<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
--------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14417
-----------
FIRST LIBERTY FINANCIAL CORP.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1680650
-----------------------------------------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
201 Second Street, Macon, Georgia 31297
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(912) 743-0911
-----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Exhibit index appears on page 20.
There were 3,008,350 shares of Common Stock outstanding as of May 12, 1995.
Page 1 of 23
<PAGE> 2
FIRST LIBERTY FINANCIAL CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
Table of Contents
PART I - FINANCIAL INFORMATION
Item Page
1. Financial Statements:
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Independent Accountants' Report 10
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of Securities Holders 18
6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index of Exhibits 20
2
<PAGE> 3
FIRST LIBERTY FINACIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
- --------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 21,405 $ 16,293
Federal funds sold 9,904 4,815
Investment securities available-for-sale, at
market value 22,967 18,928
Mortgage-backed securities available-for-sale,
at market value 132,241 111,386
Loans available-for-sale, net, at market value 4,747 9,983
Loans, net 548,640 487,315
Accrued interest receivable 4,729 3,880
Premises and equipment, net 21,472 20,047
Real estate, net 6,715 7,511
Intangible assets 9,530 3,508
Advances to attorneys for loans originated 2,785 1,264
Other assets 8,965 8,275
-------- --------
$794,100 $693,205
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $690,808 $562,113
Notes payable and other borrowed money 15,000 50,274
Subordinated debentures 12,398 12,295
Securities sold under agreements to repurchase 624 1,660
Checks payable on loans originated 3,035 3,824
Other liabilities 9,640 6,648
-------- --------
731,505 636,814
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Series A, 7.75% Cumulative Convertible
Preferred stock ($25.00 stated value, 460,000
shares authorized, issued and outstanding) 11,500 11,500
Series B, 6.00% Cumulative Convertible
Preferred stock ($25.00 stated value, 148,799
shares authorized, issued and outstanding) 3,720 -
Common stock ($1.00 par value, 25,000,000
shares authorized, 3,030,690 shares issued
and 3,008,350 shares outstanding) 3,031 3,031
Additional paid-in capital 14,664 15,209
Retained earnings 30,466 27,794
Net unrealized loss on securities (517) (874)
Treasury stock at cost (22,340 shares) (269) (269)
-------- --------
62,595 56,391
-------- --------
$794,100 $693,205
======== ========
<TABLE/>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
March 31, March 31,
-----------------------------------------------
1995 1994 1995 1994
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $12,167 $10,092 $23,176 $20,973
Mortgage-backed securities 2,318 1,339 4,273 2,685
Investment securities 533 180 981 363
Federal funds sold 141 54 227 120
------- ------- ------- -------
15,159 11,665 28,657 24,141
------- ------- ------- -------
INTEREST EXPENSE:
Deposits 6,027 4,817 11,461 9,841
Short-term borrowings 1,359 337 2,220 824
Long-term borrowings 729 1,077 1,463 2,168
------- ------- ------- -------
8,115 6,231 15,144 12,833
------- ------- ------- -------
Net interest income 7,044 5,434 13,513 11,308
Provision for estimated
losses on loans 300 375 600 750
------- ------- ------- -------
Net interest income after
provision for estimated
losses on loans 6,744 5,059 12,913 10,558
------- ------- ------- -------
NON-INTEREST INCOME:
Loan servicing fees 665 741 1,292 1,468
Gain on sale of investment
securities 21 - 21 -
Gain (loss) on sale of loans and
mortgage-backed securities (7) 196 (4) 666
Gain on sale of servicing 368 1,055 817 1,374
Deposit account service charges 791 653 1,582 1,351
Other income 124 186 211 275
------- ------- ------- -------
Total non-interest income 1,962 2,831 3,919 5,134
------- ------- ------- -------
8,706 7,890 16,832 15,692
------- ------- ------- -------
NON-INTEREST EXPENSE:
Compensation, taxes and benefits 2,910 3,016 5,764 6,056
Occupancy and equipment 687 706 1,354 1,404
Advertising 233 225 451 447
Professional fees 159 217 301 489
Data processing 182 169 330 333
Federal deposit insurance premiums 431 391 821 763
Amortization of intangible assets 136 101 248 173
Net cost of operation of other
real estate 47 213 243 413
Other 833 754 1,540 1,474
------- ------- ------- -------
Total non-interest expense 5,618 5,792 11,052 11,552
------- ------- ------- -------
Income before income tax expense 3,088 2,098 5,780 4,140
Income tax expense 1,061 691 1,988 1,383
------- ------- ------- -------
Net income 2,027 1,407 3,792 2,757
Dividends on preferred stock 279 223 519 446
------- ------- ------- -------
Net income applicable to common
stockholders $ 1,748 $ 1,184 $ 3,273 $ 2,311
======= ======= ======= =======
EARNINGS PER COMMON SHARE:
Primary $ .56 $ .38 $ 1.06 $ .74
Fully diluted $ .48 $ .35 $ .91 $ .69
DIVIDENDS PER COMMON SHARE: $ .10 $ .08 $ .20 $ .16
<TABLE/>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
FIRST LIBERTY FINANICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------------------
1995 1994
- --------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Cash flows from operating activities:
Net income $ 3,792 $ 2,757
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 854 801
Amortization of loan fees (356) (355)
Provision for estimated losses
on loans and real estate 1,012 863
Amortization of intangibles 248 173
Dividends received on stock (118) (322)
Gain on sale of loans and mortgage-
backed and investment securities (17) (666)
Loans available-for-sale:
Disbursements (4,924) (113,513)
Purchases (27,809) (147,327)
Sales 37,479 293,939
Principal repayments 436 7,946
Decrease(increase) in accrued interest receivable (577) 163
Increase(decrease) in accrued interest payable (144) 10
Other, net 3,596 61
---------- ----------
Net cash provided by operating activities 13,472 44,530
---------- ----------
INVESTING ACTIVITIES:
Cash flows from investing activities:
Net increase in federal funds sold (2,089) (9,165)
Investment securities available-for-sale:
Purchases (8,261) -
Sales 28,645 74
Maturities 2,000 1,568
Mortgage-backed securities available-for-sale:
Purchases (43,095) (33,896)
Sales 14,785 5,625
Principal repayments 11,213 20,340
Loan disbursements (158,016) (140,569)
Loan purchases (7,802) -
Loan principal repayments 123,277 127,859
Purchases of premises and equipment (746) (1,309)
Sales of real estate 1,255 966
Decrease(increase) in advances to attorneys
for loans originated, net (1,521) 10,268
Acquisition of other institutions,
net of cash paid 88,141 -
---------- ----------
Net cash provided by(used in)
investing activities 47,786 (18,239)
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------------------
1995 1994
- --------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
FINANCING ACTIVITIES:
Cash flows from financing activities:
Increase(decrease) in deposits, net (17,865) 8,480
Notes payable and other borrowed money:
Proceeds 167,500 77,500
Repayments (203,415) (89,008)
Decrease in securities sold
under agreements to repurchase, net (1,036) (5,857)
Decrease in checks payable on
loans originated, net (789) (13,414)
Dividends paid on stock (541) (686)
-------- --------
Net cash used in financing activities (56,146) (22,985)
-------- --------
Net increase in cash and due from banks 5,112 3,306
Cash and due from banks beginning of period 16,293 13,478
-------- --------
Cash and due from banks end of period $ 21,405 $ 16,784
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,631 $ 5,188
Income taxes 1,335 1,963
Noncash investing and financing activities:
Real estate foreclosed $ 682 $ 983
Financing of sales of foreclosed real estate 408 1,751
Dividends declared, unpaid on preferred stock 279 223
Dividends declared, unpaid on common stock 301 241
Acquisition of other institutions:
Fair value of assets acquired $(62,006) -
Fair value of liabilities assumed 150,147 -
--------
Net cash received $ 88,141 -
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies of First Liberty Financial Corp. and
Subsidiaries ("the Company") conform to generally accepted accounting
principles and to general practices within the savings and loan industry. The
interim consolidated financial statements included herein are unaudited but
reflect all adjustments which, in the opinion of management, are necessary to a
fair presentation of the consolidated financial position, results of operations
and cash flows for the interim periods presented. All adjustments reflected in
the interim financial statements are of a normal recurring nature. Such
financial statements should be read in conjunction with the financial
statements and notes thereto and the report of independent accountants included
in the Company's Form 10-K Annual Report for the fiscal year ended September
30, 1994. The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The results of operations for the three and six months
ended March 31, 1995 are not necessarily indicative of the results to be
expected for the full year.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year consolidated financial
statements presentation.
2. Earnings Per Share
------------------
Earnings per share are computed on the weighted average number of shares
outstanding including common stock equivalents, if dilutive. For computing
primary earnings per share, stock options exercisable at a price less than
average market price during the period are considered common stock
equivalents. Fully diluted earnings per share assumes (i) the conversion, if
dilutive, of all convertible debt as of the beginning of the year (or date of
issue), with the elimination of the related interest expense net of applicable
income taxes (ii) the exercise of all stock options below the market price at
March 31 or the average market price for the quarter, and (iii) the conversion,
if dilutive, of all convertible preferred stock as of the beginning of the year
(or date of issue), with the elimination of dividends declared.
Weighted average shares of common stock and common stock equivalents used in
the computation of earnings per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
------------------------------------------------------------
1995 1994 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary 3,079,468 3,090,625 3,080,100 3,091,126
Fully diluted 4,217,271 4,051,286 4,155,611 4,051,787
</TABLE>
7
<PAGE> 8
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. Sale of Servicing
-----------------
During the three and six months ended March 31, 1995, Liberty Mortgage
Corporation ("Liberty Mortgage"), the Company's mortgage banking subsidiary,
sold bulk loan servicing rights with aggregate principal balances of $85
million and $125 million, respectively, compared to $67 million and $92
million, respectively, a year earlier. This resulted in the recognition of a
gain on the sale of servicing of $368,000 and $817,000 for the three and six
months ended March 31, 1995 compared to $1.1 million and $1.4 million,
respectively, for the same periods a year ago. The servicing rights sold
generally related to loans originated for sale and sold within the last six
months. The servicing sale during the quarter ended March 31, 1995 included
$47 million in servicing rights which Liberty Mortgage granted recourse to the
seller. Accordingly, the gain related to such rights of $552,000 was deferred
and will be recognized in the period that the recourse expires.
4. Purchased Mortgage Servicing Rights
-----------------------------------
Liberty Mortgage invests in purchased mortgage servicing rights ("PMSRs")
resulting from loans purchased through correspondent relationships. The
investment in PMSRs has the effect of reducing the basis in the loans
purchased, and increasing the gain (or reducing the loss) on sales of loans.
The following table outlines the activity in PMSRs for three and six month
periods ended March 31, 1995 and 1994 (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-----------------------------------------
1995 1994 1995 1994
-----------------------------------------
<S> <C> <C> <C> <C>
Capitalized $ 28 $ 386 $ 66 $1,212
Sold 429 - 512 -
Amortized 128 139 255 255
Net Investment at March 31, 2,347 2,524
</TABLE>
5. Acquisitions
------------
On December 2, 1994, the Company acquired Central Banking Company ("CBC") of
Swainsboro, Georgia. CBC, on the date of acquisition, held the following
approximate balances: loans of $21 million, cash and investments of $34
million, premises and equipment of $1 million and deposits of $52 million.
Intangible assets resulting from the acquisition amounted to approximately $2
million.
On March 24, 1995, the Company acquired three banking offices located in
Sylvania, Vidalia and Waycross, Georgia from First Union National Bank. Total
assets acquired were approximately $3 million and total cash received and
deposits assumed were approximately $95 million. Intangible assets resulting
from the acquisition were approximately $4 million.
8
<PAGE> 9
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
The proforma financial information required to be filed with the Commission
will be filed under cover of Form 8-K/A on or before June 5, 1995 as indicated
previously in the Form 8-K filed on April 7, 1995.
On March 16, 1995 the Company announced an agreement to acquire Tifton Bank and
Trust of Tifton, Georgia. Tifton Bank and Trust has two offices, approximately
$55 million in assets, $48 million in deposits, and $32 million in loans. This
transaction is expected to close in fall of 1995, subject to regulatory
approval.
6. Preferred Stock
---------------
On December 2, 1994, in connection with the acquisition of CBC, the Company
issued $3.7 million in Series B 6.00% Cumulative Convertible Preferred stock.
The shares have a liquidation preference of $25.00 per share. Dividends on the
preferred stock are cumulative and at an annual rate of $1.50 per share and are
payable quarterly. Each share of preferred stock is convertible at the option
of the holder into 1.19 shares of common stock, at a conversion price of $21.00
per share of common stock, subject to adjustment in certain circumstances. The
Company, at its option, may redeem the preferred stock at any time on or after
January 1, 1997.
7. Recently Issued Accounting Standards
------------------------------------
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used at the entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition are less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. This statement also requires that
long-lived assets and certain intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell, except for assets
that are covered by Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Assets that are covered by Opinion 30 will continue to be
reported at the lower of carrying amount or net realizable value. SFAS No. 121
is effective for financial statements for fiscal years beginning after December
15, 1995. Management believes that the adoption of SFAS No. 121 will not
have a material impact on the Company's financial statements.
9
<PAGE> 10
INDEPENDENT ACCOUNTANTS' REPORT
COOPERS & LYBRAND L.L.P.
1100 CAMPANILE BUILDING
1155 PEACHTREE STREET
ATLANTA, GA 30309
The Board of Directors
First Liberty Financial Corp.
We have reviewed the accompanying consolidated financial statements of First
Liberty Financial Corp. and Subsidiaries as of March 31, 1995, and for the
three-month and six-month periods then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the finacial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
May 12, 1995
10
<PAGE> 11
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OVERVIEW
First Liberty Financial Corp. is a unitary savings and loan holding company for
First Liberty Bank ("Liberty Bank"). The consolidated financial statements
include the accounts of First Liberty Financial Corp., Liberty Bank, a wholly-
owned subsidiary of First Liberty Financial Corp., and Liberty Mortgage
Corporation ("Liberty Mortgage"), a wholly-owned subsidiary of Liberty Bank
(collectively known as "the Company").
LIQUIDITY
The Company's primary sources of funds are deposits, loan repayments, sales and
maturities of securities, loan sales, repurchase agreements, advances from the
Federal Home Loan Bank of Atlanta and various other borrowings. Deposits
provide a source of funds that are highly dependent on market and other
conditions, while loan repayments are a relatively stable source of funds.
The liquidity of Liberty Bank's operation is measured by the ratio of cash and
short-term investments (as defined by federal regulations) to the sum of
withdrawable deposits and borrowings maturing within one year. Federal
regulations currently require institutions to maintain a liquidity ratio of at
least 5%. Liberty Bank was in compliance with its requirements at March 31,
1995.
CAPITAL RESOURCES
The Office of Thrift Supervision ("OTS") capital regulations include a core
capital requirement, a tangible capital requirement and a risk-based capital
requirement. Subject to certain exceptions, each of these capital standards
must be no less stringent than the capital standards applicable to national
banks, although the risk-based capital requirement for savings institutions may
deviate from the risk-based capital standards applicable to national banks to
reflect interest rate risk or other risks if the deviations in the aggregate do
not result in materially lower levels of capital being required of savings
institutions than would be required of national banks.
The following table reflects Liberty Bank's compliance with regulatory capital
requirements at March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Actual for Liberty Bank Regulatory Requirement
- ----------------------------------------------------------------
% of % of
Capital Adjusted Adjusted Excess
Standard Amount Assets Amount Assets Amount
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tangible $45,348 5.77% $11,782 1.50% $33,566
Core $47,505 6.03% $23,629 3.00% $23,876
Risk-based $65,910 11.92% $44,225 8.00% $21,685
</TABLE>
11
<PAGE> 12
The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes
five classifications for institutions based upon the capital requirements.
Each appropriate banking agency, such as the OTS for Liberty Bank, must
establish by regulation the parameters of each such classification. Based on
final regulations promulgated by the OTS, Liberty Bank is considered
well-capitalized. Failure to maintain that status could result in greater
regulatory oversight or restrictions on Liberty Bank's activities.
COMMITMENTS
Commitments to originate loans are generally made at the market rate prevailing
at the time of issuance. The Company had open commitments to originate
residential mortgage loans of approximately $27 million, including $4.3 million
to be held in portfolio and $6.3 million on which the interest rate had not
been locked-in at March 31, 1995. Commitments to sell and purchase residential
mortgage loans and mortgage-backed securities for mandatory delivery at March
31, 1995 were $13.8 million and $3.5 million, respectively. Also at March 31,
1995, the Company sold $6.0 million of optional commitments to buy residential
mortgage loans and bought $7.0 million of optional commitments to sell
residential mortgage loans. Loans in process (which represent undisbursed loan
commitments principally related to construction loans), amounted to $39 million
at March 31, 1995. Other commitments were not material at March 31, 1995.
RESULTS OF OPERATIONS
The Company's consolidated net income for the three and six months ended March
31, 1995 was $2.0 million and $3.8 million, respectively, compared to $1.4
million and $2.8 million for the three and six months ended March 31, 1994,
respectively.
The Company's net income is affected by the level of its non-interest income,
non-interest expense and the level of earnings of its mortgage banking
operations. However, the Company's net income is most significantly affected
by the difference between interest income on its loan and investment portfolios
and the interest expense of its deposits and borrowings ("net interest income").
Net interest income is affected by several factors, but is most affected by the
volume of and interest rates on interest-earning assets and interest-bearing
liabilities. The following tables reflect the effective yields and costs of
funds for the three and six month periods ended March 31, 1995 and 1994
(dollars in thousands:)
12
<PAGE> 13
<TABLE>
<CAPTION>
Average Balance Rate/Yield
Three Months Ended Three Months Ended
March 31, March 31,
1995 1994 1995 1994
---------------------- ----------------------
<S> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $545,788 $508,980 8.92% 7.93%
Mortgage-backed securities 138,344 98,990 6.70% 5.41%
Other investments 37,350 22,455 7.22% 4.17%
-------- -------- ----- -----
All interest-earning assets $721,482 $630,425 8.40% 7.40%
======== ======== ----- -----
Interest-Bearing Liabilities:
Deposits $623,319 $546,737 3.87% 3.52%
Borrowings 93,322 82,210 8.95% 6.88%
-------- -------- ----- -----
All interest-bearing
liabilities $716,641 $628,947 4.53% 3.96%
======== ======== ----- -----
Interest rate spread 3.87% 3.44%
===== =====
Interest income as a percentage
of average earning assets 3.91% 3.45%
===== =====
</TABLE>
<TABLE>
<CAPTION>
Average Balance Rate/Yield
Six Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
---------------------- --------------------
<S> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $525,530 $519,576 8.82% 8.07%
Mortgage-backed securities 130,597 97,276 6.54% 5.52%
Other investments 32,305 21,243 7.48% 4.54%
-------- -------- ----- -----
All interest-earning assets $688,432 $638,095 8.33% 7.56%
======== ======== ----- -----
Interest-Bearing Liabilities:
Deposits $594,865 $546,526 3.85% 3.60%
Borrowings 87,394 88,487 8.43% 6.76%
-------- -------- ----- -----
All interest-bearing
liabilities $682,259 $635,013 4.44% 4.04%
======== ======== ----- -----
Interest rate spread 3.89% 3.52%
===== =====
Interest income as a percentage
of average earning assets 3.93% 3.54%
===== =====
</TABLE>
13
<PAGE> 14
The Company's net interest margin increased $2.2 million during the six months
ended March 31, 1995 as compared to the same period a year ago. Contributing
to this increase was growth in the interest rate spread principally resulting
from rising interest rates and expansion of earning assets and interest-bearing
liabilities principally resulting from acquisitions during the period. The
following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense for the six month period
ended March 31, 1994 and the six month period ended March 31, 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
March 31, 1995 vs March 31, 1994
-------------------------------------------
Due To
-------------------------------------------
Rate/
Rate Volume Volume Total
------ -------- -------- -------
<S> <C> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans $ 1,940 $ 241 $ 22 $ 2,203
Mortgage-backed securities 498 920 170 1,588
Other investments 312 251 162 725
------- ------- ------- -------
Total interest income 2,750 1,412 354 4,516
------- ------- ------- -------
CHANGES IN INTEREST EXPENSE:
Deposits 689 870 61 1,620
Borrowings 737 (37) (9) 691
------- ------- ------- -------
Total interest expense 1,426 833 52 2,311
------- ------- ------- -------
Net interest income $ 1,324 $ 579 $ 302 $ 2,205
======= ======= ======= =======
</TABLE>
The Company's provision for estimated loan losses decreased to $300,000 and
$600,000 during the three and six months ended March 31, 1995, respectively,
from $375,000 and $750,000 for the three and six months ended March 31, 1994,
respectively. There were net recoveries to the loan loss reserve of $243,000
and $221,000 during the three and six months ended March 31, 1995,
respectively, compared to net charge-offs of $615,000 and $1.2 million,
respectively, for the same periods a year earlier. Loan loss reserves at March
31, 1995 were $7.0 million, or 387% of nonperforming loans, or 1.25% of loans
held for investment, compared to $5.7 million, or 105% of nonperforming loans,
or 1.17% of loans held for investment at March 31, 1994.
The table below summarizes nonperforming assets at March 31, 1995 and March 31,
1994. Nonperforming assets consist of nonaccrual loans, foreclosed real
estate, other repossessed assets, and loans past due 90 days or more which are
still accruing (dollars in thousands).
<TABLE>
<CAPTION>
March 31,
----------------------------
1995 1994
----------------------------
<S> <C> <C>
Nonaccrual loans $ 1,798 $ 5,383
Real estate acquired through foreclosure 7,220 9,217
Insubstance foreclosures - 2,677
Other repossessed assets 132 135
------- -------
Total nonperforming assets $ 9,150 $17,412
======= =======
Total nonperforming assets as
a percentage of total assets 1.15% 2.46%
======= =======
</TABLE>
14
<PAGE> 15
Foreclosed real estate decreased to $7.2 million at March 31, 1995 reflecting
foreclosures of $682,000, and sales of $1.5 million. Also contributing to the
decline was the writedown of four commercial properties in the amount of $2.6
million, which was previously reserved, due to the permanent impairment of
such assets.
Liberty Mortgage originated loans during the three and six months ended March
31, 1995 totaling $28 million and $65 million, respectively, compared to $84
million and $271 million for the same periods a year earlier.
Liberty Mortgage invests in purchased mortgage servicing rights ("PMSRs")
resulting from loans purchased through correspondent relationships. The
investment in PMSRs has the effect of reducing the basis in the loans
purchased, and increasing the gain (or reducing the loss) on sales of loans.
The following table outlines the activity in PMSRs for three and six month
periods ended March 31, 1995 and 1994 (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------------------
1995 1994 1995 1994
-------------------------------------
<S> <C> <C> <C> <C>
Capitalized $ 28 $ 386 $ 66 $1,212
Sold 429 - 512 -
Amortized 128 139 255 255
Net Investment at March 31, 2,347 2,524
</TABLE>
Liberty Mortgage's policy requires the purchase of interest rate protection to
limit risk of volatile interest rates ("interest rate risk"). Liberty Mortgage
generally will incur a loss on the sale of loans which reflects the marketing
concession (or discount) to originate loans and the cost of purchasing interest
rate risk protection. However, the effect of PMSR's offsets the impact of
marketing concessions.
During the three and six months ended March 31, 1995, Liberty Mortgage sold
bulk loan servicing rights with aggregate principal balances of $85 million and
$125 million, respectively, compared to $67 million and $92 million,
respectively, a year earlier. This resulted in the recognition of a gain on
the sale of servicing of $368,000 and $817,000 for the three and six months
ended March 31, 1995 compared to $1.1 million and $1.4 million, respectively,
for the same periods a year ago. The servicing rights sold generally related
to loans originated for sale and sold within the last six months. The
servicing sale during the quarter ended March 31, 1995 included $47 million in
servicing rights which Liberty Mortgage granted recourse to the seller.
Accordingly, the gain related to such rights of $552,000 was deferred and will
be recognized in the period that the recourse expires.
Non-interest income (net of gains on the sale of assets) remained the same at
$1.6 million for the quarters ended March 31, 1995 and 1994, and $3.1 million
for the six months then ended. Non-interest income included a decline in loan
servicing fees of $76,000 for the quarter, and $176,000 for the six months
ended March 31, 1995 over last year, reflecting a decline in the portfolio of
loans serviced for others to $780 million at March 31, 1995 from $967 million
at March 31, 1994. Other income also decreased by $62,000 and $64,000 for the
same periods, resulting from several items, none of them significant. These
declines were offset by an increase in deposit account service charges of
$138,000 and
15
<PAGE> 16
$231,000 for the three and six months ended March 31, 1995 due to average
transaction accounts increasing by 17% from March 1994 to March 1995 as a
result of acquisitions during the period as well as internal growth.
The net cost of operations of other real estate declined by $166,000 and
$170,000 for the quarter and six months ended March 31, 1995, respectively, as
compared to the same periods a year ago. Contributing to this variance was
provisions for estimated losses of $274,000 and $412,000 during the quarter and
six months ended March 31, 1995, respectively, as compared to $8,000 and
$113,000 a year earlier. Offsetting this increase were (i) net gains on the
sales of other real estate during the three and six months ended March 31, 1995
of $179,000 and $172,000, respectively, compared to net losses of $22,000 and
$58,000 a year earlier, and (ii) expenses net of income from the operations of
other real estate of $48,000 income and $139,000 expenses for the three months
ended March 31, 1995 and 1994, respectively, and $2,000 and $239,000 expenses
for the six months then ended, respectively.
Non-interest expense (net of other real estate operations) remained the same at
$5.6 million for the quarters ended March 31, 1995 and 1994, and approximately
$11 million for the six months then ended. Direct costs resulting from the
acquisitions for the six months ended March 31, 1995 approximated $324,000.
These additional expenses were offset by (i) Liberty Bank deferring $438,000
for the six months ended March 31, 1995 compared to $197,000 a year earlier
attributable to increased loan originations at Liberty Bank, (ii) Liberty
Mortgage's non-interest expense declining to $170,000 for the six months ended
March 31, 1995 from $195,000 for the six months ended March 31, 1994
principally due to declining loan production, and (iii) the Company's cost
reduction program initiated during the second half of fiscal 1994.
ACCOUNTING FOR INCOME TAXES
The Company's effective income tax rate, as well as the marginal income tax
rate, for the six months ended March 31, 1995 and 1994 was approximately 34%.
The Company's management has determined that it is more likely than not that
its deferred tax assets will be realized. This is based on the existence of
taxable income in the form of future reversals of existing taxable temporary
differences and taxable income in prior carryback years that is sufficient to
allow realization of the tax benefit of the Company's existing deductible
temporary differences. The Company is not aware of any material uncertainties
existing at March 31, 1995 that may affect the realization of the Company's
deferred tax assets. The Company evaluates the realizability of deferred tax
assets quarterly by assessing the need for a valuation allowance.
ACQUISITIONS
On December 2, 1994, the Company acquired Central Banking Company ("CBC") of
Swainsboro, Georgia. CBC, on the date of acquisition, held the following
approximate balances: loans of $21 million, cash and investments of $34
million, premises and equipment of $1 million and deposits of $52 million.
Intangible assets resulting from the acquisition amounted to approximately $2
million.
On March 24, 1995, the Company acquired three banking offices located in
Sylvania, Vidalia and Waycross, Georgia from First Union National Bank. Total
assets acquired were approximately $3 million, and total cash received and
deposits assumed were approximately $95 million. Intangible assets resulting
from the acquisition were approximately $4 million.
16
<PAGE> 17
On March 16, 1995 the Company announced an agreement to acquire Tifton Bank and
Trust of Tifton, Georgia. Tifton Bank and Trust has two offices, approximately
$55 million in assets, $48 million in deposits, and $32 million in loans. This
transaction is expected to close in fall of 1995, subject to regulatory
approval.
During the six months ended March 31, 1995, the Company purchased investments
totaling approximately $51 million and paid off borrowings of approximately $36
million with the proceeds from the three branch acquisitions described above.
PREFERRED STOCK
On December 2, 1994, in connection with the acquisition of CBC, the Company
issued $3.7 million in Series B 6.00% Cumulative Convertible Preferred stock.
The shares have a liquidation preference of $25.00 per share. Dividends on the
preferred stock are cumulative and at an annual rate of $1.50 per share and are
payable quarterly. Each share of preferred stock is convertible at the option
of the holder into 1.19 shares of common stock, at a conversion price of $21.00
per share of common stock, subject to adjustment in certain circumstances. The
Company, at its option, may redeem the preferred stock at any time on or after
January 1, 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used at the entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition are less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. This statement also requires that
long-lived assets and certain intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell, except for assets
that are covered by Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occuring Events and
Transactions. Assets that are covered by Opinion 30 will continue to be
reported at the lower of carrying amount or net realizable value. SFAS No. 121
is effective for financial statements for fiscal years beginning after December
15, 1995. Management believes that the adoption of SFAS No. 121 will not have
a material impact on the Company's financial statements.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
The Annual Meeting of the Stockholders of the Company was held on
January 25, 1995. At the Annual Meeting of Stockholders, proxies were
solicited under Regulation 14 of the Securities and Exchange Act of
1934. Messrs. F. Don Bradford, Richard W. Carpenter, C. Lee Ellis,
Robert F. Hatcher, Melvin I. Kruger, Thomas H. McCook, and Ms. Jo Slade
Wilbanks were elected as directors of the Company to hold office until
the 1996 Annual Meeting of Stockholders with 2,808,368 shares voting in
favor.
Item 6. Exhibits and Reports Filed on Form 8-K
--------------------------------------
(a) Exhibits
Exhibit 11 - Statements of Computation of Earnings Per Share
Exhibit 15 - Awareness Letter of Coopers & Lybrand
Exhibit 27 - Financial Data Schedule
(b) Reports Filed on Form 8-K
On January 12, 1995, the Registrant filed a Current Report on Form 8-K
which included a press release dated January 6, 1995 announcing the
resignation of the President and Chief Executive Officer of its mortgage
subsidiary, Liberty Mortgage Corporation.
On March 20, 1995 the Registrant filed a Current Report on Form 8-K
which included a press release dated March 16, 1995 concerning its
letter of intent to acquire Tifton Banks, Inc.
On April 7, 1995, the Registrant filed a Current Report on Form 8-K
concerning the completion of its acquisition of three branch offices
from First Union National Bank of Georgia on March 24, 1995.
18
<PAGE> 19
Pursuant to the requirements 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.
FIRST LIBERTY FINANCIAL CORP.
<TABLE>
<S> <C>
DATE: May 12, 1995 /s/ David L. Hall
-----------------------------------
David L. Hall
Executive Vice President and
Chief Financial Officer
(Duly authorized, principal
financial and principal accounting
officer)
</TABLE>
19
<PAGE> 20
FIRST LIBERTY FINANCIAL CORP.
Index of Exhibits
The following exhibits are filed as part of the Report.
Exhibit No. Description Page
11 Statements of Computation of Earnings Per Share 21
15 Awareness Letter of Coopers & Lybrand L.L.P. 23
27 Financial Data Schedule -
20
<PAGE> 21
Exhibit 11
Statements of Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Average shares outstanding 3,008,350 3,008,350 3,008,350 3,008,350
----------- ------------ ----------- -----------
Average options outstanding 169,667 164,000 163,247 161,473
Average exercise price $ 7.76 $ 7.43 $ 7.46 $ 7.33
----------- ------------ ----------- -----------
Proceeds from the assumed
exercise of options
outstanding $ 1,316,616 $ 1,218,520 $ 1,217,823 $ 1,183,597
Average market price per share 13.36 14.91 13.31 15.04
----------- ------------ ----------- -----------
Assumed shares repurchased 98,549 81,725 91,497 78,697
----------- ------------ ----------- -----------
Common stock equivalents of
options outstanding 71,118 82,275 71,750 82,776
----------- ------------ ----------- -----------
Weighted average shares
outstanding (including
common stock equivalents) 3,079,468 3,090,625 3,080,100 3,091,126
=========== ============ =========== ===========
Net income $ 2,027,135 $ 1,407,239 $ 3,791,916 $ 2,757,474
Preferred stock dividend 278,612 222,813 518,789 445,625
----------- ------------ ----------- -----------
Net income applicable to
common stockholders $ 1,748,523 $ 1,184,426 $ 3,273,127 $ 2,311,849
=========== ============ =========== ===========
Earnings per common share $ .56 $ .38 $ 1.06 $ .74
=========== ============ =========== ===========
FULLY DILUTED EARNINGS PER SHARE:
Average shares outstanding 3,008,350 3,008,350 3,008,350 3,008,350
----------- ------------ ----------- -----------
Average options outstanding 169,667 164,000 163,247 161,473
Average exercise price $ 7.76 $ 7.43 $ 7.46 $ 7.33
----------- ------------ ----------- -----------
Proceeds from the assumed
exercise of options
outstanding $ 1,316,616 $ 1,218,520 $ 1,217,823 $ 1,183,597
Average market price per share 13.36 14.91 13.31 15.04
----------- ------------ ----------- -----------
Assumed shares repurchased 98,549 81,725 91,497 78,697
----------- ------------ ----------- -----------
Common stock equivalents of
options outstanding 71,118 82,275 71,750 82,776
Assumed conversion of
outstanding convertible
debentures (1) 40,661 40,661 40,661 40,661
Assumed conversion of
outstanding preferred
stock (2) 1,097,142 920,000 1,034,850 920,000
----------- ------------ ----------- -----------
Weighted average shares
outstanding (including
common stock equivalents) 4,217,271 4,051,286 4,155,611 4,051,787
=========== ============ =========== ===========
</TABLE>
21
<PAGE> 22
Exhibit 11
Statements of Computation of Earnings Per Share, Continued
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income $2,027,135 $1,407,239 $3,791,916 $2,757,474
Interest expenses associated with
the convertible debentures (3) 13,839 13,814 27,678 27,628
Income taxes (4) 4,705 4,697 9,411 9,394
---------- ---------- ---------- ----------
Net income adjusted $2,036,269 $1,416,356 $3,810,183 $2,775,708
========== ========== ========== ==========
Earnings per common share $ .48 $ .35 $ .91 $ .69
========== ========== ========== ==========
(1) Potential dilution relating to convertible debentures is calculated
as follows:
Average debentures outstanding 664,000 664,000 664,000 664,000
Conversion price $ 16.33 $ 16.33 $ 16.33 $ 16.33
---------- ---------- ---------- ----------
Potentially dilutive shares 40,661 40,661 40,661 40,661
========== ========== ========== ==========
(2) Potential dilution relating to preferred stock is calculated as follows:
Average Series A Preferred stock
outstanding 11,500,000 11,500,000 11,500,000 11,500,000
Conversion price $ 12.50 $ 12.50 $ 12.50 $ 12.50
---------- ---------- ---------- ----------
Potentially dilutive shares 920,000 920,000 920,000 920,000
========== ========== ========== ==========
Average Series B Preferred stock
outstanding 3,719,975 - 2,411,850 -
Conversion price $ 21.00 - $ 21.00 -
---------- ---------- ---------- ----------
Potentially dilutive shares 177,142 - 114,850 -
========== ========== ========== ==========
</TABLE>
(3) This amount includes interest expense and the amortization of issuance
costs associated with the convertible debentures.
(4) Income taxes have been computed at the Company's marginal tax rate of 34%.
22
<PAGE> 23
COOPERS & LYBRAND L.L.P.
1100 CAMPANILE BUILDING
1155 PEACHTREE STREET
ATLANTA, GA 30309
May 12, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: First Liberty Financial Corp.
Registration on Form S-8
We are aware that our report dated May 12, 1995 on our review of interim
financial information of First Liberty Financial Corp. and Subsidiaries for the
three-month and six-month periods ended March 31, 1995, and included in the
Company's quarterly report on Form 10-Q for the quarter then ended is
incorporated by reference in to the Company's Form S-8 (File No. 33-24733).
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of the Act.
Coopers & Lybrand L.L.P.
23
