption "Market Risk and Interest Rate
Risk" under Item 2 of Part I is incorporated herein by reference.
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<PAGE>
FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
March 31, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a): Exhibits:
None
(b): Reports on Form 8-K:
None
14
<PAGE>
FIRST LIBERTY BANK CORP. AND SUBSIDIARIES
March 31, 1999
SIGNATURES
In accordance with requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE FIRST JERMYN CORP.
(Registrant)
Date May 13, 1999 By/s/ William M. Davis
------------ --------------------
William M. Davis
Chairman, President and
Director
(Principal Executive Officer)
Date May 13,1999 By /s/ Donald J. Gibbs
------------ --------------------
Donald J. Gibbs
(Principal Financial Officer
And Treasurer)
15
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<NAME> First Liberty Bank Corp.
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