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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-14417
FIRST LIBERTY FINANCIAL CORP.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1680650
(State of incorporation) (I.R.S. Employer
Identification Number)
201 Second Street
Macon, Georgia 31297
(Address of principal executive offices, including zip code)
(912) 743-0911
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
Series B 6.00% Cumulative Convertible Preferred Stock
8 1/4% Convertible Subordinated Debentures Due August 1, 2005
Common Stock Purchase Rights
(Title of class)
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 and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. _______
The aggregate market value of the Registrant's outstanding Common
Stock held by non-affiliates of the Registrant on December 1, 1995
was $57,960,904. There were 3,961,998 shares of Common Stock
outstanding as of December 1, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 31, 1996 are incorporated by
reference in Part III hereof. Exhibit index appears on page 113.
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FIRST LIBERTY FINANCIAL CORP.
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Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1995
Item Page
Number Number
Part I
1. Business............................................ 3
2. Properties.......................................... 31
3. Legal Proceedings................................... 31
4. Submission of Matters to a Vote of Stockholders..... 32
4(A) Executive Officers of the Registrant................ 32
Part II
5. Market for Registrant's Common Stock and Related
Stockholder Matters................................. 34
6. Selected Financial Data............................. 35
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition............... 38
8. Financial Statements and Supplementary Data......... 62
9. Disagreements on Accounting and Financial Disclosure 107
Part III
10. Directors and Executive Officers of the Registrant.. 107
11. Executive Compensation.............................. 107
12. Stock Ownership of Certain Beneficial Owners and
Management.......................................... 107
13. Certain Relationships and Related Transactions...... 107
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................... 108
Signatures.......................................... 112
Index of Exhibits................................... 113
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PART I
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ITEM 1. BUSINESS
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Introduction
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First Liberty Financial Corp. ("First Liberty") is a savings and
loan holding company headquartered in Macon, Georgia which owns and
operates First Liberty Bank ("Liberty Bank") and its wholly-owned
subsidiary Liberty Mortgage Corporation ("Liberty Mortgage"). At
September 30, 1995, First Liberty had total assets of approximately
$919 million, total deposits of approximately $719 million and
stockholders' equity of approximately $71 million. Liberty Bank is
a federally chartered stock savings bank headquartered in Macon,
Georgia which serves Macon, Savannah and other Georgia cities
through its home office and 28 full service branch offices. Based
on total assets at September 30, 1995, Liberty Bank is the second
largest thrift institution headquartered in Georgia.
Throughout this document, reference to a year by number (i.e., not
preceded by a month and date) implies a fiscal year ended September
30.
In 1990, First Liberty undertook a long-term plan to reduce
nonperforming assets, to increase capital and to improve its core
earnings. Through the implementation of this plan, the ratio of
nonperforming assets to total loans and real estate owned has been
reduced from 7.27% at September 30, 1990 to 1.07% at September 30,
1995, the ratio of core capital to adjusted total assets has
increased from 3.49% at September 30, 1990 to 5.89% at September
30, 1995 and core earnings have improved from a loss of $4.2
million for the year ended September 30, 1990 to earnings of $8.1
million for the year ended September 30, 1995. See "Business and
Operating Strategy."
Through Liberty Mortgage, Liberty Bank also operates a mortgage
banking business in all of its market areas and through
correspondent relationships in several southeastern states.
Liberty Mortgage originates permanent first mortgage loans on
residential properties for Liberty Bank's portfolio and for sale in
the secondary market, in the form of securities as well as whole
loan sales. Liberty Mortgage retains the right to service such
loans for a fee ranging from 1/4% to 1/2% per year of the
outstanding principal amount of the loans serviced or may sell the
right to others for a multiple of the annual service fee. Liberty
Mortgage thereby enables Liberty Bank to generate additional
permanent residential mortgage loans as well as to increase its
loan servicing portfolio. During fiscal 1995, Liberty Mortgage
originated approximately $161 million of permanent residential
mortgage loans. Liberty Mortgage's loan servicing portfolio was
approximately $854 million at September 30, 1995, including
approximately $233 million of loans serviced for Liberty Bank. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Non-Interest Income" - herein.
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Business and Operating Strategy
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First Liberty's strategic objective has been to enhance stockholder
value. First Liberty achieved this objective by increasing core
earnings through internal growth and acquisitions while maintaining
and improving operational efficiency without compromise to safety,
credit quality or capital adequacy. The major components of the
strategic plan which will be followed in fiscal 1996 are as
follows:
Safety - First Liberty plans to continue to conduct its
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operations consistent with safe and prudent banking practices,
in compliance with all applicable laws and regulations.
Capital Adequacy - During 1993, Liberty Bank received from the
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regulatory authorities a "well-capitalized" rating as defined
by applicable regulations, and maintained this rating
throughout 1995. Liberty Bank will seek to maintain capital
adequacy primarily through the retention of earnings,
supplemented as needed through capital offerings. See
"Acquisitions," herein.
Credit Quality - First Liberty intends to further reduce the
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level of its nonperforming and other classified assets. To
maintain the current trend of reduced problem assets, First
Liberty will continue to commit significant resources to the
credit administration and credit review functions to insure
continued adherence to credit policies and underwriting
standards.
Loss Reserves - First Liberty intends to maintain loan and
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other loss reserves at conservative levels.
Operating Efficiency - First Liberty will strive to be a low
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cost provider of financial services through improved operating
efficiency. Operating/staff functions will be conducted on
a centralized basis while the business development functions
will be decentralized to enhance customer service. These
efforts will be focused to absorb excess capacity of existing
resources, to promote profitable growth and to improve
investment returns.
Growth - Without compromising the above objectives, First
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Liberty will strive to expand Liberty Bank's market share in
its middle, south and coastal Georgia market areas through
internal growth and selected acquisitions. First Liberty
believes that acquisitions of thrifts or banks (or of their
assets and deposits) in existing or contiguous markets
represent a low cost method of expanding Liberty Bank's market
share, broadening its franchise and improving its operating
efficiencies. See "Acquisitions," herein.
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Acquisitions
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On September 15, 1995, the Company acquired by merger Tifton Banks,
Inc. ("Tifton") of Tifton, Georgia, and its subsidiary, Tifton Bank
& Trust Company ("Tifton Bank"). Tifton Bank on the date of
acquisition held the following approximate balances: loans of $42
million, cash and investments of $21 million, premises and
equipment of $1 million and deposits of $45 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 a
commercial 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.
On December 2, 1994, the Company acquired by merger Central Banking
Company ("CBC") of Swainsboro, Georgia, and its subsidiary, The
Central Bank ("Central Bank"). Central Bank 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.
In March 1993, Liberty Bank acquired six branch offices, located in
supermarkets in Savannah, Georgia, from another institution.
Liberty Bank operated four branches in Savannah prior to the
acquisition. Total assets acquired by Liberty Bank were
approximately $7 million and total deposits assumed were
approximately $38 million. Intangible assets resulting from the
acquisition amounted to approximately $1 million.
On December 11, 1992, the Company acquired First Federal Savings
and Loan Association, Milledgeville, Georgia ("First Federal") in
a supervisory conversion for a cash purchase price of $1,000.
First Federal, on the date of acquisition, held loans and mortgage-
backed securities of approximately $32 million, cash and
investments of approximately $6 million, premises and equipment
with a value of approximately $1 million, deposits of approximately
$38 million, and other borrowings of approximately $3 million.
Intangible assets resulting from the acquisition amounted to
approximately $449,000.
Issuance and Redemption of Convertible Preferred Stock
- ------------------------------------------------------
On December 2, 1994 and September 15, 1995, in connection with the
acquisitions of Tifton and CBC, the Company issued $7.6 million in
Series B 6.00% Cumulative Convertible Preferred ("Series B") stock.
The shares have a liquidation preference of $25.00 per share.
Dividends on the Series B stock are cumulative at an annual rate of
$1.50 per share and are payable quarterly. Each share of the
Series B stock is convertible at the option of the holder into 1.19
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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 Series B stock at any
time on or after January 1, 1997.
On February 16, 1993, First Liberty issued 460,000 shares of Series
A 7.75% Cumulative Convertible Preferred ("Series A") stock which
raised approximately $10.5 million in equity. The Series A
provided for cumulative cash dividends payable quarterly at the
rate of $1.9375 per share per annum. A share of Series A was
convertible at the option of the holder into two shares of First
Liberty Common Stock.
On July 31, 1995 the Company redeemed 2,537 shares of Series A for
$66,879, plus accrued and unpaid dividends. The remaining 457,463
shares of the Series A were converted into 914,926 shares of the
Company's common stock, at a conversion price of $12.50 per share
of common stock.
Balance Sheet Restructuring
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During the fourth quarter of fiscal 1991, First Liberty
restructured its balance sheet through an exchange offer to holders
of First Liberty 8-1/4% Convertible Subordinated Debentures due
August 1, 2005. Pursuant to the exchange offer, debentures in an
aggregate principal amount of approximately $22.0 million or 97% of
all outstanding debentures were tendered in exchange for 997,040
shares of Common Stock and $16.5 million aggregate principal amount
of new debt securities. As a result of the exchange, First Liberty
recorded a gain of $3.2 million, net of related income taxes, on
the extinguishment of the debentures tendered in the exchange,
reduced its interest rate risk and increased Liberty's core capital
by $8.1 million.
Lending Activities
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General
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Liberty Bank originates loans primarily in Macon, Savannah and the
other Georgia cities in which its offices are located, and through
a loan production office specializing in residential real estate
construction lending located in Atlanta. Even though Liberty Bank
is permitted by the Office of Thrift Supervision ("OTS") to
originate loans collateralized by real estate located anywhere in
the United States, it concentrates its lending activities in the
primary market areas in which it operates. Liberty Mortgage
originates and operates through correspondent relationships to
purchase real estate loans in Alabama, Florida, Georgia, Kentucky,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia
principally for sale into the secondary market.
Federal laws and regulations prescribe the types and amounts of
loans which may be made by federal thrifts and generally permit
such institutions to make residential real estate loans, commercial
real estate loans, business loans, agricultural loans and consumer
loans.
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Economic conditions in First Liberty's banking markets are
generally consistent with Georgia markets other than metropolitan
Atlanta. The following table summarizes economic data relating to
the Macon and Savannah markets.
Macon MSA Savannah MSA
Population (1990) 281,103 242,622
% Change (1980-1990) 6.60% 10.00%
Households (1989) 106,300 92,300
% Change (1980-1989) 18.70% 19.70%
Personal income (1988)
% Earnings:
Goods related manufacturing 19.00% 21.10%
Service related retail trade 9.80% 10.20%
Service related services 19.30% 23.80%
Service related government 29.10% 16.30%
Unemployment rate (1989) 4.90% 5.20%
Per capita personal income (1988) $ 14,268 $ 14,641
Source: United States Bureau of the Census
First Liberty's local banking markets generally are served by major
interstate highways, rail and regional air service and in the case
of Savannah, a major Atlantic Ocean port facility. The employment
base includes federal and state government facilities,
manufacturing, health care, wholesale, retail, distribution and
service industries.
Most of First Liberty's banking regions contain large military
bases. In Middle Georgia, Robins Air Force Base is the largest
employer in the market area. While there are no current
indications of material reductions in personnel relating to any of
these bases, such developments could adversely affect First
Liberty.
Residential Real Estate Loans
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First Liberty's principal lending operation traditionally has been
the origination of residential permanent mortgage loans, and these
loans continue to represent a significant part of First Liberty's
lending activities. Both fixed rate and adjustable rate permanent
loans on residential properties currently are originated either for
sale in the secondary market or for the institution's loan
portfolio. The determination of whether loans originated are
available-for-sale or for portfolio is made at the time of borrower
application. Some loans originated for sale may be sold into
Liberty Bank's portfolio at the lower of cost or market. See "Loan
Sales and Purchases" - herein.
In the case of owner-occupied single-family residences, First
Liberty may make permanent residential mortgage loans for up to 95%
of the appraised value of the property. Loans on non-owner
occupied real estate of not more than four family units, generally
are made for up to 75% of the appraised value. All conventional
loans with loan-to-value ratios in excess of 80% generally have
private mortgage insurance covering that portion of the loan in
excess of 70% of the appraised value. The borrower pays the cost
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of this insurance either through a single premium paid at the time
of loan origination or through a monthly payment during the term of
the loan. The borrower also generally makes monthly payments into
an escrow account equal to 1/12 of the annual hazard insurance
premiums and property taxes on the property which secures the loan.
Interest rates and loan fees charged on loans originated are
competitive with other financial institutions in First Liberty's
general market areas.
First Liberty has offered, in addition to fixed rate residential
loans, a variety of loans on which the interest rate and payment
may be adjusted provided that the adjustments are tied to specified
indices. These adjustable rate mortgage loans ("ARMs") permit
greater flexibility in adjusting loan yields to changes in the cost
of funds. ARMs generally have loan terms up to 30 years with rate
adjustments ranging from one to three years during the term of the
loan. Most ARMs have caps on the maximum amount of change in the
interest rate at any adjustment period and over the life of the
loan.
Liberty Bank also provides interim construction financing for
single-family residences and makes land acquisition and development
loans on properties intended for residential use. Liberty Bank's
general policy is to grant single family construction loans and
land acquisition and development loans up to 80% of the appraised
value of the property. Residential construction loans are made for
periods of one year or less, and land acquisition and development
loans are made for periods of up to five years, both on an
interest-only basis. These periods may be extended subject to
negotiation of terms. Typically, interest rates on construction
and acquisition and development loans are indexed to the prime rate
and are adjustable daily during the term of the loan.
Commercial Real Estate Loans
- ----------------------------
Federally chartered thrifts are permitted to invest in non-
residential real estate loans so long as such loans do not exceed
400% of capital. Liberty Bank is conservative in granting loans of
this nature choosing to limit this type of lending to its primary
banking markets, to customers with proven track records and strong
credit histories, and to projects that are soundly underwritten.
Interim construction and permanent commercial real estate loans are
secured by owner-occupied businesses, commercial and industrial
properties, apartment projects, office buildings, shopping centers
and other properties located in Liberty Banks's primary banking
markets. Construction and permanent commercial real estate loans
are underwritten with the primary analysis focusing on the adequacy
of net operating income and cash flow being available to provide
debt service. These loans are generally made for up to 75% of the
appraised value of the property in conformity with the guidelines
found in the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA").
Consumer Loans and Indirect Lending
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Federally chartered thrifts are authorized to make both secured and
unsecured consumer loans for personal or household purposes in
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amounts up to 30% of the institution's total assets. At September
30, 1995, these types of consumer loans constituted 15% of Liberty
Bank's total assets. In addition, these institutions have lending
authority above the 30% limit for certain consumer loans, such as
home equity loans, property improvement loans, mobile home loans
and education loans.
Liberty Bank currently purchases consumer loans secured by new and
used automobiles and recreational vehicles from approximately 80
select dealers in its banking markets on a non-recourse basis
("indirect loans"). At September 30, 1995, indirect loans
constituted $124 million or 19% of the total loan portfolio, or
approximately 63% of Liberty Bank's consumer loan portfolio. This
compares to total indirect loans of $111 million or 22% of the
total loan portfolio, or 71% of the consumer loan portfolio at
September, 30, 1994. Liberty Bank intends to continue prudent
expansion of its consumer lending activities, including indirect
lending activities, subject to market conditions, as part of its
strategy to provide a full range of banking products and services
to its clients.
Commercial/Business Loans
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Liberty Bank makes various types of commercial loans to
creditworthy borrowers within Liberty Bank's primary banking market
areas for financing equipment purchases, capital projects, working
capital and other legitimate business needs. The terms of these
loans range generally from three months to fifteen years, with the
longer maturities generally subject to balloon payments. These
loans normally carry interest rates indexed to the prime rate.
Liberty Bank is authorized by federal law to make secured and
unsecured loans for business or agricultural purposes in amounts
aggregating no more than 10% of its total assets. Additionally,
some business loans secured by nonresidential real estate are
subject to a separate limit, see "Commercial Real Estate" - herein.
Commercial business loans subject to the 10% limitation represented
4.9% of total assets.
Loan Originations and Processing
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Liberty Mortgage actively solicits mortgage loan applications from
existing customers, local real estate agents, builders, developers
and others. Additionally, numerous loan applications are received
as a result of media advertising, customer referrals and from walk-
in customers at loan production offices.
Liberty Bank has a structured loan approval process in which
lending authority for various types and amounts of loans is
delegated by the Board of Directors to loan officers on a basis
commensurate with seniority and lending experience. Liberty Bank
has a Senior Loan Committee which must approve loans in amounts
above $500,000 and up to $3 million. Liberty Bank's Board of
Directors regularly reviews and ratifies the actions of the Senior
Loan Committee and must approve any loan relationship of $3 million
or more.
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Loan Sales and Purchases
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Permanent first mortgage loans on residential properties are
originated for sale to the secondary market and for investment.
Liberty Mortgage originates and purchases loans on residential
properties through correspondent relationships with lenders in
Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina,
South Carolina, Tennessee and Virginia. These correspondents
provide approximately one-half of Liberty Mortgage's total loan
production. These correspondents are banks, savings institutions
and mortgage bankers and brokers.
Secondary market sales, which are without recourse, are made to the
Federal National Mortgage Association ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC") and other institutional
investors. Such loan sales may be made with servicing rights
retained by Liberty Mortgage or with servicing rights released.
The FNMA and the FHLMC are government-sponsored agencies which
purchase residential mortgage loans from federally-insured
financial institutions and certain other approved lenders. As
market conditions dictate, Liberty Bank may elect to hold permanent
mortgage loans in its portfolio, where favorable spreads over the
cost of funds make these investments advantageous.
While most loans in the portfolio are originated internally,
conventional loans and loan participations secured by residential
real estate located within and outside of the state of Georgia and
mortgage-backed securities representing interests in pools of
mortgage loans guaranteed by the Government National Mortgage
Association ("GNMA"), the FNMA and the FHLMC are purchased by
Liberty Bank. Liberty Bank will from time to time sell other loans
and mortgage-backed securities which are available-for-sale when
such investments become inconsistent with its business strategies.
See "Investment Activities" - herein.
Fee Income
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In addition to interest earned on loans, Liberty Bank and Liberty
Mortgage receive loan fees for originating mortgage and non-
mortgage loans and servicing fees for continuing to service loans
(i.e., collecting principal and interest payments on behalf of
investors) after selling such loans to the secondary market. Loan
fees generally are payable upon the closing of the loan in amounts
ranging from 1% to 3% of the principal amount of the loan.
Servicing fees are payable monthly by the loan purchaser in an
amount equal to 1/4 to 1/2 of 1% per annum of the unpaid principal
balance of each loan. As of September 30, 1995, Liberty Mortgage
serviced loans for Liberty Bank and for others aggregating
approximately $854 million. Liberty Bank may also receive
commitment fees in connection with certain commitments on multi-
family commercial and development loans. Other loan fee income
includes fees from late payment charges, prepayment premiums, loan
assumption fees, property transfer fees and miscellaneous services
related to its loans.
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Credit Risk Management and Allowance for Loan Losses
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Liberty Bank has a multi-faceted program designed to control and
continually monitor the credit risks inherent in its loan
portfolio. This begins with a structured loan approval process in
which authority for various types and amounts of loans is delegated
by the Board of Directors to loan officers on a basis commensurate
with seniority and lending experience. See "Loan Originations and
Processing" - herein.
Liberty Bank uses an asset classification system which is
consistent with OTS regulations, which apply to all assets of an
insured institution and require each institution to periodically
classify its assets. There are four categories of classified
assets: Special Mention, Sub-Standard, Doubtful and Loss. The
classification of assets is subject to OTS review and re-
classification. Institutions must include aggregate totals of
classified assets, and general and specific valuation reserves in
quarterly reports to the OTS. Liberty Bank's loan classification
system utilizes both the account officer and an independent loan
review function to monitor the classification of Liberty Bank's
loans. The account officer is charged with the responsibility of
monitoring changes in loan quality within his or her loan portfolio
and reporting changes directly to loan review and senior
management. Additionally, loan review performs an independent
review of Liberty Bank's loans to determine that the appropriate
risk grade has been assigned to each borrowing relationship.
Liberty Bank's policy requires an annual review of all borrowing
relationships exceeding $100,000 in aggregate and a report of the
results of these reviews to the Board of Directors. Delinquencies
are monitored on all loans as a basis for potential inclusion in
general valuation reserves or, ultimately, for potential charge-
off. Loans which are delinquent 90 days (four payments) or longer
generally are placed on nonaccrual status unless the collectibility
of accrued interest is assured beyond a reasonable doubt. In some
cases, loans less than 90 days (four payments) delinquent are
placed on nonaccrual where uncertainty exists as to their
collectibility. Real estate acquired through foreclosure is
classified as sub-standard unless there is sufficient evidence to
indicate such classification is not warranted. A portfolio of
mortgage-backed securities are all guaranteed by either the GNMA,
the FNMA, the FHLMC, or investment grade private issuers and are
therefore not generally subject to any material risk of collateral
loss. Similarly, the portfolio of investment securities is
comprised of U.S. Government obligations of the Federal Home Loan
Bank ("FHLB") of Atlanta and investment grade corporate debt
securities.
Loan loss reserves are determined based on management's internal
review of nonperforming loans, delinquency trends, the level of
rated assets and charge-off trends. Additionally, management
assesses general and specific economic trends both nationally and
locally and regulatory information to determine the impact of those
external factors on loan loss reserve levels.
Based on the internal and external reviews, Liberty Bank segregates
its loan portfolio by type of loans and by loan classification
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within each loan type. Reserve percentages are applied (based on
historical and anticipated loss rates) to each loan group to
determine the required amount of allocated general loan loss
reserves. Additionally, an amount is provided for unallocated
general loan loss reserves, reflecting the potential for estimation
errors in allocated reserves.
See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Loan Loss Provision and
Allowance for Loan Losses and Nonperforming Assets and Credit Risk"
- - herein.
Interest Rate Risk
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Interest rate sensitivity is a measure of exposure to changes in
net interest income due to changes in market interest rates. The
interest rate sensitivity differential (known as "gap"), is the
difference between interest rate sensitive assets and interest rate
sensitive liabilities over a specified period of time and
represents a measure of sensitivity of net interest income to
changes in interest rates. A positive gap indicates an excess of
rate sensitive assets over rate sensitive liabilities, while a
negative gap indicates an excess of rate sensitive liabilities over
rate sensitive assets.
Liberty Bank operates under an interest rate risk policy through an
Asset Liability Management Committee ("ALCO"). The policy outlines
limits on interest rate risk in terms of changes in net interest
income and changes in the net market values of assets and
liabilities over certain changes in interest rate environments.
These measurements are made through a cash flow simulation model
which projects the impact of changes in interest rates on Liberty
Bank's assets and liabilities. Additionally, the committee may set
additional interest rate risk objectives.
The policy also outlines responsibility for monitoring interest
rate risk, the process for the approval, implementation and
monitoring of interest rate risk strategies to achieve Liberty
Bank's interest rate risk objectives.
Liberty Bank also operates under a hedging policy and Liberty
Mortgage also operates under a secondary marketing policy. The
hedging policy applies to Liberty Bank's use of forward
commitments, interest rate swaps, interest rate caps and floors and
other similar hedging instruments. Liberty Bank's ALCO is
responsible for implementation of the policy. The policy outlines
authorized objectives, sets limits on activities, outlines the
responsibilities for approval, implementation and monitoring of
hedging activities. For the three years ended September 30, 1995,
Liberty Bank did not engage in any transactions under its hedging
policy.
The secondary marketing policy applies to the use of forward
commitments ("coverage") by Liberty Mortgage to hedge market
exposure in the pipeline of loans originated for sale. Liberty
Mortgage's secondary marketing committee is responsible for the
implementation of the policy. The policy outlines acceptable
hedging instruments, sets limits on the maximum exposure to risk
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and outlines authority and responsibilities for the implementation
of the policy. Pursuant to the policy, Liberty Mortgage holds
coverage equal to at least 100% of estimated risk exposure.
Both the hedging policy and the secondary marketing policy prohibit
speculation and prohibit the use of futures contracts and options
on futures contracts.
Investment Activities
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Income from investments in securities provides the second largest
source of interest income after interest on loans. Federal
regulations require Liberty Bank to maintain a minimum amount of
liquid assets which may be invested in specified short-term
securities but also permits certain other investments.
Investment decisions are made by authorized officers under the
supervision of Liberty Bank's Board of Directors pursuant to its
investment policy. Brokers ("counterparties") approved by the
Board of Directors are used to effect securities transactions. The
investment policy outlines the criteria for monitoring Liberty
Bank's counterparties.
Under the investment policy, assets held to meet Liberty Bank's
liquidity requirement are classified as available-for-sale due to
the reasonable possibility of liquidation prior to maturity.
Additionally, all other securities have also been classified as
available-for-sale based on management's determination that such
assets may be liquidated prior to maturity. Liberty Mortgage
classifies all loans originated as available-for-sale unless
originated pursuant to a specific portfolio commitment to Liberty
Bank. All other loans are considered held-for-investment unless
specifically classified otherwise. As of September 30, 1995, $213
million or 23% of First Liberty's earning assets were classified as
available-for-sale.
At September 30, 1995, Liberty Bank's investment portfolio,
consisted of government agency debt and equity securities of
investment grade and Federal Home Loan Bank stock. Additionally,
Liberty Bank holds investments in mortgage-backed securities.
During 1991, Liberty Bank engaged a strategy to reduce interest
rate risk which involved the sale of all GNMA mortgage-backed
securities which were available-for-sale. All assets subject to
the program were sold during fiscal 1992.
See Note 4 of Notes to First Liberty's Consolidated Financial
Statements contained in Item 8 - "Financial Statements and
Supplementary Data" - herein.
Sources of Funds
- ----------------
General
- -------
Savings accounts and other types of deposits are the major source
of funds for lending and other investment purposes. In addition to
deposits, Liberty Bank obtains funds from loan principal
repayments, proceeds from sales of loans and loan participations,
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<PAGE> 14
advances from the FHLB of Atlanta, and repurchase agreements. Loan
repayments are a relatively stable source of funds while deposit
inflows and outflows and sales of loans and investment securities
are significantly influenced by prevailing interest rates and
economic conditions. Borrowings may be used to compensate for
reductions in normal sources of funds or to support expanded
lending activities. Liberty Bank's unused borrowing capacity with
the FHLB of Atlanta at September 30, 1995 was approximately $73.5
million in advance and warehouse lines of credit. Additionally,
Liberty Bank has approximately $15 million in fed fund lines with
correspondent banks.
Deposits
- --------
Liberty Bank offers a variety of savings programs and related
services. Deposits are obtained primarily from the communities in
which its offices are located. Liberty Bank does not advertise
outside of these areas.
For further details as to the composition of Liberty Bank's savings
portfolio, see Item 7 - "Management's Discussions and Analysis of
Results of Operations and Financial Condition" - herein.
Borrowings
- ----------
Deposits are the primary source of funds for lending and investment
activities and for its general business purposes. However, Liberty
Bank periodically obtains additional funds by borrowing from the
FHLB of Atlanta and through repurchase agreements entered into with
various counterparties whose creditworthiness has been approved by
Liberty Bank's Board of Directors. These borrowing activities are
conducted pursuant to Liberty Bank's borrowed funds policy. The
policy outlines the responsibilities and limits of authority, the
use of collateral and safekeeping, and sets limits on Liberty
Bank's credit exposure to counterparties. Additionally, Liberty
Bank has outstanding approximately $17.2 million principal amount
of subordinated debt securities as of September 30, 1995.
See Item 7 - "Management's Discussions and Analysis of Results of
Operations and Financial Condition" - herein. Also see Notes 10,
11, and 12, of Notes to First Liberty's Consolidated Financial
Statements contained in Item 8 - "Financial Statements and
Supplementary Data" - herein.
Competition
- -----------
Based on total assets of approximately $919 million at September
30, 1995, Liberty Bank is the second largest savings institution
headquartered in Georgia, as measured by total assets. Liberty
Mortgage, with total permanent mortgage originations of
approximately $161 million for the year ended September 30, 1995,
ranked as one of the larger mortgage banking companies in terms of
dollar volume in Georgia.
Liberty Bank and Liberty Mortgage face substantial competition for
deposits and loans throughout their market areas. Liberty Bank
considers Macon, Savannah, and the other smaller Georgia cities in
which its offices are located to be the primary market areas for
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<PAGE> 15
attracting deposits, while Liberty Mortgage considers those markets
and metropolitan Atlanta its primary market areas for originating
mortgage loans. Additionally, Liberty Mortgage offers mortgage
loans in Alabama, Florida, Kentucky, Mississippi, North Carolina,
South Carolina, Tennessee and Virginia through its wholesale loan
origination operation. The most significant factors in competing
for deposits are interest rates, the quality and range of financial
services offered, convenience of office locations and office hours.
Competition for deposits comes primarily from other savings
institutions, commercial banks, money market funds and other
investment alternatives. Additionally, competition for deposits
comes from various types of corporate and government borrowers
(including, among others, insurance companies) and credit unions.
The primary factors in competing for loans are interest rates,
discount points, loan fees and the quality and range of lending
services offered. Competition for origination of mortgage loans
comes primarily from other savings institutions and mortgage
banking firms, mortgage brokers, commercial banks and insurance
companies.
Various states in the Southeastern region, including Georgia, have
enacted regional interstate banking laws which permit banks and, in
some states such as Georgia, savings institutions, to acquire
financial institutions in other states within the region. As a
result of such laws there have been major interstate acquisitions
involving Georgia financial institutions which have offices in
Liberty Bank's service area but are headquartered in other
Southeastern states. The effect of such acquisitions (and of the
possible increase in the size of the financial institutions in
Liberty Bank's market area) may be to further increase the
competition faced by Liberty Bank. Pursuant to a recent OTS policy
statement, savings institutions are permitted to branch or merge
across state lines.
Employees
- ---------
At November 30, 1995, First Liberty had 416 full-time employees and
43 part-time employees. All officers and other personnel serving
First Liberty are employed and compensated by Liberty Bank and
Liberty Mortgage. No employees are covered by a collective
bargaining agreement, and management considers its relations with
its employees to be good.
Supervision and Regulation
- --------------------------
General
- -------
First Liberty is a savings and loan holding company subject to
regulation, examination, supervision and reporting requirements of
the OTS. As a federally chartered savings institution, Liberty
Bank is subject to extensive regulation by the OTS. The lending
activities and other investments of Liberty Bank must comply with
various federal regulatory requirements. The OTS periodically
examines Liberty Bank and Liberty Bank must file periodic reports
with the OTS describing its activities and financial condition.
Liberty Bank is also subject to examination by the Federal Deposit
Insurance Corporation ("FDIC") and must meet certain reserve
15
<PAGE> 16
requirements promulgated by the Federal Reserve Board ("FRB").
This supervision and examination is intended primarily to determine
compliance with various regulatory requirements and for the
protection of depositors.
The description of statutory provisions and regulations applicable
to savings institutions set forth herein does not purport to be a
complete description of such statutes and regulations and their
effects on First Liberty and Liberty Bank.
Legislation is pending in Congress which could result in the
conversion of all savings institution charters to bank charters and
in the merger of the OTS into the Office of the Comptroller of the
Currency, the federal agency which supervises national banks. It
is not possible to determine the likelihood of enactment of such
legislation or its effects upon Liberty Bank.
Federal Savings and Loan Holding Company Regulation
- ---------------------------------------------------
As the owner of all of the stock of Liberty Bank, First Liberty is
a savings and loan holding company subject to regulation by the OTS
under the Home Owners' Loan Act (the "HOLA"). As a unitary savings
and loan holding company owning only one savings institution, First
Liberty generally is allowed to engage and invest in a broad range
of business activities not permitted to commercial bank holding
companies or multiple savings and loans holding companies; provided
that Liberty Bank continues to qualify as a "qualified thrift
lender." See "- Regulation of Liberty Bank - Qualified Thrift
Lender Test" herein. In the event of any acquisition by First
Liberty of another savings association subsidiary, except for a
supervisory acquisition, First Liberty would become a multiple
savings and loan holding company and would be subject to
limitations on the types of business activities in which it could
engage.
First Liberty is prohibited from directly or indirectly acquiring
control of any savings institution or savings and loan holding
company without prior approval from the OTS or from acquiring more
than 5% of the voting stock of any savings institution or savings
and loan holding company which is not a subsidiary. Control of a
savings institution or a savings and loan holding company is
conclusively presumed to exist if, among other things, a person
acquires more than 25% of any class of voting stock of the
institution or holding company or controls in any manner the
election of a majority of the directors of the insured institution
or the holding company. Control is rebuttably presumed to exist
if, among other things, a person acquires 10% or more of any class
of voting stock (or 25% of any class of stock) and is subject to
any of certain specified "control factors."
16
<PAGE> 17
Recent Legislation
- ------------------
FDICIA made a number of reforms affecting the federal deposit
insurance funds and the operations of federally insured banks and
savings institutions and their affiliates. The principal
provisions of FDICIA affecting Liberty Bank include the Qualified
Thrift Lender Test (see "Regulation of Liberty Bank - Qualified
Thrift Lender Test" herein), restrictions on loans to insiders (see
"Regulation of Liberty Bank - Transactions with Affiliates"
herein), auditing and accounting requirements of savings
institutions, real estate lending requirements and the powers and
authority of the federal regulators, including the OTS (see
"Regulation of Liberty Bank - Capital Requirements" - herein).
In FDICIA, Congress delegated broad rulemaking powers and duties to
federal financial institution regulators, including the OTS. The
additional supervisory powers and regulations mandated by FDICIA
include a "prompt corrective action" program based upon five
regulatory categories in which all banks and thrifts are placed,
based in large measure on the capital position of the institution.
Regulators are empowered to take increasingly harsh action as the
financial condition of an institution declines. Various other
sections of FDICIA impose substantial new auditing and reporting
requirements and increase the role of independent accountants and
outside directors.
The Georgia Interstate Banking Act was amended in the 1994 session
of the General Assembly to eliminate, effective July 1, 1995, the
restrictions that limited eligible out-of-state acquirors of
Georgia banks and bank holding companies to those financial
institutions which held 80% of their total deposits within the
"Southern Region" comprised of 11 southern states plus the District
of Columbia. The amended Georgia Interstate Banking Act will
permit the acquisition of a Georgia financial institution or
holding company by any out-of-state bank holding company which has
its "principal place of business" in any state that would permit a
Georgia based bank holding company to acquire a bank in that state.
The 1994 amendments also include an "opt out" provision permitting
the board of directors of a Georgia bank or Georgia bank holding
company to adopt a resolution to except the institution from being
acquired by an out-of-state bank holding company pursuant to the
provisions of the Georgia Interstate Banking Act.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act was implemented, generally applying to commercial
banks and traditional savings banks, not to OTS regulated savings
associations. The Act allows bank holding companies, beginning one
year following the effectiveness of the legislation, to acquire
existing banks across state lines, regardless of state statutes.
Beginning in June 1997, a bank may consolidate interstate
subsidiaries into branches and merge with a bank across state lines
to the extent that the applicable states have not "opted out" of
17
<PAGE> 18
interstate branching prior to the effectiveness of the branching
provisions. States may elect to permit interstate mergers prior to
June 1997. The Act also would permit de novo branching to the
extent that a particular state opts into the de novo branching
provisions. The Act provides a concentration limitation with a
nationwide limitation of 10% of total deposits of insured
depository institutions in the United States and 30% of total
deposits of insured depository institutions in a specific state.
The Riegle Community Development and Regulatory Improvement Act of
1994 provides for the creation of a community development financial
institutions fund to promote economic revitalization in community
development. Banks and savings institutions are allowed to
participate in such community development banks. The Act also
contains provisions designed to enhance small business capital
formation and to enhance disclosure with regard to high cost
mortgages for the protection of consumers. The Act also contains
more than 50 regulatory relief provisions that apply to banks and
savings institutions including the coordination of examinations by
various federal agencies, coordination of frequency and types of
reports financial institutions are required to file and reduction
of examinations for well capitalized institutions.
Regulation of Liberty Bank
- --------------------------
Community Reinvestment Act
- --------------------------
The Community Reinvestment Act of 1977 ("CRA") requires the federal
bank regulatory agencies to encourage financial institutions to
meet the credit needs of low- and moderate-income borrowers in
their local communities. CRA regulations provide for certain
disclosure obligations. In accordance with the CRA, each
institution must prepare and make available a CRA Statement for
each of its local communities that includes a delineation of the
community served and a list of specified types of credit offered to
the community. Additionally, each lending institution must
maintain for public inspection, a public comment file that includes
written comments from the public on its CRA Statement or its
performance in meeting community credit needs.
On May 4, 1995, the federal bank regulatory agencies published
final amended regulations promulgated pursuant to the CRA. The
final regulations eliminate the 12 assessment factors under the
former regulation and replace them with performance tests.
Institutions are no longer required to prepare CRA Statements or
extensively document director participation, marketing efforts or
the ascertainment of community credit needs. Under the final rule,
an institution's size and business strategy determines the type of
examination that it will receive. Large, retail-oriented
institutions will be examined using a performance-based lending,
investment and service test. Small institutions will be examined
using a streamlined approach. Wholesale and limited purpose
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<PAGE> 19
institutions will be examined under a community development test.
All institutions have the option of being evaluated under a
strategic plan formulated with community input and pre-approved by
the applicable bank regulatory agency.
Public disclosure of written CRA evaluations of financial
institutions made by regulatory agencies is required under the CRA,
to promote enforcement of CRA requirements by providing the public
with the status of a particular institution's community
reinvestment record. Liberty Bank received a "satisfactory" rating
on the most recent performance evaluation of its CRA efforts by the
OTS.
Congress and various federal agencies responsible for implementing
fair lending laws have been increasingly concerned with
discriminatory lending practices. In March 1994, those federal
agencies announced a Joint Policy Statement detailing specific
discriminatory practices prohibited under the Equal Opportunity Act
and the Fair Housing Act. In the Policy Statement, three methods
of proving lending discrimination were identified: (i) overt
evidence of discrimination, where a lender blatantly discriminates
on a prohibited basis; (ii) evidence of disparate treatment, when
a lender treats applicants differently based upon a prohibited
factor, even where there is no showing that the treatment was
motivated by intention to discriminate; and (iii) evidence of
disparate impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect, even
where such practices are neutral in appearance and applied equally.
Lenders are particularly uncertain about the application of the
"disparate impact" criteria by virtue of the vague nature of the
Policy Statement. The Policy Statement notes that "the precise
contours of the law on disparate impact as it applies to lending
discrimination are under development."
Federal Home Loan Bank System
- -----------------------------
General
- -------
Liberty Bank is a member of the FHLB System, which consists of 12
regional FHLBs subject to supervision and regulation by the Federal
Housing Finance Board ("FHFB"). The FHLBs maintain central credit
facilities primarily for member institutions.
Liberty Bank, as a member of the FHLB of Atlanta, is required to
acquire and hold shares of capital stock in the FHLB of Atlanta in
an amount at least equal to the greater of: (i) 1% of the
aggregate outstanding principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations as
of the beginning of each year, (ii) 5% of its advances (borrowings)
from the FHLB of Atlanta, or (iii) $500. Liberty Bank is in
compliance with this requirement with an investment of $9.7 million
in FHLB of Atlanta stock at September 30, 1995.
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<PAGE> 20
Advances from Federal Home Loan Bank
- ------------------------------------
Each FHLB serves as a reserve or central bank for its member
institutions within its assigned regions. It is funded primarily
from proceeds derived from the sale of obligations of the FHLB
System. A FHLB makes advances (i.e., loans) to members in
accordance with policies and procedures established by its Board of
Directors. Liberty Bank is authorized to borrow funds from the
FHLB of Atlanta to meet demands for withdrawals of savings
deposits, to meet seasonal requirements and for the expansion of
its loan portfolio. Advances may be made on a secured or unsecured
basis depending upon a number of factors, including the purpose for
which the funds are being borrowed and existing advances. Interest
rates charged for advances vary depending upon maturity, the cost
of funds to the regional FHLB and the purpose of the borrowing.
As required by FIRREA, the FHFB adopted a final regulation on
October 15, 1991, establishing standards of community investment or
service for FHLB members to maintain continued access to long-term
advances. This Community Support Regulation ("CSR") requires a
FHLB review of a member's community support activities, including
the member's public evaluation under the CRA and information on
efforts to assist first-time home buyers. Members with
"outstanding" or "satisfactory" CRA evaluations generally will be
considered to have satisfied the community support requirements of
the CSR. Members with less satisfactory CRA ratings are required
to fulfill a community support action plan, with measurable goals
for the following year, in order to maintain eligibility for long-
term FHLB advances. Liberty Bank meets the standard for community
support under the CSR.
Liquidity Requirements
- ----------------------
Federal regulations require a member savings institution to
maintain an average daily balance of liquid assets (which includes
cash, certain time deposits, certain bankers' acceptances, certain
corporate debt securities and highly-rated commercial paper,
securities of certain mutual funds, balances maintained in a
Federal Reserve Bank and specified United States Government, state
or federal agency obligations) equal to a monthly average of not
less than a specified percentage, currently 5%, of its net
withdrawable accounts plus short-term borrowings. These
regulations also require each member institution to maintain an
average daily balance of short-term liquid assets at a specified
minimum percentage, currently 1%, of the total of its net
withdrawable accounts and borrowings payable in one year or less.
Liberty Bank complied with its requirements at September 30, 1995.
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<PAGE> 21
Insurance of Accounts
- ---------------------
General
- -------
Deposits at Liberty Bank are insured to a maximum of $100,000 for
each insured depositor by the FDIC. As an insurer, the FDIC issues
regulations, conducts examinations and generally supervises the
operations of its insured institutions (institutions insured by the
FDIC hereinafter are referred to as "insured institutions"). Any
insured institution which does not operate in accordance with or
conform to FDIC regulations, policies and directives may be
sanctioned for non-compliance. For example, proceedings may be
instituted against an insured institution if the institution or any
director, officer or employee thereof engages in unsafe or unsound
practices, including the violation of applicable laws and
regulations.
The FDIC has the authority to suspend or terminate insurance of
deposits upon the finding that the institution has engaged in
unsafe or unsound practices, is operating in an unsafe or unsound
condition, or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC. If insurance of accounts
is terminated by the FDIC, the deposits in the institution will
continue to be insured by the FDIC for a period of two years
following the date of termination. The FDIC requires an annual
audit by independent accountants and also periodically makes its
own examinations of insured institutions. The FDIC may revalue
assets of an institution based upon appraisals, and require
establishment of specific reserves in amounts equal to the
difference between such revaluation and the book value of the
assets.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") created the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF") as the two deposit
insurance funds under the FDIC, and provided that an insured
institution may not convert from one insurance fund to the other
without the advance approval of the FDIC. When a conversion is
permitted, each insured institution participating in the conversion
must pay an "exit fee" to the insurance fund it is leaving and an
"entrance fee" to the insurance fund it is entering.
FIRREA also provides, generally, that the moratorium on insurance
fund conversions shall not be construed to prohibit a SAIF member
from converting to a bank charter during the moratorium, as long as
the resulting bank remains a SAIF member during that period.
Similarly, FIRREA also provides that, under certain circumstances,
bank holding companies may merge or consolidate the assets and
liabilities of savings institutions with, or transfer such assets
and liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate federal banking agency and
the Federal Reserve.
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<PAGE> 22
Insurance Premiums and Regulatory Assessments
- ---------------------------------------------
As an insurer, the FDIC issues regulations, conducts examinations
and generally supervises the operations of its insured members.
FDICIA directs the FDIC to establish a risk-based premium system
under which premiums assessed against an insured institution would
generally depend upon the amount of its deposits and the risk that
it poses to the BIF or the SAIF. The FDIC is further directed to
set semiannual assessments for insured depository institutions to
maintain the reserve ratio of the SAIF at 1.25% of estimated
insured deposits. The FDIC may designate a higher reserve ratio if
it determines there is a significant risk of substantial future
loss to the particular fund. In September 1992, the FDIC approved
transitional risk-based assessment standards that remained in
effect from January 1, 1993 to January 1, 1994. In December 1992,
the FDIC proposed final regulations imposing a risk-based
assessment standard that is substantially the same as the
transitional rule. Under these risk-related insurance regulations,
an institution is classified according to capital and supervisory
factors. Institutions are assigned to one of three capital groups:
"well capitalized," "adequately capitalized" or "under
capitalized." Liberty Bank has been assigned to the "well
capitalized" risk classification group. Within each capital group,
institutions are assigned to one of three supervisory subgroups.
There are nine combinations of groups and subgroups (or assessment
risk classifications) to which varying assessment rates are
applicable. Although the deposits of Liberty Bank historically
have been SAIF-insured, recent bank acquisitions resulted in
Liberty Bank having approximately 30% of its deposits BIF-insured
and the remaining 70% SAIF-insured. FDIC assessment rates for
domestic deposits range from zero to $.31 per $100.
In addition to the payment of deposit insurance premiums to the
FDIC, savings institutions also must bear a portion of the
administrative costs of the OTS through an assessment based on the
level of total assets of each insured institution and which
differentiates between troubled and nontroubled savings
institutions. In 1995, Liberty Bank paid $155,000 to the OTS for
such assessments. Additionally, the OTS assesses fees for the
processing of various applications.
Qualified Thrift Lender Test
- ----------------------------
Historically, the amount of advances which might be obtained by a
member institution from the FHLB has been subject to the
institution's compliance with a qualified thrift lender ("QTL")
test. The QTL test generally requires that an institution maintain
65% of its total portfolio assets in qualified thrift investments.
This level must be maintained on a monthly average basis in nine
out of every twelve months. For purposes of the QTL test,
"portfolio assets" equal total assets minus (i) goodwill and other
intangible assets, (ii) the value of property used by an
22
<PAGE> 23
institution in the conduct of its business and (iii) assets of the
type used to meet liquidity requirements in an amount not exceeding
20% of the savings institution's total assets. "qualified thrift
investments" include (i) loans made to purchase, refinance,
construct, improve or repair domestic residential or manufactured
housing, (ii) home equity loans, (iii) securities backed by or
representing an interest in mortgages on domestic residential or
manufactured housing, (iv) obligations issued by the federal
deposit insurance agencies and (v) shares of FHLB stock owned by
the savings institution. Subject to a 20%-of-portfolio assets
limitation, qualified thrift investments also include 50% of the
dollar amount of domestic residential mortgage loans originated and
sold within 90 days of origination, consumer loans (up to a maximum
of 10% of portfolio assets), investments in certain subsidiaries,
loans for the purchase or construction of schools, churches,
nursing homes and hospitals, shares of stock issued by the FHLMC or
the FNMA and 200% of investments in loans for low-to-moderate
income housing and certain other community oriented investments.
A savings institution that does not meet the QTL test must either
convert to a bank charter or comply with the restrictions imposed
for noncompliance. If the institution converts to a bank charter,
it will continue to pay SAIF insurance assessments and any
applicable exit and entrance fees before converting to BIF
insurance. If the institution does not convert to a bank charter,
it must comply with the following additional restrictions on the
operations of the institution: (i) the institution may not engage
in any new activity or make any new investment, directly or
indirectly, unless such activity or investment is permissible for
both a national bank and a savings institution; (ii) the branching
powers of the institution shall be restricted to those of a
national bank; (iii) the institution generally will not be eligible
to obtain any advances from its FHLB; and (iv) payment of dividends
by the institution shall be subject to the rules regarding payment
of dividends by a national bank. A savings institution that has
not converted to a bank charter within three years after failing to
qualify as a QTL may not retain any investment or engage in any
activity not permitted for both a national bank and a savings
institution and must also repay all FHLB System advances. Liberty
Bank's qualified thrift investments as of September 30, 1995 were
$600 million, or 71% of its portfolio assets at that date. Liberty
Bank expects to remain in compliance with the QTL test.
Capital Requirements
- --------------------
OTS capital regulations promulgated pursuant to FIRREA became
effective on December 7, 1989, and established capital standards
applicable to all savings institutions. They include a core
capital requirement, a tangible capital requirement and a risk-
based capital requirement. Subject to certain exceptions and a
phase-in period, each of these capital standards must be no less
stringent than the capital standards applicable to national banks,
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<PAGE> 23
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 its
regulatory capital requirements at September 30, 1995 (dollars in
thousands):
Actual Required Excess
-------------- ------------- -------------
Amount % Amount % Amount %
------- ----- ------- ---- ------- ----
Core capital $53,610 5.89 $27,291 3.00 $26,319 2.89
Tangible capital 51,615 5.69 13,616 1.50 37,999 4.19
Risk-based capital 72,515 11.07 52,403 8.00 20,112 3.07
FDICIA establishes five classifications for institutions based upon
the capital requirements. Each appropriate federal 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.
Core Capital and Tangible Capital
- ---------------------------------
The OTS requires a savings institution to maintain "core capital"
in an amount not less than 3.0% of the savings institution's total
assets. Unless the OTS adopts a more stringent definition, "core
capital" means core capital as defined by the Office of the
Comptroller of the Currency for national banks (generally, common
stockholders' equity, noncumulative perpetual preferred stock and
related surplus, nonwithdrawable accounts and pledged deposits, and
minority interests in consolidated subsidiaries, less certain
intangible assets), less any unidentifiable intangible assets,
(except (i) purchased mortgage servicing rights valued at the lower
of 90% of fair market value, 50% of core capital, or the
unamortized book value and (ii) qualifying supervisory goodwill)
and investments in certain "non-permissible subsidiaries" as
determined by regulation. The amortized book value of Liberty
Mortgage's purchased mortgage servicing rights at September 30,
1995 was $2.1 million. Of this amount, none was excluded from core
capital. The amount of qualifying supervisory goodwill that may be
included in core capital will be phased-out between January 1992
and January 1995. At September 30, 1995, Liberty Bank had no
supervisory goodwill.
The tangible capital requirement requires a savings institution to
maintain tangible capital in an amount not less than 1.5% of its
adjusted total assets. "Tangible capital" means core capital less
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<PAGE> 25
(i) any intangible assets (including supervisory goodwill, but not
including readily marketable purchased mortgage servicing rights
included in core capital) and (ii) investments in certain "non-
permissible" subsidiaries.
Prior to July 1994, a declining percentage of the aggregate amount
of investments in and extensions of credit to a savings
institution's subsidiaries engaged in activities not permissible
for a national bank, with certain exceptions, may be included in
capital. Commencing July 1, 1994, however, such investments and
extensions of credit generally must be deducted from the savings
institution's capital in determining compliance with the capital
requirements. Liberty Bank had no investments in non-permissible
activities at September 30, 1995.
Most national banks will be required to maintain a level of core
capital of at least 100 to 200 basis points above the 3.0% minimum
level. Because OTS capital standards may not be less stringent
than those for national banks, savings institutions will be
required to maintain core capital levels at least as high as
national banks. At September 30, 1995, Liberty Bank's core capital
was 5.89%.
Risk-Based Capital
- ------------------
The OTS capital regulations require savings institutions to
maintain a ratio of total capital to total risk-weighted assets of
8.0%. In determining total risk-weighted assets for purposes of
the risk-based capital requirements, (i) each off-balance sheet
item must be converted to an on-balance sheet credit equivalent
amount by multiplying the face amount of each such item by a credit
conversion factor ranging from 0% to 100% (depending upon the
nature of the item); (ii) the credit equivalent amount of each off-
balance sheet item and each on-balance sheet asset must be
multiplied by a risk factor ranging from 0% to 100% (again
depending on the nature of the item); and (iii) the resulting
amounts are added together and constitute total risk-weighted
assets. A proposed OTS modification of this regulation would
discontinue consideration of the factor described in clause (i),
above, in determining total risk-weighted assets for purposes of
the risk-based capital requirements. Total capital, for purposes
of the risk-based capital requirement, equals the sum of core
capital plus supplementary capital, which includes, among other
things, cumulative preferred stock, mandatory convertible
securities, subordinated debt and allowance for loan and lease
losses of up to 1.25%. The amount of supplementary capital
counted towards satisfaction of the total capital requirement may
not exceed 100% of core capital, and OTS regulations require the
maintenance of a minimum ratio of core capital to total risk-
weighted assets of 4.0%. As of September 30, 1995, Liberty Bank's
ratio of core capital to total risk-weighted assets was 8.18%.
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<PAGE> 26
FDICIA directs the OTS and other federal banking agencies to revise
their risk-based capital standards to ensure that the standards (i)
take adequate account of interest rate risk, concentration of
credit risk and the risks of nontraditional activities, and (ii)
reflect the actual performance and expected risk of loss of
multifamily mortgages.
In response to this directive, in September 1992 the OTS revised
its proposed rulemaking relating to the interest rate risk
component of the risk-based capital standard (originally proposed
on December 31, 1990) and on August 31, 1993, the OTS issued its
final regulation effective as of January 1, 1994.
In the final rule, institutions with an "above-normal" degree of
interest rate risk will be required to maintain an additional
amount of capital. The test of "above-normal" is determined by
postulating a 200 basis point shift (increase or decrease) in
interest rates and determining the effect on the market value of an
institution's portfolio equity. If the decline is less than 2% of
the estimated present value of assets, no addition to risk-based
capital is required (i.e., an institution has only a normal degree
of interest rate risk). If the decline is greater than 2%, the
institution must add additional capital equal to one-half the
difference between its measured interest rate risk and 2%
multiplied by the market value of its assets. Management believes
that Liberty Bank's interest rate risk is within the normal range.
Although the OTS has solicited comments in anticipation of its
rule-making to address concentration of credit risk and the risks
of non-traditional activities, it has not yet proposed any
regulations governing these matters. Until such regulations are
promulgated, it is difficult to predict their effect on Liberty
Bank.
Capital Distributions
- ---------------------
In addition to the above restrictions, the OTS has issued a
regulation limiting "capital distributions" by OTS-regulated
savings institutions (the "Capital Distribution Regulation").
Capital distributions are defined to include, in part, dividends,
stock repurchases and cash-out mergers. The Capital Distribution
Regulation permits a "Tier 1" association to make capital
distributions during a calendar year up to the higher of (i) 100%
of its net income to date plus the amount that would reduce by one-
half its surplus capital ratio at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four-
quarter period. Any distributions in excess of that amount require
prior OTS notice, with the opportunity for the OTS to object to the
distribution. A Tier 1 association is defined as an association
that has, on a pro forma basis after the proposed distribution,
capital equal to or greater than the OTS fully phased-in capital
requirements. An association meeting the Tier 1 capital criteria
but that has been notified that it is in need of more than normal
26
<PAGE> 26
supervision will be treated as a Tier 2 or Tier 3 association
unless the OTS determines that such treatment is not necessary to
ensure the association's safe and sound operation.
A "Tier 2" association is authorized, without OTS approval, to make
capital distributions during a calendar year up to 75% of its net
income over the most recent four-quarter period if its current
capital satisfies its current risk-based capital requirement. Any
prior distributions by a Tier 2 association in the preceding four
quarters must be deducted from the total amount of distributions
allowable, and any distribution in excess of these amounts must be
approved in advance by the OTS. A Tier 2 association is an
association that has, on a pro forma basis after the proposed
distribution, capital equal to or in excess of its minimum capital
requirement but does not meet the fully phased-in capital
requirement. The current minimum risk-based capital requirement
applicable to savings institutions is 8%.
A "Tier 3" association is not authorized to make any capital
distribution without prior written approval from the OTS, unless
the capital distribution is consistent with the association's
capital plan filed with and approved by the OTS. A Tier 3
association is defined as an association that has current capital
less than its minimum capital requirement.
The capital distribution regulation requires that associations
provide the applicable OTS District Director with a 30-day advance
written notice of all proposed capital distributions, whether or
not advance approval is required by the regulation.
Liberty Bank currently is in compliance with regulatory capital
requirements and therefore is a Tier 1 institution. However, First
Liberty and the FHLBB entered into an agreement in connection with
the holding company approval process which restricted Liberty Bank
from declaring or paying cash dividends to First Liberty without
prior written approval if the dividends to be paid in any year
would exceed 50% of net income for the fiscal year in which the
dividend is declared (except that permitted dividends may be
deferred and paid in a subsequent year), or if the payment of such
dividends would cause regulatory capital to be reduced below the
amount required for the "liquidation account" set up for "eligible
account holders" at the time Liberty Bank converted from a mutual
to a stock institution. The capital distribution regulation states
that no institution may make a capital distribution which would be
prohibited by any agreement between the institution and the OTS
without the prior written approval of the OTS. The OTS has
indicated in commentary to the regulation that more restrictive
limitations of a dividend limitation agreement would continue to
govern capital distributions. Institutions subject to such
dividend limitation agreements may submit a written notice to the
OTS for a determination of whether capital distributions will be
governed by the capital distribution regulation or a pre-existing
27
<PAGE> 28
dividend limitation agreement. Earnings appropriated to bad debt
reserves established for federal income tax purposes may not be
used for the payment of dividends without potential adverse tax
consequences. See "Taxation" herein.
Federal Reserve System Requirements
- -----------------------------------
The FRB requires depository institutions to maintain non-interest-
bearing reserves against their deposit transaction accounts, non-
personal time deposits (transferrable or held by a person other
than a natural person) with an original maturity of less than one
and one-half years and certain money market deposit accounts.
Federal Reserve regulations currently require financial
institutions to maintain average daily reserves equal to 3% on all
amounts from $4.2 million to $54.0 million of net transactions,
plus 10% on the remainder. The balances maintained to meet the
reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the OTS. Members of the FHLB
System also are authorized to borrow from the FRB "discount window"
subject to restrictions imposed by FRB regulations. However,
Federal Reserve policy generally requires that a savings
institution exhaust its FHLB resources before borrowing from the
Federal Reserve.
Transactions with Affiliates
- ----------------------------
Liberty Bank is also subject to certain transactions with
affiliates rules applicable to banks and savings institutions which
are set forth in Sections 23A, 23B and 22(h) of the Federal Reserve
Act as well as additional limitations imposed by OTS regulations.
Such regulations generally impose quantitative and qualitative
limitations on loans and other transactions between an institution
and its affiliates, including loans to insiders.
Consumer Protection and Other Laws and Regulations
- --------------------------------------------------
Liberty Bank and Liberty Mortgage are also subject to various laws
and regulations dealing generally with consumer protection matters
including without limitation the Equal Credit Opportunity Act and
Regulation B, the Electronic Funds Transfer Act and Regulation E,
the Truth in Lending Act and Regulation Z, the Truth in Savings Act
and Regulation DD, the Expedited Funds Availability Act and
Regulation CC, the Bank Secrecy Act and fair housing laws. Liberty
Bank and Liberty Mortgage may be subject to potential liability
under these laws and regulations for material violations.
State Regulation
- ----------------
As a federally chartered savings institution, Liberty Bank
generally is not subject to those provisions of Georgia law
governing state chartered financial institutions or to the
jurisdiction of the Department of Banking and Finance ("DBF").
28
<PAGE> 29
However, the DBF interprets the Georgia Bank Holding Company Act to
require the prior approval of the DBF for any acquisition of
control of any savings institution (whether chartered by state or
federal authority) located in Georgia.
The DBF also interprets the Georgia Bank Holding Company Act to
include savings and loan holding companies as "bank holding
companies", thus giving the DBF the authority to make examinations
of First Liberty and any subsidiaries and to require periodic and
other reports. Existing DBF regulations do not restrict the
business activities or investments of First Liberty or Liberty
Bank.
State usury laws are applicable to federally insured institutions
with regard to loans made within Georgia. Generally speaking,
Georgia law does not establish ceilings on interest rates although
certain specialized types of lending in which Liberty Bank engages,
such as making loans of $3,000 or less, are subject to interest
rate limitations.
Taxation
- --------
Federal Taxation
- ----------------
First Liberty files a consolidated federal income tax return, which
has the effect of eliminating intercompany distributions, including
dividends, in the computation of consolidated taxable income.
Thrift institutions that meet certain definitional tests and other
conditions prescribed by the Internal Revenue Code of 1986 ("the
Code") are allowed to establish a bad debt reserve and to make
annual additions to the reserve that may be taken as a deduction in
computing taxable income for federal income tax purposes. One of
the tests is prescribed in Code Section 7701(a)(19) and requires
that at least 60 percent of a thrift institution's assets be
"qualifying" assets, as defined in that Section. Failure to meet
this test would result in recapture into taxable income the
thrift's tax bad debt reserve. Due to the significance of this
test, First Liberty monitors this test periodically to ensure that
its assets meet the 60 percent test. At September 30, 1995 Liberty
Bank's qualified assets were $616 million or 65.7% of includable
assets.
The amount of the bad debt reserve deduction is based upon either
(i) actual loss experience, or (ii) a percentage of taxable income
before such deduction. Under the taxable income method, thrift
institutions are permitted to deduct 8% of taxable income if used
for annual additions to their bad debt reserves established for
federal income tax purposes. For the years ended September 30, 1995,
1994, and 1993 Liberty Bank determined its bad debt reserve deduction
based on the actual loss experience method.
29
<PAGE> 30
The bad debt reserve deduction is available only to the extent that
total amounts accumulated in the bad debt reserve for qualifying
real property loans do not exceed 6% of such loans at year-end. In
addition, the deduction is further limited to the amount by which
12% of savings accounts exceeds the sum of retained earnings and
reserves at the beginning of the year. The bad debt reserve
deductions have not been limited by these restrictions during the
three fiscal years ended September 30, 1995, 1994 and 1993.
Earnings appropriated to bad debt reserves established for income
tax purposes cannot be used for any purpose other than to absorb
bad debt losses without recognition of taxable income. Dividends
may be paid out of unappropriated retained earnings without the
imposition of any tax to the extent that the amounts paid as
dividends do not exceed earnings and profits as calculated for
federal income tax purposes. First Liberty has a taxable temporary
difference relating to its bad debt reserves for which Liberty Bank
has not provided a deferred tax liability. The temporary
difference is the amount of the base year tax bad debt reserve
(i.e., tax bad debt reserves that arose in tax years beginning
before December 31, 1987). As of the year ended September 30,
1995, the cumulative amount of this temporary difference for which
First Liberty is not required to recognize a deferred tax liability
is approximately $12.0 million. The amount of the unrecognized
deferred tax liability related to this temporary difference is $4.1
million.
Legislation is pending in Congress which would repeal the method of
accounting for bad debts by thrift institutions, would provide that
pre-1988 reserves generally would not be recaptured, and would
provide that post-1987 reserves would be recaptured ratably over a
six-year period beginning with the 1996 taxable year.
Substantially all of Liberty Bank's reserves are pre-1988 reserves.
First Liberty's income tax returns are periodically examined by
various taxing authorities. Currently, the Internal Revenue
Service ("IRS") is examining the 1986 through 1989 federal income
tax returns. Based on a preliminary settlement of the examination
with the IRS, management does not expect that there will be a
material adverse impact on the consolidated financial statements.
State Taxation
- --------------
First Liberty's federal taxable income with certain adjustments is
subject to the Georgia corporate income tax at a rate of 6%. The
primary difference between taxable income for State and Federal
income tax purposes is interest income on United States Government
obligations, which is not taxable for state income tax purposes.
30
<PAGE> 31
Accounting for Income Taxes
- ---------------------------
First Liberty adopted Statement of Financial Accounting Standard
("SFAS") No. 109, "Accounting for Income Taxes" effective October
1, 1991. SFAS No. 109 allows First Liberty to record an income tax
benefit related to its book reserve, but recognize no deferred tax
liability with respect to its base year tax bad debt reserve,
unless it becomes apparent that this temporary difference will
reverse in the foreseeable future. The following events would
cause this temporary difference to become taxable: (i) loss of
thrift status by failing to meet applicable regulations, (ii)
conversion of Liberty Bank's charter to a bank charter or (iii)
actual or expected reductions in certain loans below the base year
amount. The cumulative amount of this temporary difference for
which First Liberty is not required to recognize a deferred tax
liability is approximately $12.0 million.
ITEM 2. PROPERTIES
- --------------------
First Liberty neither owns nor leases any real property, and uses
the premises, equipment and furniture of Liberty Bank without
payment of any rental fees to Liberty Bank. First Liberty's
headquarters is located at 201 Second Street, Macon, Georgia, where
it occupies space owned by Liberty Bank.
Liberty Bank operates 29 banking offices. All facilities are owned
by Liberty Bank, with the exception of five supermarket branches in
Savannah and three permanent branches in Milledgeville, Sylvania
and Vidalia. The total net book value at September 30, 1995 of the
offices owned by Liberty Bank on that date, including improvements,
furniture, fixtures and equipment, was approximately $22 million.
All significant data processing services for deposits, loan
servicing, accounting and other operations of Liberty Bank
currently are provided by an in-house data processing center. The
investment in in-house data processing equipment has been included
as equipment above. See Note 8 of the Notes to First Liberty's
Financial Statements as contained in Item 8 - "Financial Statements
and Supplementary Data" - herein.
Liberty Bank currently is unaware of any potential environmental
liability that may be incurred by Liberty Bank in connection with
any properties owned by Liberty Bank.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
There are no material pending legal proceedings to which First
Liberty is a party or to which any of their property is subject.
From time to time First Liberty is a party to legal proceedings
which arise in the ordinary course of business.
31
<PAGE> 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- ---------------------------------------------------------
No matter was submitted by First Liberty to a vote of its
stockholders during the fourth quarter of the fiscal year ended
September 30, 1995.
ITEM 4.(A) EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------
Set forth below, in accordance with General Instruction G(3) of
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, is
certain information as of September 30, 1995, regarding the
executive officers of First Liberty and other individuals having
key policy making roles with respect to First Liberty.
Directors
- ---------
ROBERT F. HATCHER, 54, joined Liberty Bank in 1988 as a director
and as its President of the Middle Georgia Region. He was elected
President of Liberty Bank in 1989 and was elected Chief Executive
Officer of Liberty Bank and President and Chief Executive Officer
of First Liberty in 1990. He was previously Senior Vice President
of Trust Company Bank of Middle Georgia in Macon, Georgia, where he
had served for 27 years.
F. DON BRADFORD, 68 is the retired Chairman of the Board and owner
of the Macon Janitor Service in Macon, Georgia. He was has served
as a director of First Liberty since 1984 and as a director of
Liberty Bank since 1966.
RICHARD W. CARPENTER, 58, is President of Citizens Properties, Inc.
in Atlanta, Georgia, and President of Commonwealth Oil Refining
Company in San Antonio, Texas. He has served as a director of
First Liberty and as a director of Liberty Bank since 1984.
C. LEE ELLIS, 44, serves as Executive Vice President, Investments,
of Alfa Mutual Insurance Company in Montgomery, Alabama. Mr. Ellis
has served as a director of First Liberty and Liberty Bank since
1986.
MELVIN I. KRUGER, 66, is President of L. E. Schwartz & Son, Inc.,
a commercial roofing contractor in Macon, Georgia. He has served
as a director of First Liberty since 1993 and as a director of
Liberty Bank since July 1995.
THOMAS H. McCOOK, 56, is Vice President, Secretary, Treasurer and
co-owner of Macon Concrete Pipe Company in Macon, Georgia. Mr.
McCook has served as a director of First Liberty since 1984, as a
director of Liberty Bank since 1978 and as Chairman of the Boards
of Directors of both entities since 1990.
32
<PAGE> 33
JO SLADE WILBANKS, 48, is Manager of the Central Region of Georgia
Power Company. She has served as a director of First Liberty since
1994 and as a director of Liberty Bank since July 1995.
Executive Officers Who Are Not Directors
- ----------------------------------------
CHARLES G. DAVIS, 48, joined Liberty Bank in 1976, and serves as
Executive Vice President in charge of operations. Before joining
Liberty Bank, he was employed by American Broadcasting Company.
JOHN B. DRAWDY, JR., 48, joined Liberty Bank in 1987. He is Senior
Vice President in charge of information systems. He previously was
employed by First Federal Savings and Loan Association of
Charleston, South Carolina.
LARRY D. FLOWERS, 45, joined Liberty Bank in 1993. He is Executive
Vice President in charge of marketing and retail banking. He
previously was employed by Citibank in various capacities.
J. RANDALL GRIFFIN, 43, joined Liberty Bank in 1984. He is Senior
Vice President in charge of commercial real estate lending. Before
joining Liberty Bank, he was employed by The Citizens and Southern
National Bank.
DAVID L. HALL, 36, joined First Liberty and Liberty Bank in 1985.
He is Executive Vice President and Chief Financial Officer of both
entities, having previously served as Senior Vice President and
Controller. Before joining First Liberty, he was employed by
Coopers & Lybrand, Certified Public Accountants, Atlanta, Georgia.
RICHARD A. HILLS, JR., 55, serves as Executive Vice President and
General Counsel of First Liberty, and as Senior Vice President and
General Counsel of Liberty Bank and Liberty Mortgage. He also
serves as Secretary of First Liberty, Liberty Bank and Liberty
Mortgage. Prior to joining First Liberty in 1987, he was a partner
in the law firm of Aiken & Ward, Atlanta, Georgia.
GARY P. HALL, 52, serves as Senior Vice President of First Liberty
Bank and as City President of Liberty Bank in Tifton, Georgia. He
previously was President and Chief Executive Office of Tifton Bank,
where he had served for eight years.
GEORGE A. MOLLOY, 47, serves as President and Chief Executive
Officer of Liberty Mortgage. He previously was President of S B &
T Mortgage in Atlanta.
LEE B. MURPHEY 51, joined Liberty Bank in June 1991 as Executive
Vice President and Chief Credit Officer. He previously was Senior
Vice President of Trust Company Bank of Middle Georgia in Macon,
Georgia, where he had served for 21 years.
33
<PAGE> 34
J. LARRY WALLACE, 44, joined Liberty Bank in 1983. He is Executive
Vice President in charge of residential construction lending and
the disposition of foreclosed properties. Before joining Liberty
Bank he was employed by Cameron Brown Company.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ----------------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
The Common Stock is listed and traded on The Nasdaq Stock Market
under the symbol "FLFC." The following table sets forth the high
and low last sale prices per share of the Common Stock as reported
on The Nasdaq Stock Market, and the dividends paid per share of
Common Stock for the periods indicated.
Fiscal Year Ended Last Sale Prices Dividends
September 30, Per Share Paid Per Share
- ----------------- --------------------------- --------------
High Low
------ ------
1995
First Quarter $14.25 $12.75 $ .10
Second Quarter 13.75 13.00 .10
Third Quarter 18.50 13.00 .10
Fourth Quarter 20.50 16.00 .13
1994
First Quarter $16.50 $14.50 $ .08
Second Quarter 15.75 13.75 .08
Third Quarter 15.25 13.00 .08
Fourth Quarter 15.50 13.25 .08
On December 1, 1995, the last sale price of the Common Stock, as
reported on The Nasdaq Stock Market was $21.50. On December 1,
1995, there were 3,961,988 shares of Common Stock outstanding and
approximately 653 record holders of the Common Stock.
For discussion on dividend restrictions see Item 7 - "Management's
Discussion and Analysis of Results of Operations and Financial
Condition - Liquidity and Capital Resources" - herein.
34
<PAGE> 35
ITEM 6.SELECTED FINANCIAL DATA
- ------------------------------
Selected financial data for First Liberty for each year of the
five-year period ended September 30, 1995 are set forth below (in
thousands, except per share data).
September 30,
--------------------------------------------
1995(1) 1994 1993(1) 1992 1991
-------- -------- -------- -------- --------
Statements of income data:
- --------------------------
Interest income $ 61,490 $ 48,562 $ 51,241 $ 57,933 $ 67,740
Interest expense 32,733 25,117 29,012 37,919 49,253
-------- -------- -------- -------- --------
Net interest income 28,757 23,445 22,229 20,014 18,487
Provision for loan losses 1,440 1,500 1,979 3,950 3,358
-------- -------- -------- -------- --------
Net interest income after
provision for loan
losses 27,317 21,945 20,250 16,064 15,129
Non-interest income,
excluding gains and
losses on asset sales 5,952 6,055 4,766 3,160 4,280
Gain (loss) on sale
of loans and mortgage
backed and investment
securities (173) 461 1,190 (1,319) 10
Gain on sale of servicing
rights 2,353 3,367 3,321 5,424 1,725
Non-interest expense 24,171 23,029 22,175 20,996 19,439
-------- -------- -------- -------- --------
Income before income taxes,
accounting changes and
extraordinary items 11,278 8,799 7,352 2,333 1,705
Income taxes 3,207 2,750 2,619 719 (165)
-------- -------- -------- -------- --------
Income before accounting
changes and
extraordinary items 8,071 6,049 4,733 1,614 1,870
Accounting changes - - - 1,217 -
Extraordinary items (2) - - (521) - 3,483
-------- -------- -------- -------- --------
Net income 8,071 6,049 4,212 2,831 5,353
Dividends on preferred
stock 864 891 557 - -
-------- -------- -------- -------- --------
Net income applicable
to common stockholders $ 7,207 $ 5,158 $ 3,655 $ 2,831 $ 5,353
======== ======== ======== ======== ========
Per common share data:
- ----------------------
Income before accounting
changes and extra-
ordinary items (3) $ 1.93 $ 1.50 $ 1.29 $ .54 $ .93
Accounting changes (3) - - - .40 -
Extraordinary items (3) - - (.13) - 1.03
-------- -------- -------- -------- --------
Net income (3) $ 1.93 $ 1.50 $ 1.16 $ .94 $ 1.96
======== ======== ======== ======== ========
Book value $ 15.93 $ 14.92 $ 14.09 $ 12.91 $ 11.94
Tangible book value 13.08 13.76 12.80 11.84 10.77
Dividends paid .43 .32 - - -
Dividend payout ratio (3) 22.28% 21.33% - - -
Average number of shares
outstanding (3) 4,205 4,049 3,687 3,039 3,376
35
<PAGE> 36
September 30,
------------------------------------------------
1995(1) 1994 1993(1) 1992 1991
--------- --------- --------- -------- --------
(Dollars in thousands, except per share, ratio and percentage data)
Balance sheet data:
- -------------------
Total assets $ 919,274 $693,205 $728,248 $ 679,376 $713,209
Earning assets 838,188 632,427 647,681 604,516 632,741
Loans (4) 625,641 487,315 465,491 469,207 495,748
Nonperforming assets
(excluding troubled debt
restructurings) 6,793 14,951 20,460 22,647 39,427
Loans and securities
available-for-sale (5) 237,157 161,405 195,668 125,147 131,268
Mortgage-backed securities
held-for-investment - - - 11,637 8,308
Deposits 719,226 561,616 546,379 494,734 526,811
Stockholders' equity 70,669 56,391 53,884 38,453 35,550
Performance ratios:
- -------------------
Return on average assets 1.01% .86% .60% .40% .73%
Return on average equity 12.93 10.98 8.96 7.60 18.50
Interest rate spread 3.90 3.70 3.58 3.21 3.13
Net interest margin (6) 3.94 3.72 3.57 3.15 2.83
Efficiency (7) 64.97 66.60 67.66 72.26 77.20
Ratio of earnings to fixed
charges (8):
Excluding interest on
deposits 2.72x 2.65x 1.99x 1.23x 1.13x
Including interest on
deposits 1.34x 1.35x 1.25x 1.06x 1.03x
Asset quality ratios:
- ---------------------
Allowance for loan losses
to period end loans (4)(9) 1.23% 1.15% 1.30% 1.19% .97%
Allowance for loan losses
to period end non-
performing loans 323.64 124.51 97.55 158.06 76.02
Nonperforming assets to
period end loans and
foreclosed properties (4)(9) 1.07 2.97 4.21 4.58 7.37
Nonperforming assets to
period end total assets .74 2.16 2.81 3.33 5.53
Net charge-offs to average
loans .03 .38 .60 .57 1.06
Capital and liquidity:
- ----------------------
Tangible capital to total
adjusted assets (10) 5.69% 6.26% 5.34% 5.07% 4.34%
Core capital to total
adjusted assets (10) 5.89 6.57 5.59 5.36 4.66
Core capital to risk-based
assets (10) 8.18 9.14 7.66 6.95 6.10
Risk-based capital to risk-
based assets (10) 11.07 12.61 10.92 10.32 9.17
Average equity to average
assets 7.81 7.82 6.70 5.26 3.97
Loans to deposits (4) 86.99 86.77 85.20 94.84 94.10
36
<PAGE> 37
(1) During 1995 and 1993, the Company completed acquisitions of
financial institutions with assets of approximately $107
million and $48 million, respectively. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" - herein. Also see Note 3 of Notes to First
Liberty's Consolidated Financial statements contained in Item
8 - "Financial Statements and Supplementary Data" - herein.
(2) Gain on extinguishment of debt, net of income tax expense of
$1.8 million in 1991. Loss on extinguishment of debt, net of
income tax benefit of $269,000 in 1993.
(3) Fully diluted.
(4) Excludes loans available-for-sale.
(5) Includes loans and securities available-for-sale, fed funds
sold, repurchase agreements and cash and cash equivalents.
(6) Net interest income divided by average earning assets.
(7) Computed by dividing non-interest expense excluding provisions
for real estate losses and nonrecurring items by the sum of
net interest income before provisions for loan losses and non-
interest income excluding nonrecurring items.
(9) The ratio of earnings to fixed charges has been determined by
dividing (a) income before taxes and fixed charges by (b)
total fixed charges. Fixed charges consist of interest
expense (both excluding and including interest on deposits)
and amortization of debt expense. No portion of rental
expense could be demonstrated to be representative of the
interest factor, and therefore none is included in fixed
charges.
(9) Loans before allowance for losses.
(10) Includes only capital held by Liberty Bank.
37
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
- ------------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
Background
- ----------
First Liberty Financial Corp.'s ("First Liberty") financial
condition strengthened and results of operations continued
favorable trends during fiscal 1995. The improvements are the
result of an ongoing plan which focuses on (1) maintaining a low
level of interest rate risk, (2) improving operating efficiency,
(3) reductions in the levels of nonperforming and classified
assets, (4) maintaining a strong regulatory capital position and
(5) continued growth.
Beginning in 1990, First Liberty implemented a cost-reduction
program to reduce the level of non-interest expense. As a part of
the cost reduction program, First Liberty's work force was reduced
by approximately 60 employees or 15%.
During 1990, First Liberty Bank ("Liberty Bank") undertook a
program to assess and reduce the level of nonperforming and
criticized assets. Pursuant to that program, nonperforming assets
were reduced by $33.7 million or 83% from $40.4 million in 1990 to
$6.8 million in 1995. See "Loan Loss Provision and Allowance for
Loan Losses" and "Nonperforming Assets and Credit Risk", - herein.
Also, During 1990, Liberty Bank sold 17 offices in North Georgia
("the North Georgia Division") in order to improve its capital
ratios and dispose of an unprofitable operation. The sale resulted
in a reduction of Liberty Bank's total assets by approximately $200
million while improving the level of core earnings.
In September 1991 First Liberty completed an exchange offer to
holders of its convertible debentures to further increase the level
of core capital. Pursuant to that offer, 97% of the debenture
holders elected to participate which resulted in $8.1 million in
additional core and tangible capital.
On December 11, 1992, First Liberty acquired First Federal Savings
and Loan Association, Milledgeville, Georgia ("First Federal")
which had its primary market adjacent to Liberty Bank's primary
market area in Macon, Georgia. On the acquisition date, First
Federal had total assets of $41 million and total deposits of $38
million.
On February 16, 1993, First Liberty issued 460,000 shares of Series
A 7.75% Cumulative Convertible Preferred ("Series A") stock.
Proceeds from this issuance are to be used for acquisitions or
other general corporate purposes. These shares had a liquidation
preference of $25 per share. Dividends on the Series A stock were
cumulative at an annual rate of $1.9375 per share and were payable
quarterly.
On July 31, 1995 the Company redeemed 2,537 shares of Series A for
$66,879, plus accrued and unpaid dividends. The remaining 457,463
shares of the Series A were converted into 914,926 shares of the
Company's common stock, at a conversion price of $12.50 per share
of common stock.
38
<PAGE> 39
In March 1993, Liberty Bank acquired six offices of another
institution in Savannah, Georgia, where Liberty Bank previously
operated four offices. Total assets acquired by Liberty Bank were
approximately $7 million and total deposits assumed were
approximately $38 million.
On December 2, 1994, the Company acquired by merger Central Banking
Company ("CBC") of Swainsboro, Georgia and its subsidiary, The
Central Bank ("Central Bank"). Central Bank 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 a
commercial 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.
On September 15, 1995, the Company acquired by merger Tifton Banks,
Inc. ("Tifton") of Tifton, Georgia and its subsidiary, Tifton Bank
& Trust Company ("Tifton Bank"). Tifton Bank on the date of
acquisition, held the following approximate balances: loans of $42
million, cash and investments of $21 million, premises and
equipment of $1 million and deposits of $59 million. Intangible
assets resulting from the acquisition amounted to approximately $2
million.
On December 2, 1994 and September 15, 1995, in connection with the
acquisitions of Tifton and CBC, the Company issued $7.6 million in
Series B 6.00% Cumulative Convertible Preferred ("Series B") stock.
The shares have a liquidation preference of $25.00 per share.
Dividends on the Series B are cumulative at an annual rate of $1.50
per share and are payable quarterly.
During 1994, First Liberty implemented another cost reduction
program to reduce the level of non-interest expense. This program
contributed to an 8% reduction in non-interest expense (excluding
foreclosed real estate provisions) during the last half of fiscal
1994.
Mortgage Banking Operations
- ---------------------------
Historically, First Liberty's net income has been significantly
affected by the level of earnings of Liberty Mortgage Corporation
("Liberty Mortgage"), the Company's mortgage banking subsidiary.
However, this dependence was substantially reduced during 1995 and
1994 due to an increase in Liberty Bank's results of operations.
A substantial portion of Liberty Mortgage's net income has been
derived from income directly related to the origination and sale of
residential mortgage loans and mortgage servicing rights. See "Net
Income" - herein.
39
<PAGE> 40
Net Income
- ----------
First Liberty's net income for the year ended September 30, 1995
was $8.1 million compared to $6.0 million for the year ended
September 30, 1994 and $4.2 million for the year ended September
30, 1993. First Liberty's income before income taxes and
extraordinary item was $11.2 million for the year ended September
30, 1995 compared to $8.8 million in 1994 and $7.4 million in 1993.
For the year ended September 30, 1995, Liberty Bank contributed
$9.1 million of income before taxes, compared to income of $4.7
million in 1994 and income of $1.9 million in 1993. These amounts
represent 81%, 54% and 26% of First Liberty's net income before
income taxes and extraordinary item for 1995, 1994 and 1993,
respectively. These trends are indicative of (i) improved margins,
which resulted in increased net interest income, and reductions in
nonperforming assets, (ii) improved internal operating efficiency
and (iii) the contributions of acquisitions.
During the last five fiscal years, Liberty Bank's operations were
impacted by costs associated with Liberty Bank's efforts to reduce
its level of nonperforming assets, which declined from $40.4
million at September 30, 1990 to $6.8 million at September 30,
1995. During this period, foreclosed real estate ("REO") decreased
by $18.0 million and nonperforming loans decreased by $15.6
million. Net direct costs of resolving nonperforming assets were
$1.8 million, $2.6 million and $3.1 million for 1995, 1994 and
1993, respectively. Net direct costs include loan loss provision,
REO provision and other costs directly associated with operating
and liquidating REO. Indirect costs of resolving nonperforming
assets such as lost interest income and management time costs also
impacted operations, but are not readily quantifiable.
For the year ended September 30, 1995, Liberty Mortgage contributed
$2.0 million of income before income taxes, compared to $3.9
million in 1994 and $5.3 million in 1993. These amounts represent
18%, 44% and 73% of First Liberty's net income before income taxes
and extraordinary item for 1995, 1994 and 1993, respectively.
Included in Liberty Mortgage's income before income taxes are net
gains on sale of loans, securities and loan servicing rights of
approximately $2.0 million, $3.8 million and $4.5 million for the
fiscal years ended September 30, 1995, 1994, and 1993,
respectively. The decrease in these net gains from 1993 thru 1995
is largely attributable to a lower volume of loan originations,
which resulted primarily from a rising interest rate environment
which generally had a negative impact on the mortgage banking
industry as a whole.
Net income for 1993 was reduced $521,000 (net of related income
taxes) by an extraordinary item resulting from the early
extinguishment of debt.
40
<PAGE> 41
Net Interest Income
- -------------------
Net interest income increased by $5.3 million or 23% during fiscal
1995 as compared to 1994 due to an $8.1 million reduction in
nonperforming assets, growth in earning assets and an expansion of
the net interest margin to 3.94% in 1995 from 3.72% in 1994. Net
interest income increased by $1.2 million or 5.5% during fiscal
1994 as compared to 1993 due to a $5.5 million reduction in
nonperforming assets and an expansion of the net interest margin to
3.72% in 1994 from 3.57% in 1993. See "Nonperforming Assets and
Credit Risk" - herein.
41
<PAGE> 42
<TABLE>
First Liberty Financial Corp.
Summary of Average Assets and Liabilities
(for the fiscal year ended)
The following table reflects the average balances, the actual interest income or expense and the average yields and costs of funds
of First Liberty's interest-earning assets and interest-bearing liablilites. Average balances have been computed from the average
of month end balances during the fiscal years indicated.(dollars in thousands)
<CAPTION>
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
Average Rate/ Average Rate/ Average Rate/
Balance Interest Yield Balance Interest Yield Balance Interest Yield
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) $ 560,842 $ 49,990 8.91% $ 509,404 $ 41,827 8.21% $ 529,750 $ 45,614 8.61%
Mortgage-backed securities 133,591 9,103 6.81% 100,325 5,629 5.61% 64,794 4,393 6.78%
Investments 33,239 2,320 6.98% 21,322 1,106 5.19% 27,486 1,234 4.49%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 727,672 $ 61,413 8.44% 631,051 48,562 7.70% 622,030 51,241 8.23%
========== ========== ==========
Other assets 71,531 72,978 79,657
---------- ---------- ----------
Total assets $ 799,203 704,029 701,687
========== ========== ==========
Savings deposits $ 45,775 $ 1,226 2.68% 42,654 1,090 2.56% 40,473 1,084 2.68%
Time deposits 397,074 20,792 5.24% 348,174 15,558 4.47% 351,029 17,729 5.05%
Other deposits 192,612 4,149 2.15% 162,704 3,148 1.93% 139,456 2,797 2.01%
Short-term borrowings 60,357 3,785 6.27% 33,616 1,470 4.37% 28,613 1,767 6.18%
Long-term borrowings (2) 24,940 2,781 11.15% 40,955 3,851 9.40% 63,793 5,635 8.83%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 720,758 $ 32,733 4.54% 628,103 25,117 4.00% 623,364 29,012 4.65%
========== ========== ==========
Other liabilities 16,004 20,839 31,297
Equity 62,441 55,087 47,026
---------- ---------- ----------
Total liabilities and equity $ 799,203 704,029 701,687
========== ========== ==========
Interest rate spread 3.90% 3.70% 3.58%
====== ====== ======
Net interest margin 3.94% 3.72% 3.57%
====== ====== ======
(1) Includes nonperforming loans.
(2) Includes subordinated debt.
</TABLE>
42
<PAGE> 43
<TABLE>
First Liberty Financial Corp.
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected First Liberty's interest income and expense during the periods indicated. For
each category, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old
rate), (2) changes in rate (changes in rate multiplied by old volume), and (3) changes in rate/volume (changes in rate
multiplied by changes in volume) (dollars in thousands).
<CAPTION>
Years ended September 30,
-----------------------------------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
Increase/(Decrease) Increase/(Decrease)
------------------------------------------------ ---------------------------------------------------
Due to Due to
Due to Due to Rate/ Due to Due to Rate/
Rate Volume Volume Total Rate Volume Volume Total
------------------------------------------------ ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Changes in:
Interest income:
Loans (1) $ 3,578 $ 4,224 $ 361 $ 8,163 $ (2,116) $ (1,752) $ 81 $ (3,787)
Mortgage-backed securities 1,208 1,866 400 3,474 (758) 2,410 (416) 1,236
Investments 382 618 214 1,214 192 (277) (43) (128)
---------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Total interest income 5,168 6,708 975 12,851 (2,682) 381 (378) (2,679)
---------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Interest expense:
Savings deposits 52 80 4 136 (49) 58 (3) 6
Time deposits 2,674 2,185 375 5,234 (2,044) (144) 17 (2,171)
Other deposits 357 579 65 1,001 (99) 466 (16) 351
Short-term borrowings 638 1,169 508 2,315 (516) 309 (90) (297)
Long-term borrowings (2) 716 (1,506) (280) (1,070) 363 (2,017) (130) (1,784)
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest expense 4,437 2,507 672 7,616 (2,345) (1,328) (222) (3,895)
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income $ 731 $ 4,201 $ 303 $ 5,235 $ (337) $ 1,709 $ (156) $ 1,216
========== ========== =========== =========== =========== =========== =========== ===========
(1) Includes nonperforming loans.
(2) Includes subordinated debt.
</TABLE>
43
<PAGE> 44
Interest Rate Sensitivity
- -------------------------
Interest rate sensitivity is a measure of exposure to changes in
net interest income due to changes in market interest rates. The
interest rate sensitivity differential (known as "gap"), is the
difference between interest rate sensitive assets and interest rate
sensitive liabilities over a specified period of time and
represents a measure of sensitivity of net interest income to
changes in interest rates. A positive gap indicates an excess of
rate sensitive assets over rate sensitive liabilities, while a
negative gap indicates an excess of rate sensitive liabilities over
rate sensitive assets.
Over the past three years, Liberty Bank's short term interest rate
sensitivity has been asset sensitive, which is reflective of a
positive gap. As such, Liberty Bank's margins have experienced
direct correlation to interest rate levels. Liberty's net interest
margin was 3.94%, 3.72%, and 3.57% for 1995, 1994 and 1993,
respectively.
During the first quarter of fiscal 1995, short term and
intermediate term interest rates generally increased and have
remained relatively stable since that time. First Liberty's asset
sensitivity contributed to increased interest rate spreads during
that period. Beginning in the second half of fiscal 1995,
management began a plan to reduce the level of asset sensitivity to
hedge against declining rates. As of September 30, 1995, First
Liberty's risk posture remains asset sensitive, but the relative
level of risk has been reduced.
During 1993, Liberty Bank refinanced $15.8 million in advance
borrowings from the Federal Home Loan Bank ("FHLB") of Atlanta to
extend the average maturity of the debt while lowering the average
cost of funds. A prepayment penalty of $790,000 ($521,000 net of
related income taxes) was incurred and accounted for as an
extraordinary item in the statement of income.
Liberty Bank's cumulative one year gap at September 30, 1995, was
a positive $61 million or 6.6% compared to a positive $68 million
or 9.9% at September 30, 1994 and a positive $46 million or 6.3% at
September 30, 1993.
44
<PAGE> 45
<TABLE>
First Liberty Financial Corp.
Interest Rate Sensitivity Short Term Analysis
The following table summarizes the repricing of First Liberty's interest-earning assets and interest-bearing liabilities at
September 30, 1995. The information presented may not be indicative of actual future trends of net interest income in rising or
declining interest rate environments (dollars in thousand).
<CAPTION>
Less than 1 Month 2 Months 3 Months 6 Months 1 Year Over
1 Month to 2 Months to 3 Months to 6 Months to 1 Year to 2 Years 2 Years Total
---------- ----------- ----------- ----------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)(2) $ 188,663 $ 31,318 $ 17,537 $ 46,171 $ 80,215 $ 43,113 $ 248,722 $ 655,739
Securities 32,755 2,297 27,716 18,792 32,647 26,070 27,336 167,613
Fed funds sold and repurchase agreements 22,652 - - - - - - 22,652
--------- ----------- ----------- ----------- --------- --------- --------- ---------
Total financial assets $ 244,070 $ 33,615 $ 45,253 $ 64,963 $ 112,862 $ 69,183 $ 276,058 $846,004
========= =========== =========== =========== ========= ========= ========= =========
Interest-bearing liabilities:
Deposits:
Savings (3) $ 683 $ 674 $ 665 $ 1,941 $ 3,648 $ 6,452 $ 35,851 $ 49,914
Money Market 70,098 - - - - - - 70,098
Interest-bearing deposits (3) 1,674 1,644 1,615 4,674 8,625 14,694 61,763 94,689
Time 28,770 15,845 22,139 76,003 116,215 111,558 70,672 441,202
--------- ----------- ----------- ----------- --------- --------- --------- ---------
Total interest-bearing deposits 101,225 18,163 24,419 82,618 128,488 132,704 168,286 655,903
Other borrowings 74,041 0 100 2,507 8,167 8,000 12,501 105,316
--------- ----------- ----------- ----------- --------- --------- --------- ---------
Total financial liabilities $ 175,266 $ 18,163 $ 24,519 $ 85,125 $ 136,655 $ 140,704 $ 180,787 $ 761,219
========= =========== =========== =========== ========= ========= ========= =========
Current period gap $ 68,804 $ 15,452 $ 20,734 $ (20,162) $ (23,793) $ (71,521) $ 95,271 $ 84,785
Cumulative gap $ 68,804 $ 84,256 $ 104,990 $ 84,828 $ 61,035 $ (10,486) $ 84,785
Cumulative gap as a % of total assets 7.5% 9.2% 11.4% 9.2% 6.6% -1.1% 9.2%
(1) The portfolio of loans available-for-sale are included in the less than three months repricing period as all these assets are
assigned to optional or mandatory commitments to sell.
(2) The repricing of loans does not include amounts attributable to the amortization and estimated repayment of principal.
(3) The estimated repricing of savings and interest-bearing checking accounts was based on the Office of Thrift Supervision decay
rates.
</TABLE>
45
<PAGE> 46
<TABLE>
First Liberty Financial Corp.
Interest Rate Sensitivity Long Term Analysis
The following table summarizes the repricing of First Liberty's interest-earning assets and interest-bearing liabilities at
September 30, 1995. The information presented may not be indicative of actual future trends of net interest income in rising or
declining interest rate environments (dollars in thousand).
<CAPTION>
3 Years 5 Years 10 Years
Less than 3 Months 6 Months 1 Year to to to Over
3 Months to 6 Months to 1 Year to 3 Years 5 Years 10 Years 20 Years 20 Years Total
--------- ----------- --------- ---------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)(2) $ 237,518 $ 46,171 $ 80,215 $ 103,558 $ 113,648 $ 37,667 $ 22,829 $ 14,133 $ 655,739
Securities 62,768 18,792 32,647 33,820 7,619 6,743 4,615 609 167,613
Fed fund solds and repurchase
agreements 22,652 - - - - - - - 22,652
--------- ----------- --------- --------- --------- ---------- ---------- --------- ---------
Total financial assets $ 322,938 $ 64,963 $ 112,862 $ 137,378 $ 121,267 $ 44,410 $ 27,444 $ 14,742 $ 846,004
========= =========== ========= ========= ========= ========== ========== ========= =========
Interest-bearing liabilities:
Deposits:
Savings (3) $ 2,022 $ 1,941 $ 3,648 $ 12,406 $ 8,526 $ 12,642 $ 8,448 $ 281 $ 49,914
Money Market 70,098 - - - - - - - 70,098
Interest-bearing deposits (3) 4,933 4,674 8,625 28,029 17,114 21,703 9,611 0 94,689
Time 66,754 76,003 116,215 157,550 24,680 0 0 0 441,202
--------- ----------- --------- --------- --------- ---------- ---------- --------- ---------
Total interest-bearing deposits 143,807 82,618 128,488 197,985 50,320 34,345 18,059 281 655,903
Other borrowings 74,141 2,507 8,167 8,000 0 12,501 - - 105,316
--------- ----------- --------- --------- --------- ---------- ---------- --------- ---------
Total financial liabilities $ 217,948 $ $85,125 $ 136,655 $ 205,985 $ 50,320 $ 46,846 $ 18,059 $ 281 $ 761,219
========= =========== ========= ========= ========= ========== ========== ========= =========
Current period gap $ 104,990 $ ($20,162)$ (23,793)$ (68,607)$ 70,947 $ (2,436)$ 9,385 $ 14,461 $ 84,785
Cumulative gap $ 104,990 $ $84,828 $ 61,035 $ (7,572)$ 63,375 $ 60,939 $ 70,324 $ 84,785
Cumulative gap as a % of total assets 11.4% 9.2% 6.6% -0.8% 6.9% 6.6% 7.6% 9.2%
(1) The portfolio of loans available-for-sale are included in the less than three months repricing period as all these assets
are assigned to optional or mandatory commitments to sell.
(2) The repricing of loans does not include amounts attributable to the amortization and estimated repayment of principal.
(3) The estimated repricing of savings and interest-bearing checking accounts was based on the Office of Thrift Supervision decay
rates.
</TABLE>
46
<PAGE> 47
Loan Loss Provision and Allowance for Loan Losses
- -------------------------------------------------
During fiscal 1995, the provision for estimated losses on loans was
$1.4 million compared to $1.5 million during 1994 and $2.0 million
during 1993. During fiscal 1995, 1994, and 1993, the provision for
estimated losses on loans decreased as Liberty Bank's nonperforming
loans have declined during each of the years.
Loan loss reserves are determined based on management's internal
review of nonperforming loans, delinquency trends, the level of
rated assets and charge-off trends. Additionally, management
assesses general and specific economic trends both nationally and
locally and regulatory information to determine the impact of those
external factors on loan loss reserve levels.
Based on the internal and external reviews, Liberty Bank segregates
its loan portfolio by type of loans and by loan classification
within each loan type. Reserve percentages are applied (based on
historical and anticipated loss rates) to each loan group to
determine the required amount of allocated general loan loss
reserves. Additionally, an amount is provided for unallocated
general loan loss reserves reflecting the potential for estimation
errors in allocated reserves. During 1991, charge-offs increased
as problem assets identified and reserved for in 1990 were
resolved. The provision for loan losses during 1991 and 1992 were
elevated as economic conditions were relatively weak. The
allocation of the allowance for estimated losses for the years
indicated was as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------
1995 (1) 1994 (1) 1993 (1) 1992 (1) 1991 (1)
---------- ------------ ------------ ----------- ------------
Amt % Amt % Amt % Amt % Amt %
----- ---- ------- ---- ------- ---- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage:
Residential $ 313 25 $ 240 26 $ 379 25 $ 350 34 $ 377 42
Commercial (2) 775 12 1,434 19 1,139 22 1,470 23 1,334 21
Residential
construction 402 11 209 11 157 9 161 8 219 6
Commercial
business 1,507 21 1,130 12 1,494 11 1,513 10 1,410 10
Consumer (3) 2,654 31 1,357 32 1,366 33 1,232 25 1,310 21
Unallocated 2,165 - 1,310 - 1,606 - 915 - 214 -
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $7,816 100% $5,680 100% $6,141 100% $5,641 100% $4,864 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
(1) Loan categories as a percentage of total loans held-for-investment.
(2) Includes commercial construction first mortgage loans.
(3) Includes consumer mortgage loans (such as second mortgage loans and home
equity lines of credit).
</TABLE>
47
<PAGE> 48
Changes in the allowance for estimated losses on loans for the
five years ended September 30, 1995 are as follows (dollars in
thousands):
September 30,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Balance, beginning of
year $ 5,680 $ 6,141 $ 5,641 $ 4,864 $ 7,374
Provision for
estimated losses 1,440 1,500 1,979 3,950 3,358
Acquisitions 879 - 1,675 - -
Recoveries 2,415 2,318 1,544 1,440 1,064
Charge-offs (2,598) (4,279) (4,698) (4,613) (6,932)
------- ------- ------- ------- -------
Balance, end of year $ 7,816 $ 5,680 $ 6,141 $ 5,641 $ 4,864
======= ======= ======= ======= =======
Allowance for loan
losses to non-
performing loans 323.6% 124.5% 97.6% 158.1% 76.0%
Allowance for loan
losses to total loans
held-for-investment 1.2% 1.2% 1.3% 1.2% 1.0%
The following table summarizes charge-offs and recoveries by loan
type (dollars in thousands):
September 30,
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Charge-Offs:
Residential real estate $ 193 $ 116 $ 381 $ 876 $ 1,896
Commercial real estate 426 205 559 846 1,124
Commercial business 587 715 1,651 1,213 1,612
Consumer 1,392 3,243 2,107 1,678 2,300
------- ------- ------- ------- -------
2,598 4,279 4,698 4,613 6,932
------- ------- ------- ------- -------
Recoveries:
Residential real estate 31 185 216 207 154
Commercial real estate 3 - 141 278 -
Commercial business 810 271 217 397 176
Consumer 1,571 1,862 970 558 734
------- ------- ------- ------- -------
2,415 2,318 1,544 1,440 1,064
------- ------- ------- ------- -------
Net charge-offs $ 183 $ 1,961 $ 3,154 $ 3,173 $ 5,868
======= ======= ======= ======= =======
Percentage of average
loans .03% .38% 0.60% 0.57% 1.06%
======= ======= ======= ======= =======
Nonperforming Assets and Credit Risk
- ------------------------------------
The table below summarizes nonperforming assets and troubled debt
restructurings at the dates indicated. Nonperforming assets
consist of nonaccrual loans, foreclosed properties and insubstance
foreclosures, as well as loans past due 90 days or more as to
interest or principal and still accruing. Material potential
problem loans, (i.e., those with respect to which management has
48
<PAGE> 49
serious doubts regarding the ability of the borrowers to comply
with present loan repayment terms) have been classified as
nonaccrual loans regardless of payment status, and therefore are
included in Liberty Bank's nonperforming assets.
September 30,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Dollars in thousands)
Nonaccrual loans $ 2,415 $ 4,362 $ 6,295 $ 3,569 $ 5,559
Loans past due 90 days or
more and still accruing - 200 - - 839
------- ------- ------- ------- -------
Total nonperforming loans 2,415 4,562 6,295 3,569 6,398
Real estate acquired through
foreclosure 4,185 10,189 9,342 10,849 16,236
Insubstance foreclosures - 32 4,665 8,117 16,645
Other repossessed assets 193 168 158 112 148
------- ------- ------- ------- -------
Total nonperforming assets $ 6,793 $14,951 $20,460 $22,647 $39,427
======= ======= ======= ======= =======
Total nonperforming assets as a
percentage of total assets .74% 2.16% 2.81% 3.33% 5.53%
======= ======= ======= ======= =======
Troubled debt restructurings $10,817 $12,199 $12,554 $13,723 $12,859
======= ======= ======= ======= =======
At the time of foreclosure all properties are valued at fair value.
Fair value is evaluated in light of a current appraisal and an
assessment of market conditions. The evaluation results in a
disposition plan including a financial plan designed to monitor the
net realizable values of the properties during the marketing
period. The plan is regularly monitored and amended as necessary
to accommodate changing market conditions. At times, some
properties' net carrying values may be reduced to facilitate near
term liquidation, particularly if the marketing period has been
extended beyond the original plan.
At September 30, 1995 foreclosed properties included eight
commercial properties with aggregate investments (net of reserves)
of approximately $3.5 million. The remaining balance of foreclosed
properties consisted of residential properties.
During fiscal 1995, management elected to writedown six commercial
properties in the amount of $3.0 million, which was reserved for in
prior years, as discussed below, due to the permanent impairment of
such assets.
During the fourth quarter of fiscal 1994, all remaining commercial
properties were reevaluated in light of current economic
conditions. In several cases, management elected to reduce the net
carrying value of certain properties (by increasing reserves) to
facilitate near term liquidation. As a result of the reductions,
Liberty Bank recorded a provision of approximately $852,000.
49
<PAGE> 50
Non-Interest Income
- -------------------
Liberty Mortgage originates loans with marketing (price)
concessions which are offset by the value of the loan servicing
rights originated. Liberty Mortgage will sell a portion of the
loan servicing rights relating to loans originated to recover its
marketing concessions.
The following table illustrates the contributions to operating
results and to Liberty Mortgage's loan servicing portfolio in each
of the last three fiscal years (dollars in thousands):
Years ended September 30,
-----------------------------------
1995 1994 1993
--------- --------- ---------
Loan activity:
- --------------
Loans originated $161,344 $374,673 $683,257
Loan servicing rights sold 249,502 254,120 293,930
-------- -------- --------
Loan servicing contributed to
(withdrawn from) portfolio $(88,158) $120,553 $389,327
======== ======== ========
Percentage sold 155% 68% 43%
======== ======== ========
Operating results:
- ------------------
Gain(loss) on sale of
loans and securities $ (354) $ 453 $ 1,175
Gain on sale of loan
servicing rights 2,353 3,367 3,321
-------- -------- --------
Net gain on sale of loans
and securities and loan
servicing rights $ 1,999 $ 3,820 $ 4,496
======== ======== ========
Net gain as a percentage
of loans originated 1.24% 1.02% .66%
======== ======== ========
During 1995 and 1994 soft business conditions existed in the
mortgage banking industry. These conditions resulted in lower than
anticipated loan originations in 1995. Due to reduced loan
originations, the portfolio of loans serviced for others decreased
$275 million during fiscal 1995 resulting in a decrease to loan
service fee income (excluding amortization of servicing fees) of
$851,000 over 1994 levels.
During 1993, Liberty Mortgage began purchasing loans and the
related servicing rights from its correspondents. Such purchases
allow Liberty Mortgage to recover normal marketing concessions
without the sale of servicing by recognizing the value of the loan
servicing rights as an asset. The principal amount of servicing
rights purchased from correspondents during 1995 was approximately
$52 million with related book value servicing rights of $337,000
compared to $207 million in principal with $2.1 million in related
book value servicing rights purchased during 1994. In 1993 the
principal amount of servicing rights purchased from correspondents
was $194 million with related book value servicing rights of $1.7
million.
50
<PAGE> 51
Liberty Bank also may sell investments, loans and mortgage-backed
securities from time to time from its portfolio. The following
table summarizes investment activity from Liberty Bank's portfolio
(dollars in thousands:)
Years ended September 30,
------------------------------------
1995 1994 1993
---------- ---------- ----------
Net book value sold:
Assets available-for-sale $ 58,689 $ 5,699 $ 48,158
Assets held-for-
investment - - 44
Net gain on sale 181 8 133
During 1995, investment activity consisted principally of the
liquidation of securities acquired in bank acquisitions during the
year. As of September 30, 1995, Liberty Bank's investments and
mortgage-backed securities available-for-sale totalled $168 million
and represented 100% of total investments and mortgage-backed
securities.
Deposit account service charges increased by $611,000 during 1995
as compared to 1994, and $701,000 during 1994 as compared to 1993
principally due to average transaction accounts increasing 23% and
15% for the same periods principally as a result of acquisition
activity.
Other income in fiscal 1995 was $224,000 compared to $466,000 and
$48,000 during fiscal 1994 and 1993, respectively. The losses
included in this category resulted from reserves for contingent
liabilities and losses on the sales of fixed assets. The following
table summarizes the significant components of other income
(dollars in thousands:)
Years ended September 30,
-------------------------------------
1995 1994 1993
---------- ---------- -----------
Loan origination fees net
of related expenses $ 236 $ 33 $ (79)
Losses (471) (208) (280)
Other 459 641 407
-------- -------- --------
$ 224 $ 466 $ 48
======== ======== ========
Non-Interest Expense
- --------------------
Total non-interest expense increased by $1.1 million or 5.0% during
fiscal 1995 compared to fiscal 1994 and increased $.9 million or
3.9% during fiscal 1994 compared to fiscal 1993. The principal
factor contributing to increased non-interest expense was the
incremental cost of acquired operations.
During 1995, two acquisitions were completed which increased non-
interest expense by direct incremental costs of approximately $2.0
million. The breakdown of direct incremental costs in 1995 related
to acquired operations were as follow (dollars in thousands).
51
<PAGE> 52
Compensation, payroll taxes and fringe benefits $ 826
Occupancy and equipment 246
Federal deposit insurance premiums 233
Amortization of intangible assets 325
Other 372
------
$2,002
======
During 1994, expenses increased relative to 1993 due to the effect
of full year operations of two 1993 acquisitions.
During 1995 Liberty Bank recorded $507,000 for possible losses on
the sale of foreclosed real estate as compared to $1.1 million for
both 1994 and 1993. The ending allowance for losses on foreclosed
real estate for 1995, 1994 and 1993 was $302,000, $2.9 million and
$2.3 million, respectively. See "Nonperforming Assets and Credit
Risk" - herein.
The following table summarizes the significant components of other
expense (dollars in thousands:)
Years ended September 30,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
Postage and freight $ 776 $ 716 $ 688
Insurance and bonds 189 223 402
Telephone 597 532 519
Stationery and supplies 559 436 540
Other 1,465 1,067 1,016
-------- -------- --------
$ 3,586 $ 2,974 $ 3,165
======== ======== ========
Income Taxes
- ------------
The income tax expense for the years ended September 30, 1995, 1994
and 1993 reflects a variation from the statutory federal income tax
rate of 34% primarily due to the difference between the deduction
of bad debt provisions for financial reporting and income tax
purposes. First Liberty's effective tax rate (including income tax
on extraordinary item) after such item for the years ended September
30, 1995, 1994 and 1993 was 28.4%, 31.3% and 35.8%, respectively.
At September 30, 1995 First Liberty had gross deferred tax assets
of approximately $3.2 million. First Liberty's management has
determined that it is more likely than not that its deferred tax
asset 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 First
Liberty's existing deductible temporary differences. First Liberty
is not aware of any material uncertainties existing at September
30, 1995 that may affect the realization of First Liberty's
deferred tax assets. First Liberty evaluates the realizability of
deferred tax assets quarterly by assessing the need for a valuation
allowance.
52
<PAGE> 53
<TABLE>
Loans
The following table states the composition of Liberty Bank's loan portfolio at the indicated dates (dollars in thousands).
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------- -------------------- -------------------- -------------------- --------------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
---------- -------- ----------- -------- ------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential permanent
first mortgages:
Held-for-investment:
Fixed rate $ 43,930 7 $ 48,396 10 $ 65,762 12 $ 95,945 17 $ 135,647 25
Adjustable rate 113,601 17 77,407 15 48,964 9 63,598 12 74,743 14
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
157,531 24 125,803 25 114,726 21 159,543 29 210,390 39
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
Available-for-sale:
Fixed rate 21,307 3 8,005 2 60,398 11 60,656 11 41,854 8
Adjustable rate 975 - 1,978 - 9,649 2 8,074 2 3,360 -
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
22,282 3 9,983 2 70,047 13 68,730 13 45,214 8
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
Residential construction 69,579 11 53,167 11 43,533 8 36,918 7 27,954 5
Commercial construction 18,301 3 18,298 4 12,967 2 14,640 3 13,767 2
Commercial permanent (1) 60,730 9 78,036 15 89,889 17 96,084 17 91,297 17
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
148,610 23 149,501 30 146,389 27 147,642 27 133,018 24
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
Consumer (2) 195,353 30 156,112 31 157,420 29 118,600 22 107,419 20
Commercial (1) 131,963 20 61,579 12 53,097 10 49,063 9 49,785 9
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
327,316 50 217,691 43 210,517 39 167,663 31 157,204 29
----------- ------ ------------ ------- ------------ ------- ------------ ------- ------------ ------
655,739 100% 502,978 100% 541,679 100% 543,578 100% 545,826 100%
====== ======= ======= ======= ======
Allowance for estimated
losses (7,816) (5,680) (6,141) (5,641) (4,864)
----------- ------------ ------------ ------------ ------------
Total $ 647,923 $ 497,298 $ 535,538 $ 537,937 $ 540,962
=========== ============ ============ ============ ============
(1) Includes construction loans converted to permanent loans.
(2) Includes consumer mortgage loans (such as second mortgage loans and home equity lines of credit).
(3) Includes commercial business loans collateralized by mortgages.
</TABLE>
53
<PAGE> 54
The following table sets forth the scheduled contractual repayments
of Liberty Bank's construction and commercial business loans at
September 30, 1995. Adjustable rate loans are included in their
respective principal repayment date categories (dollars in
thousands).
Construction Commercial
------------ ----------
Amounts due:
Within 1 year (1) $75,512 $ 57,589
After 1 year through 5 years 12,354 63,432
After 5 years 14 10,942
------- --------
$87,880 $131,963
======= ========
(1) Includes demand loans, loans having no stated schedule of
repayment and no stated maturity.
The following table summarizes the total amount of construction and
commercial loans at September 30, 1995 due after one year by fixed
and adjustable rates (dollars in thousands).
Fixed Adjustable
Rate Rate
------- ----------
Construction $ 3,306 $ 9,062
Commercial 45,616 28,758
------- -------
$48,922 $37,820
======= =======
Investments and Mortgage-backed Securities
- ------------------------------------------
The following table summarizes securities available-for-sale
(dollars in thousands):
September 30,
-----------------------------
Types of Investments 1995 1994 1993
- -----------------------------------------------------------------------
Investment securities:
- ----------------------
U.S. government agencies $ 14,591 $ 5,116 $ -
Certificates of deposit - - 2,843
Investment grade corporate debt and
equity securities 4,394 4,079 4,072
Federal Home Loan Bank of Atlanta stock 9,733 9,733 9,492
Other 80 - -
Mortgage-backed securities:
- ---------------------------
Federal National Mortgage Corporation 40,738 30,829 19,678
Federal Home Loan Mortgage Association 78,721 71,977 60,468
Government National Mortgage Association 2,835 3,212 850
Other 16,521 5,368 13,234
-------- -------- --------
Total securities available-for-sale $167,613 $130,314 $110,637
======== ======== ========
54
<PAGE> 55
In general, the increase in investments has resulted from
acquisition proceeds. The stated contractual maturities and
weighted average yield of securities available-for-sale at
September 30, 1995 are as follows (dollars in thousands):
1 year 5 years
1 year through through After
Types of Investment or less 5 years 10 years 10 years Total
- ----------------------------------------------------------------------------
Investment securities:
- ----------------------
Federal Home Loan Bank
of Atlanta stock $ 9,733 $ - $ - $ - $ 9,733
Investment grade corporate
equity securities 4,394 - - - 4,394
U.S. government agencies 299 13,482 810 - 14,591
Other 80 - - - 80
------- ------- ------- -------- -------
14,506 13,482 810 - 28,798
------- ------- ------- -------- -------
Weighted average yield 6.92% 6.59% 6.03% - 6.75%
------- ------- ------- -------- -------
Mortgage-backed securities:
- ---------------------------
Federal National
Mortgage Association - 12,143 11,713 16,882 40,738
Federal Home Loan
Mortgage Corporation 506 22,289 843 55,083 78,721
Government National
Mortgage Association - - 581 2,254 2,835
Other - 990 174 15,357 16,521
------- ------- ------- -------- --------
506 35,422 13,311 89,576 138,815
------- ------- ------- -------- --------
Weighted average yield 5.77% 6.31% 7.29% 7.33% 7.06%
------- ------- ------- -------- --------
Total securities
available-for-sale $15,012 $48,904 $14,121 $ 89,576 $167,613
======= ======= ======= ======== ========
Weighted average yield 6.88% 6.39% 7.22% 7.33% 7.01%
======= ======= ======= ======== ========
Mortgage-backed securities of $90.5 million at September 30, 1995
are adjustable rate securities repricing in three years or less.
Collateralized mortgage obligations of $85.3 million are included
in mortgage-backed securities and have anticipated weighted average
maturities of less than ten years.
55
<PAGE> 56
Deposits
- --------
The following table sets forth the composition of deposits,
excluding accrued interest payable and discounts on deposits
acquired, by type of account and interest rate category at the
dates indicated (dollars in thousands):
September 30,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
% of % of % of
Type of Account Amount Total Amount Total Amount Total
-------- ----- -------- ----- -------- -----
Total savings:
Regular (1) $ 49,914 7% $ 41,320 8% $ 42,860 8%
Money market (2) 70,098 10 57,648 10 60,567 11
-------- ----- -------- ----- -------- -----
Total savings 120,012 17 98,968 18 103,427 19
-------- ----- -------- ----- -------- -----
Demand deposits:
Consumer
Interest-earning (3) 81,005 11 59,945 11 57,693 11
Non-interest-earning 13,876 2 8,090 1 5,740 1
Commercial 51,787 7 25,049 4 15,885 3
Custodial accounts 11,344 2 14,410 3 16,641 3
-------- ----- -------- ----- -------- -----
Total demand deposits 158,012 22 107,494 19 95,959 18
-------- ----- -------- ----- -------- -----
Time deposits:
1.00%-3.00% 812 - 112 - 5,171 1
3.01%-5.00% 54,435 8 235,412 42 227,239 41
5.01%-7.00% 360,899 50 97,170 17 65,744 12
7.01%-9.00% 23,112 3 20,510 4 37,590 7
9.01%-11.00% 1,944 - 1,947 - 11,246 2
11.01%-13.00% - - 3 - 3 -
-------- ----- -------- ----- -------- -----
Total time deposits 441,202 61 355,154 63 346,993 63
-------- ----- -------- ----- -------- -----
Total deposits $719,226 100% $561,616 100% $546,379 100%
======== ===== ======== ===== ======== =====
Weighted average rate
at year end 4.49% 3.84% 3.82%
======== ======== ========
Contractual maturities
of time deposits:
Within 1 year $257,701 $180,403 $222,569
1 to 5 years 183,473 174,751 123,434
over 5 years 28 - 990
-------- -------- --------
$441,202 $355,154 $346,993
======== ======== ========
(1) The range of nominal interest rates was 2.50% to 3.50% at
September 30, 1995, 3.00% at September 30, 1994 and 2.50% to
2.75% at September 30, 1993.
(2) The range of nominal interest rates was 2.45% to 3.75% at
September 30, 1995 and 1994, and 2.50% to 2.76% at September
30, 1993.
(3) The range of nominal interest rates was 2.40% to 3.25% at
September 30, 1995, 2.50% to 2.95% at September 30, 1994 and
2.50% to 2.75% at September 30, 1993.
56
<PAGE> 57
As of September 30, 1995 the amount and remaining term to maturity
for time deposits in the amount of $100,000 or greater is as
follows; approximately $14.1 million in three months or less,
approximately $13.3 million in over three months through six
months, approximately $16.5 million in over six months through
twelve months, and approximately $21.8 million in over twelve
months.
Included in total deposits are accounts having balances in excess
of $100,000 totalling approximately $103 million, $60.2 million and
$58.4 million at September 30, 1995, 1994 and 1993, respectively.
Certain deposits are collateralized by mortgage-backed and
investment securities aggregating approximately $19.5 million and
$4.0 million at September 30, 1995 and 1994, respectively.
Borrowings
- ----------
The following table sets forth the outstanding, maximum month-end
and average balances of FHLB advances and the associated weighted
average interest rates at the dates indicated. Average balances
have been computed from the average of month-end balances during
the fiscal years indicated (dollars in thousands).
September 30,
------------------------------
1995 1994 1993
--------- -------- ---------
Outstanding balance, end of period $ 88,500 $ 50,250 $ 71,250
Maximum month end balance 107,500 83,250 77,000
Average balance 64,846 58,558 72,722
Weighted average interest rate,
end of period 6.14% 6.16% 5.38%
Weighted average interest rate,
during the period 6.07% 5.52% 7.07%
Advances from the FHLB are collateralized by residential first
mortgage loans and mortgage-backed and government agency securities
with unpaid principal balances aggregating approximately $140
million, $88 million and $112 million at September 30, 1995, 1994
and 1993, respectively. At September 30, 1995, Liberty Bank was
required to collateralize its advances with acceptable collateral
with a lendable collateral value equal to 100% of advances
outstanding. The lendable collateral value of the residential
first mortgage loans and mortgage-backed securities pledged to the
advances was 85% and 90% of their fair market value, respectively.
During 1993, Liberty Bank refinanced $15.8 million in advance
borrowings to extend the average maturity while lowering the
average cost of funds. A prepayment penalty of $790,000 ($521,000
net of related income taxes) was incurred and accounted for as an
extraordinary item.
57
<PAGE> 58
Recently Issued Accounting Standards
- ------------------------------------
In May, 1993 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 114
"Accounting by Creditors for Impairment of a Loan". First Liberty
adopted SFAS No. 114 on October 1, 1995. SFAS No. 114 requires
that certain impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the
loan is collateral dependent. Because of specialized industry
practices, most impaired loans on First Liberty's books are
currently measured at the lower of cost or fair value by the
allocation of loan loss reserves. In October, 1994 FASB issued
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" which amended SFAS No. 114 to allow
a creditor to use existing methods for recognizing interest income
on an impaired loan. The adoption of SFAS No. 114 and SFAS No. 118
did not have a material impact on First Liberty's financial
statements as a whole.
In October, 1994 FASB issued SFAS No. 119 "Disclosure About
Derivative Financial Instruments and Fair Value of Financial
Instruments". This statement was adopted by the Company in the
fiscal year ending September 30, 1995. SFAS 119 requires
disclosures about derivative financial instruments - futures,
forward, swap, and option contracts, and other financial
instruments with similar characteristics. SFAS No. 119 requires
certain disclosure information by entities that hold or issue
derivative financial instruments for trading purposes or for
purposes other than trading. It also requires certain disclosure
information by entities that hold or issue derivative financial
instruments and account for them as hedges of anticipated
transactions. The adoption of SFAS No. 119 did not have a material
impact on First Liberty's financial statements as a whole.
In March, 1995, the FASB issued 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
58
<PAGE> 59
Occurring Events and Transactions". Assets that are covered by
Opinion No. 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.
In May, 1995, FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights". This statement is effective for financial
statements issued by the Company for the fiscal year ending
September 30, 1997, although earlier adoption is permitted. SFAS
No. 122 amends SFAS No. 65 "Accounting for Certain Mortgage Banking
Activities", to require that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for
others regardless of whether those servicing rights are acquired
through either the purchase or origination of mortgage loans. This
statement also requires that the mortgage banking enterprise assess
its capitalized mortgage servicing rights for impairment based upon
the fair value of those rights, including those rights purchased
before adoption of this statement. Impairment should be recognized
through a valuation allowance. Retroactive capitalization of
mortgage servicing rights before the adoption of this statement is
prohibited. Historically, Liberty Mortgage has sold servicing
rights to offset marketing concessions incurred relative to loans
originated. After the adoption of SFAS No. 122, Liberty Mortgage
will recognize servicing rights as financial assets to offset
marketing concessions. Accordingly, after adoption of SFAS No.
122, management anticipates fewer servicing sales and a reduction
in the gains on sales of servicing offset by and increase in gains
on sales of loans from the recognition of the servicing rights
assets. Additionally, the Company's recorded investments in
mortgage servicing rights is expected to increase after the
adoption of SFAS No. 122.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes accounting and
reporting standards for stock-based employee compensation plans
including stock purchase plans, stock options, restricted stock and
stock appreciation rights. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure
compensation cost using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued To Employees". Entities electing
to remain with the accounting in Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair
value method of accounting defined in SFAS No. 123 had been
applied. SFAS No. 123 is generally effective for the Company for
the year ending September 30, 1997, although earlier adoption is
permitted. Management is reviewing SFAS No. 123 to determine the
59
<PAGE> 60
effects of the two methods on the financial condition and results
of operations of the Company.
Liquidity and Capital Resources
- -------------------------------
First Liberty's primary sources of funds are deposits, loan
repayments, sales and maturities of securities, loan sales,
repurchase agreements, advances from the FHLB 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 First Liberty'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 met its liquidity requirement at September 30, 1995.
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 its
regulatory capital requirements at September 30, 1995 (dollars in
thousands):
Actual Required Excess
-------------- -------------- -------------
Amount % Amount % Amount %
------- ----- ------- ----- ------- ----
Core capital $53,610 5.89 $27,291 3.00 $26,319 2.89
Tangible capital 51,615 5.69 13,616 1.50 37,999 4.19
Risk-based capital 72,515 11.07 52,403 8.00 20,112 3.07
The Federal Deposit Insurance Corporation Improvement Act of 1991
establishes five classifications for institutions based upon the
capital requirements. Each appropriate federal 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.
60
<PAGE> 61
Liberty Bank is prohibited from declaring or paying cash dividends
on its common stock if the payment thereof would cause a reduction
in its regulatory capital below either the liquidation account or
the capital requirements set by the OTS or, without the prior
approval of the OTS, if the amount of dividends to be paid in any
year would exceed 50% of its net income for the fiscal year in
which the dividend is declared (except that permitted dividends may
be deferred and paid in a subsequent year). No dividends were
declared during fiscal 1994 or 1993. During fiscal 1995 Liberty
Bank declared and paid dividends to First Liberty in the amounts of
$6.3 million and $3.2 million, respectively. Liberty Bank holds
$3.6 million in declared but unpaid dividends to First Liberty at
September 30, 1995, which may be paid without OTS notification.
Pending SAIF Legislation
- ------------------------
The majority of First Liberty's deposits are presently insured by
the Savings Association Insurance Fund (the "SAIF"), which, along
with the Bank Insurance Fund (the "BIF"), are the two insurance
funds administered by the Federal Deposit Insurance Corporation
(the "FDIC"). Financial institutions which are members of the BIF
are experiencing substantially lower deposit insurance premiums
because the BIF has achieved its required level of reserves while
the SAIF has not yet achieved its required level of reserves. A
recapitalization plan for the SAIF under consideration by Congress
provides for a special assessment of 0.85% to 0.90% of deposits to
be imposed on all SAIF insured institutions to enable the SAIF to
achieve its required level of reserves. If the proposed assessment
of 0.85% to 0.90% was effected based on deposits as of March 31,
1995 (as proposed), First Liberty's special assessment would amount
to approximately $4.7 million to $4.9 million, before taxes,
respectively. Accordingly, this special assessment would
significantly increase non-interest expense and adversely affect
the Company's results of operations. Conversely, depending upon
First Liberty's capital level and supervisory rating, and assuming,
although there can be no assurance, that the insurance premium
levels for BIF and SAIF members are again equalized, future deposit
insurance premiums could decrease significantly for future periods,
to as low as .04% from the .23% of deposits currently paid by First
Liberty. Management considers this special assessment to be
nonrecurring and anticipates no adverse results to recurring
earnings.
61
<PAGE> 62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Page
Report of Independent Accountants.......................... 63
Consolidated Statements of Financial Condition as of
September 30, 1995 and 1994.............................. 64
Consolidated Statements of Income for each of the three
years in the period ended September 30, 1995............. 65
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended September 30, 1995... 68
Consolidated Statements of Cash Flows for each of the three
years in the period ended September 30, 1995............. 69
Notes to Consolidated Financial Statements................. 72
62
<PAGE> 63
Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, GA 30309-3630
Report of Independent Accountants
---------------------------------
The Board of Directors
First Liberty Financial Corp.
We have audited the accompanying consolidated statements of financial
condition of First Liberty Financial Corp. and Subsidiaries as of September
30, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
First Liberty Financial Corp. and Subsidiaries as of September 30, 1995 and
1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for investments in 1993.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
November 9, 1995
63
<PAGE> 64
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Financial Condition
- ----------------------------------------------
September 30,
------------------------------
1995 1994
- -----------------------------------------------------------------------------
(Dollars in Thousands)
Assets:
- -------
Cash and due from banks $ 24,610 $ 16,293
Federal funds sold and repurchase agreements 22,652 4,815
Securities available-for-sale, at
market value 167,613 130,314
Loans available-for-sale, net, at market value 22,282 9,983
Loans, net 625,641 487,315
Accrued interest receivable 6,406 3,880
Premises and equipment, net 22,194 20,047
Real estate, net 4,053 7,511
Intangible assets 11,315 3,508
Advances to attorneys for loans originated 3,220 1,264
Other assets 9,288 8,275
-------- --------
Total assets $919,274 $693,205
======== ========
Liabilities and Stockholders' Equity:
- -------------------------------------
Deposits:
Non-interest-bearing demand $ 63,323 $ 41,448
Interest-bearing demand 94,689 66,046
Savings 120,012 98,968
Time 441,202 355,154
Notes payable and other borrowed money 88,500 50,274
Subordinated debentures 12,501 12,295
Securities sold under agreements to repurchase 4,315 1,660
Checks payable on loans originated 7,119 3,824
Deferred federal income taxes 1,264 1,104
Other liabilities 15,680 6,041
-------- --------
Total liabilities 848,605 636,814
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Series A 7.75% Cumulative Convertible
Preferred stock ($25.00 stated value,
460,000 shares authorized, issued
and outstanding in 1994) - 11,500
Series B, 6.00% Cumulative Convertible
Preferred stock ($25.00 stated value,
302,580 shares authorized, issued
and outstanding in 1995) 7,564 -
Common stock ($1.00 par value, 25,000,000
shares authorized, 3,982,616 and 3,030,690
shares issued, respectively, and 3,960,276 and
3,008,350 shares outstanding, respectively) 3,983 3,031
Additional paid-in capital 25,376 15,209
Retained earnings 33,584 27,794
Net unrealized gain(loss) on securities
available-for-sale, net of taxes 431 (874)
Treasury stock at cost (22,340 shares) (269) (269)
-------- --------
Total stockholders' equity 70,669 56,391
-------- --------
Total liabilities and stockholders' equity $919,274 $693,205
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
64
<PAGE> 65
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income
- ---------------------------------
Years Ended September 30,
--------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------
(Dollars in Thousands)
Interest Income:
- ----------------
Loans $49,990 $41,827 $45,614
Securities 10,957 6,481 5,228
Federal funds sold and
repurchase agreements 466 254 399
Other interest income 77 - -
------- ------- -------
61,490 48,562 51,241
------- ------- -------
Interest Expense:
- -----------------
Deposits 26,167 19,796 21,610
Short-term borrowings 3,785 1,470 1,767
Long-term borrowings 2,781 3,851 5,635
------- ------- -------
32,733 25,117 29,012
------- ------- -------
Net interest income 28,757 23,445 22,229
Provision for estimated
losses on loans 1,440 1,500 1,979
------- ------- -------
Net interest income after
provision for estimated
losses on loans 27,317 21,945 20,250
------- ------- -------
Non-Interest Income:
- --------------------
Loan servicing fees 2,398 2,870 2,700
Gain on sale of
investment securities 34 - -
Gain (loss) on sale of loans
and mortgage-backed securities (207) 461 1,190
Gain on sale of servicing 2,353 3,367 3,321
Deposit account service charges 3,330 2,719 2,018
Other income 224 466 48
------- ------- -------
Total non-interest income 8,132 9,883 9,277
------- ------- -------
35,449 31,828 29,527
------- ------- -------
The accompanying notes are an integral part of the consolidated financial
statements.
65
<PAGE> 66
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income, continued
- --------------------------------------------
Years Ended September 30,
---------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
(Dollars in Thousands)
Non-Interest Expense:
- ---------------------
Compensation, payroll taxes
and fringe benefits 12,442 11,960 11,116
Occupancy and equipment 2,965 2,765 2,688
Advertising 856 854 656
Professional fees 765 815 857
Data processing 718 655 788
Federal deposit insurance premiums 1,740 1,551 1,384
Amortization of intangible assets 729 375 386
Net cost of operation of other
real estate 370 1,080 1,135
Other expenses 3,586 2,974 3,165
-------- -------- --------
Total non-interest expense 24,171 23,029 22,175
-------- -------- --------
Income before income tax expense
and extraordinary loss 11,278 8,799 7,352
-------- -------- --------
Income Tax Expense (Benefit):
- -----------------------------
Current 3,394 2,557 1,200
Deferred (187) 193 1,419
-------- -------- --------
3,207 2,750 2,619
-------- -------- --------
Income before extraordinary loss 8,071 6,049 4,733
Extraordinary loss on
extinguishment of debt, (net
of related income tax benefit
of $269) - - (521)
-------- -------- --------
Net income 8,071 6,049 4,212
Dividends on preferred stock 864 891 557
-------- -------- --------
Net income applicable to common
stockholders $ 7,207 $ 5,158 $ 3,655
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
66
<PAGE> 67
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income, continued
- --------------------------------------------
Years Ended September 30,
-------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
Earnings Per Common Share:
- --------------------------
Income before extraordinary loss:
Primary $ 2.23 $ 1.67 $ 1.37
Fully diluted $ 1.93 $ 1.50 $ 1.29
Extraordinary loss on
extinguishment of debt, net
of related income tax
benefit:
Primary - - $ (.17)
Fully diluted - - $ (.13)
Net income:
Primary $ 2.23 $ 1.67 $ 1.20
Fully diluted $ 1.93 $ 1.50 $ 1.16
Dividends Per Common Share: $ .43 $ .32 -
- ---------------------------
Average Number of Shares Outstanding:
- -------------------------------------
Primary 3,228,698 3,088,828 3,048,137
Fully diluted 4,204,892 4,049,489 3,687,133
The accompanying notes are an integral part of the consolidated financial
statements.
67
<PAGE> 68
<TABLE>
<CAPTION>
First Liberty Financial Corp. and Subsidiaries Obligations
Consolidated Statements of Stockholders' Equity Under
(Dollars in Thousands) Net Employee Total
Additional Unrealized Stock Stock-
Preferred Common Paid-in Retained Gain(Loss)on Treasury Ownership holders'
Stock Stock Capital Earnings Securities Stock Plan Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1992 $ 0 $ 3,001 $ 16,026 $ 19,944 $ 0 $ (269) $ (249) $ 38,453
Common stock issued for exercise
of stock options - 30,000 shares - 30 156 - - - - 186
Series A, 7.75% Cumulative Convertible Preferred
stock issued-$25.00 stated value-460,000 shares 11,500 - (973) - - - - 10,527
Series A, 7.75% Cumulative Convertible Preferred
stock dividends declared, $1.21 per share - - - (557) - - - (557)
Repayment of obligations under Employee
Stock Ownership Plan - - - - - - 65 65
Net unrealized gain on securities available-
for-sale, net of taxes - - - - 998 - - 998
Net income - - - 4,212 - - - 4,212
--------- --------- ---------- ---------- ---------- -------- --------- -----------
Balances at September 30, 1993 11,500 3,031 15,209 23,599 998 (269) (184) 53,884
Series A, 7.75% Cumulative Convertible Preferred
stock dividends declared, $1.94 per share - - - (891) - - - (891)
Common stock dividends declared, $0.32 per share - - - (963) - - - (963)
Repayment of obligations under Employee
Stock Ownership Plan - - - - - - 184 184
Net unrealized loss on securities available-
for-sale, net of taxes - - - - (1,872) - - (1,872)
Net income - - - 6,049 - - - 6,049
--------- --------- ---------- ---------- ---------- -------- --------- -----------
Balances at September 30, 1994 11,500 3,031 15,209 27,794 (874) (269) 0 56,391
Series B, 6.00% Cumulative Convertible Preferred
stock issued-$25.00 stated value-302,580 shares 7,564 - (545) - - - - 7,019
Series A, 7.75% Cumulative Convertible Preferred
stock dividends declared, $1.45 per share - - - (669) - - - (669)
Series B, 6.00% Cumulative Convertible Preferred
stock dividends declared, $0.64 per share - - - (195) - - - (195)
Common stock dividends declared, $0.43 per share - - - (1,417) - - - (1,417)
Conversion of 457,463 shares of Series A, 7.75%
Cumulative Convertible Preferred stock into
914,926 shares of Common stock, and 2,537
shares redeemed for $26.20 per share (11,500) 915 10,519 - - - - (66)
Common stock issued for exercise
of stock options - 37,000 shares - 37 193 - - - - 230
Net unrealized gain on securities available-
for-sale, net of taxes - - - - 1,305 - - 1,305
Net income - - - 8,071 - - - 8,071
--------- --------- ---------- ---------- ---------- -------- --------- -----------
Balances at September 30, 1995 $ 7,564 $ 3,983 $ 25,376 $ 33,584 $ 431 $ (269)$ 0 $ 70,669
========= ========= ========== ========== ========== ======== ========= ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
68
<PAGE> 69
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows
- -------------------------------------
Years Ended September 30,
---------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------
Operating Activities: (Dollars in Thousands)
- ---------------------
Cash flows from operating
activities:
Net income $ 8,071 $ 6,049 $ 4,212
Adjustments to reconcile
net income to cash provided
by(used in) operations:
Depreciation 1,727 1,618 1,463
Deferred income tax expense
(benefit) (187) 193 905
Amortization of loan fees (623) (776) (747)
Provision for estimated
losses on loans and real
estate 1,947 2,597 3,112
Amortization of intangibles 729 375 386
Dividends received on stock (254) (416) (591)
Loss on extinguishment
of debt - - 790
Loss(gain) on sales of loans,
mortgage-backed and
investment securities 173 (461) (1,190)
Loans available-for-sale:
Disbursements (57,020) (160,060) (486,106)
Purchases (69,590) (190,758) (193,517)
Sales 113,053 402,506 654,202
Repayments 791 8,079 8,833
Decrease (increase) in accrued
interest receivable (1,475) (431) 624
Increase(decrease) in accrued
interest payable 170 (26) (654)
Other, net 9,328 (1,399) (2,894)
--------- --------- ---------
Total adjustments (1,231) 61,041 (15,384)
--------- --------- ---------
Net cash provided by(used in)
operating activities 6,840 67,090 (11,172)
--------- --------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
69
<PAGE> 70
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows, continued
- ------------------------------------------------
Years Ended September 30,
--------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------
Investing Activities: (Dollars in Thousands)
- ---------------------
Cash flows from investing
activities:
Net decrease(increase) in
federal funds sold and repurchase
agreements (15,917) (3,309) 12,899
Investment securities available-
for-sale:
Purchases (11,211) (5,176) (26,501)
Sales 30,960 74 2,044
Maturities 3,000 2,843 27,247
Mortgage-backed securities
available-for-sale:
Purchases (64,450) (59,864) (43,042)
Sales 19,478 6,205 9,243
Principal repayments 23,041 33,891 21,600
Loan disbursements (334,034) (281,217) (234,342)
Loan purchases (31,033) - -
Loan sales 8,251 - 44
Loan principal repayments 280,264 261,417 250,123
Purchases of premises
and equipment (1,447) (1,743) (2,079)
Proceeds from sales of real estate 1,612 1,821 3,296
Net decrease(increase) in advances to
attorneys for loans originated (1,956) 17,448 (1,281)
Cash received in acquisitions,net 86,220 - 31,458
--------- --------- ---------
Net cash (used in) provided by
investing activities (7,222) (27,610) 50,709
--------- --------- ---------
Financing Activities:
- ---------------------
Cash flows from financing
activities:
Net increase(decrease) in
deposits (33,300) 15,656 (24,831)
Notes payable and other borrowed
money:
Proceeds 380,000 176,000 107,000
Repayments (342,415) (197,008) (124,540)
Net increase(decrease) in
securities sold under agreements
to repurchase 2,655 (6,814) (6,445)
Net increase(decrease) in checks
payable on loans originated 3,295 (22,422) 2,391
The accompanying notes are an integral part of the consolidated financial
statements.
70
<PAGE> 71
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows, continued
- ------------------------------------------------
Years Ended September 30,
-----------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------
(Dollars in Thousands)
Issuance of preferred stock - - 10,527
Redemption of preferred stock (66) - -
Issuance of common stock 230 - 186
Dividends paid on stock (1,700) (2,077) (334)
-------- -------- ---------
Net cash provided by(used in)
financing activities 8,699 (36,665) (36,046)
-------- -------- ---------
Net increase in
cash and due from banks 8,317 2,815 3,491
Cash and due from banks
beginning of period 16,293 13,478 9,987
-------- -------- ---------
Cash and due from banks
end of period $ 24,610 $ 16,293 $ 13,478
======== ======== =========
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
- ------------------------
Cash paid during the year for:
Interest $ 32,564 $ 25,144 $ 29,666
Income taxes 2,665 3,688 2,745
Noncash Investing and Financing
Activities:
Real estate foreclosed $ 1,462 $ 1,492 $ 7,183
Financing of sales of foreclosed
real estate 3,678 3,339 5,627
Conversion of mortgage loans into
mortgage-backed securities - 596 36,598
Dividends declared but not paid
on preferred stock 66 - 223
Dividends declared but not paid
on common stock 515 - -
Acquisitions:
Fair value of assets acquired $(113,176) - $ (48,015)
Fair value of liabilities assumed 199,396 - 79,473
--------- ---------
Net cash received $ 86,220 - $ 31,458
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
71
<PAGE> 72
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ------------------------------------------
1. Summary of Significant Accounting Policies
----------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of First
Liberty Financial Corp. ("First Liberty") and its wholly-owned
subsidiaries, First Liberty Bank ("Liberty Bank") and Liberty
Mortgage Corporation ("Liberty Mortgage") (collectively known as
"the Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
- -------------------------
For the purpose of presentation in the consolidated statements of
cash flows, cash and cash equivalents are defined as those amounts
included in the statement of financial condition caption "Cash and
Due From Banks."
Debt and Equity Securities
- --------------------------
On September 30, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115 requires
the following classification and reporting of investments:
Held-to-Maturity Securities. Debt and equity securities that
---------------------------
the Company has the positive intent and ability to hold to
maturity. Held-to-maturity securities are reported at
amortized cost.
Trading Securities. Debt and equity securities that are
------------------
bought and held principally for the purpose of selling them in
the near term. Trading securities are reported at fair value,
with unrealized gains and losses included in earnings.
Available-for-Sale Securities. Debt and equity securities
-----------------------------
that are not classified as either held-to-maturity securities
or trading securities. Available-for-sale securities are
reported at fair value, with unrealized gains and losses
reported in a separate component of stockholders' equity.
Gains or losses on sales of securities are determined based upon
the specific identification method. Unrealized gains and losses
for available-for-sale securities are excluded from earnings and
reported net as a separate component of stockholders' equity until
realized. This amount is reported net of income taxes. As of
September 30, 1995 and 1994, the Company's entire portfolio of debt
and equity securities was classified as available-for-sale.
72
<PAGE> 73
During the period from January 1, 1993 to September 29, 1993, in
accordance with Securities and Exchange Commission Staff
requirements, all debt securities which were to be held for
indefinite periods of time, including securities which were to be
used as part of the Company's asset/liability management strategy
and that might be sold in response to changes in interest rates,
changes in prepayment risk, the need to increase regulatory
capital, or other similar factors, were classified as available-
for-sale and carried at the lower of cost or market. Upon adoption
of this policy, the Company's entire portfolio of debt securities
was classified as available-for-sale. The adoption of this policy
did not have a material impact on the Company's financial position
or results of operations.
Prior to January 1, 1993, debt securities were classified as held-
to-maturity and carried at amortized cost unless management had
determined that specific securities, under current conditions or
future conditions which were reasonably foreseeable, might be sold,
in which case such securities were classified as available-for-sale
and carried at the lower of cost or market. The Company had the
ability to hold until maturity, and it was management's intention
to hold until maturity, all debt securities classified as held-to-
maturity.
Loans Available-for-Sale
- ------------------------
Loans available for sale are stated at the lower of cost or market
and gains and losses on sales of first mortgage loans are
recognized at the time of sale. Gains and losses are determined as
the difference between the net sales proceeds (including fees paid
to the Company to release servicing rights) and the book value of
the loans or securities sold, as adjusted by the estimated present
value associated with excess or deficient servicing fees. The
present value of excess and deficient servicing fees is amortized
on the level-yield method over the estimated lives of the related
loans.
The method used in determining the lower of cost or market value of
mortgage loans is the aggregate basis.
Loans
- -----
Loans are generally recorded at the contractual amounts owed by
borrowers, less unearned discounts, deferred origination fees, the
undisbursed portion of any loans in process, and the allowance for
loan losses. Interest on loans is credited to income as earned to
the extent it is deemed collectible. Discounts on loans purchased
are accreted into interest income using the level-yield method over
the contractual lives of the loans, adjusted for actual
prepayments.
73
<PAGE> 74
Loans which are delinquent 90 days (four payments) or over
generally are placed on non-accrual status unless the
collectibility of accrued interest is assured beyond a reasonable
doubt. In some cases, loans less than 90 days (four payments)
delinquent are placed on non-accrual where material uncertainty
exists as to their collectibility. When loans are placed on non-
accrual, all previously accrued interest is charged against
interest income and further accruals are discontinued, unless a
part of the previously accrued interest is considered collectible
beyond a reasonable doubt. In such cases, the amount of accrued
interest considered collectible is not charged off.
Allowance for Estimated Loan Losses
- -----------------------------------
The allowance for estimated loan losses is established and
maintained through a periodic review and evaluation of various
factors which affect the loans' collectibility and results in
provisions for loan losses which are charged to expense. Numerous
factors are considered in the evaluation including: (1) a review
of certain borrowers' current financial status, credit standing,
and available collateral; (2) historical loan loss experience in
relation to outstanding loans; (3) the diversification and size of
the loan portfolio; (4) the results of the most recent regulatory
examinations available to the Company; (5) the overall loan
portfolio quality; (6) management's judgement regarding prevailing
and anticipated economic conditions; and (7) other relevant
factors.
Loan Servicing Rights
- ---------------------
Purchased mortgage servicing rights represent the amortized cost
basis in the contractual rights to service mortgages on behalf of
an investor, in exchange for a servicing fee and ancillary loan
administration income. The cost of purchasing these servicing
rights is capitalized on all purchased 15, 20, and 30-year fixed-
rate conventional and government loans, and is amortized using a
method approximating the level-yield method over management's best
estimate of the remaining loan lives.
When loans sold have an average contractual interest rate, adjusted
for normal servicing fees, that differs from the agreed yield to
the purchaser, gains or losses are recognized equal to the present
value of such differential over the estimated remaining life of
such loans. The resulting "excess (deficient) servicing fees
receivable (payable)" is amortized over the estimated life using a
method approximating the level-yield method over management's best
estimate of the remaining loan lives.
The carrying value of mortgage servicing rights purchased, and the
excess (deficient) servicing fees receivable (payable) are
periodically evaluated in relation to the estimated future net
servicing revenues. If the present value of future net cash flows
74
<PAGE> 75
are less than the amortized cost, the carrying value is reduced to
the present value. The Company evaluates the carrying value of its
excess (deficient) servicing fee receivable (payable) by
determining the present value of the amount by which the actual
monthly servicing fees collected exceed "normal" servicing fees.
Periodically, the Company uses an independent party to evaluate the
present value of its portfolio of purchased servicing. Both
evaluations are principally determined using discounted cash flows
of disaggregated groups of mortgage servicing rights.
Loan Fees and Origination Costs
- -------------------------------
Loan origination fees, commitment fees, and certain direct loan
origination costs are deferred and recognized over the lives of the
related loans as an adjustment of the loans' yields using the
level-yield method. Calculation of the level-yield is based upon
weighted average contractual payment terms which are adjusted for
actual prepayments.
Financial Options and Commitments Transactions
- ----------------------------------------------
Fees paid to purchase rights to sell loans at future dates at
specified prices ("options") and commitment fees paid to secure
markets to sell first mortgage loans are deferred and amortized
over the term of the commitment. Upon determination that
commitments will not be utilized, the related fees are charged to
expense.
Securities Sold Under Agreements to Repurchase
- ----------------------------------------------
The Company enters into sales of securities under agreements to
repurchase identical or substantially similar securities in the
future ("repurchase agreements"). Obligations under repurchase
agreements are reflected as liabilities and securities sold
continue to be reflected as assets in the financial statements.
All repurchase agreements mature within one year.
Premises and Equipment
- ----------------------
Premises and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the related assets (33 to 40
years for buildings and 3 to 10 years for equipment). Expenditures
for maintenance and repairs are charged against earnings as
incurred. Costs of major additions and improvements are
capitalized. Upon disposition or retirement of property, the cost
and the related accumulation depreciation are removed from the
accounts. Any resulting gain or loss is reflected in current
income.
75
<PAGE> 76
Real Estate
- -----------
Real estate is carried at the lower of fair value less estimated
selling costs or cost. Any write-down from the cost to fair value
required at the time of foreclosure is charged to the allowance for
estimated loan losses. Subsequent write-downs and gains or losses
recognized on the sale of real estate are included in non-interest
income or expense.
Intangible Assets
- -----------------
Intangible assets are amortized over periods ranging from 10 to 25
years on the straight-line basis. The recoverability of the
intangible assets are reviewed periodically to determine if
adjustments to carrying value or amortization periods are
necessary. Accumulated amortization as of September 30, 1995 and
1994 was $3.5 million and $2.7 million, respectively.
Fair Value of Financial Instruments
- -----------------------------------
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. These fair values are provided
for disclosure purposes only, and do not impact carrying values of
financial statement amounts.
Cash, Due From Banks, Federal Funds Sold and Repurchase Agreements.
-------------------------------------------------------------------
The carrying amount reported in the balance sheet for cash, due from
banks and federal funds sold approximates those assets' fair values.
Investment Securities (Including Mortgage-backed Securities).
-------------------------------------------------------------
Fair values for investment securities are based on quoted
market prices where available. If quoted market prices are
not available, fair values are based on quoted market prices
of comparable instruments.
Loans Receivable. For variable-rate loans held-for-
-----------------
investment, fair values are based on carrying values. The
fair values for loans available-for-sale are based on quoted
market prices of similar loans sold including the value of
servicing rights. The fair values for all other loans are
estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality.
The fair value for servicing rights is based on a market value
analysis performed by an independent third party.
Deposit Liabilities. The fair values disclosed for deposits
--------------------
(i.e., interest and non-interest checking), regular savings,
76
<PAGE> 77
and money market accounts are equal to the amount payable on
demand at the reporting date. Fair values for fixed-rate
certificates are estimated using a discounted cash flow
calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated monthly
maturities on time deposits.
Short-term Borrowings. The carrying amounts of federal funds
----------------------
purchased, borrowings under repurchase agreements, and other
short-term borrowings approximate their fair values.
Long-term Borrowings. The fair values of the Company's long-
---------------------
term borrowings (other than deposits) are estimated using
discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing
agreements.
Subordinated Debt. The fair values of Liberty Bank's
------------------
subordinated debt is based on the optional redemption price
of 103.0% at September 30, 1995 and 104.0% at September 30,
1994.
Off-balance-sheet Instruments. Liberty Bank has commitments
------------------------------
to extend standby letters of credit and to purchase and sell
loans and mortgage-backed securities. These types of credit
are made at market rates; therefore, there would be no market
risk associated with these credits which would create a
significant fair value liability.
Liberty Mortgage has commitments to originate loans for
borrowers as well as commitments to sell loans to investors.
The fair value of commitments to originate loans, on which a
rate commitment has been made, is based on current market
value. On commitments to originate loans, where no rate
commitments have been made, fair value equals carrying amount.
The fair value of mandatory commitments to sell loans is based
on current market values. The fair value of optional
commitments to sell loans is based on carrying value. The
carrying value of optional commitments to sell loans equals
the net notional amount of optional commitments to sell and of
optional commitments to buy loans or mortgage-backed
securities.
Income Taxes
- ------------
The Company follows the liability method of accounting for income
taxes pursuant to SFAS No. 109, "Accounting for Income Taxes" (See
Note 13). The effect of applying SFAS No. 109 is to take
principally a balance sheet approach to providing for deferred
taxes. Deferred tax balances will be regularly adjusted through
77
<PAGE> 78
the statement of operations to reflect current estimates of future
taxes payable or refundable. First Liberty files a consolidated
income tax return; however, income taxes are computed by each
subsidiary on a separate basis, and taxes currently payable are
remitted to First Liberty.
Earnings Per Common 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 September 30 or the average market price for the
year, 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.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1994 and 1993
consolidated financial statements to conform to the 1995
presentation.
Estimates
- ---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Accounting Changes and Recently Issued Accounting Standards
---------------------------------------------------------------
In May, 1993 the Financial Accounting Standards Board ("FASB")
issued SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan". The Company adopted SFAS No. 114 on October 1, 1995. SFAS
No. 114 requires that certain impaired loans be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. Because of specialized
industry practices, most impaired loans on the Company's books are
currently measured at the lower of cost or fair value by the
allocation of loan loss reserves. In October, 1994 FASB issued
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" which amended SFAS No. 114 to allow
a creditor to use existing methods for recognizing interest income
78
<PAGE> 79
on an impaired loan. The adoption of SFAS No. 114 and SFAS No. 118
did not have a material impact on the Company's financial
statements.
In October, 1994 FASB issued SFAS No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments". This statement was adopted by the Company in the
fiscal year ending September 30, 1995. SFAS No. 119 requires
disclosures about derivative financial instruments - futures,
forward, swap, and option contracts, and other financial
instruments with similar characteristics. SFAS No. 119 requires
certain disclosure information by entities that hold or issue
derivative financial instruments for trading purposes or for
purposes other than trading. It also requires certain disclosure
information by entities that hold or issue derivative financial
instruments and account for them as hedges of anticipated
transactions. The adoption of SFAS No. 119 did not have a material
impact on the Company's financial statements as a whole.
In March, 1995, the FASB issued 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 ("APB") 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 No. 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.
In May, 1995, FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights". This statement is effective for financial
statements issued by the Company for the fiscal year ending
September 30, 1997, although earlier adoption is permitted. SFAS
No. 122 amends SFAS No. 65 "Accounting for Certain Mortgage Banking
Activities", to require that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for
others regardless of whether those servicing rights are acquired
through either the purchase or origination of mortgage loans. This
statement also requires that the mortgage banking enterprise assess
79
<PAGE> 80
its capitalized mortgage servicing rights for impairment based upon
the fair value of those rights, including those rights purchased
before adoption of this statement. Impairment should be recognized
through a valuation allowance. Retroactive capitalization of
mortgage servicing rights before the adoption of this statement is
prohibited. Historically, Liberty Mortgage has sold servicing
rights to offset marketing concessions incurred relative to loans
originated. After the adoption of SFAS No. 122, Liberty Mortgage
will recognize servicing rights as financial assets to offset
marketing concessions. Accordingly, after adoption of SFAS No.
122, management anticipates fewer servicing sales and a reduction
in the gains on sales of servicing offset by an increase in the
gains on sales of loans from the recognition of servicing rights
assets. Additionally, the Company's recorded investments in
mortgage servicing rights is expected to increase after the
adoption of SFAS No. 122.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes accounting and
reporting standards for stock-based employee compensation plans
including stock purchase plans, stock options, restricted stock and
stock appreciation rights. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure
compensation cost using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued To Employees". Entities electing to remain with the
accounting in Opinion No. 25 must make pro forma disclosures of net
income and earnings per share as if the fair value method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123
is generally effective for the Company for the year ending
September 30, 1997, although earlier adoption is permitted.
Management is reviewing SFAS No. 123 to determine the effects of
the two methods on the financial condition and results of
operations of the Company.
3. Acquisitions
----------------
On September 15, 1995, the Company acquired by merger Tifton Banks,
Inc. ("Tifton") of Tifton, Georgia, and it subsidiary, Tifton Bank
& Trust Company ("Tifton Bank"). Tifton Bank, on the date of
acquisition, held the following approximate balances: loans of $42
million, cash and investments of $21 million, premises and
equipment of $1 million and deposits of $45 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 a
commercial bank. Total assets acquired were approximately $3
million and total cash received and deposits assumed were
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<PAGE> 81
approximately $95 million. Intangible assets resulting from the
acquisition were approximately $4 million.
On December 2, 1994, the Company acquired by merger Central Banking
Company ("CBC") of Swainsboro, Georgia, and its subsidiary, The
Central Bank ("The Central Bank"). Central Bank 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.
The financial institutions acquired were accounted for as purchases
and accordingly, income and expenses of such institutions are
included in the consolidated statements of the Company from the
date of acquisition forward.
The following table presents unaudited proforma results of
operations for the years ended September 30, 1995 and 1994, after
giving effect to the amortization of intangibles and other proforma
adjustments, as if the acquisitions previously discussed had
occurred at the beginning of the periods presented. The proforma
adjustments do not include any operating efficiencies which have
been realized in the combined operations. Accordingly, the
proforma summary information does not necessarily reflect the
results of operations as they actually would have been, if the
acquisitions had occurred at the beginning of the years presented
(dollars and shares outstanding in thousands).
(Unaudited)
September 30,
---------------------
1995 1994
------- -------
Net interest income before provision for
estimated losses on loans $31,674 $29,363
Net income 8,309 7,207
Earnings Per Common Share:
Primary $ 2.17 $ 1.90
Fully diluted 1.89 1.64
Average Shares Outstanding:
Primary 3,229 3,089
Fully diluted 4,411 4,410
In March 1993, Liberty Bank acquired six branch offices, located in
supermarkets in Savannah, Georgia, from another institution.
Liberty Bank operated four branches in Savannah prior to the
acquisition. Total assets acquired by Liberty Bank were
approximately $7 million and total deposits assumed were
approximately $38 million. Intangible assets resulting from the
acquisition amounted to approximately $1 million.
On December 11, 1992, the Company acquired First Federal Savings
and Loan Association, Milledgeville, Georgia ("First Federal") in
81
<PAGE> 82
a supervisory conversion for a cash purchase price of $1,000.
First Federal, on the date of acquisition, held loans and mortgage-
backed securities of approximately $32 million, cash and
investments of approximately $6 million, premises and equipment
with a value of approximately $1 million, deposits of approximately
$38 million, and other borrowings of approximately $3 million.
Intangible assets resulting from the acquisition amounted to
approximately $449,000.
4. Securities Available-for-Sale
---------------------------------
Investment and mortgage-backed securities available-for-sale are
summarized as follows (dollars in thousands):
September 30,
-----------------------
1995 1994
-------- --------
Investment Securities:
---------------------
U.S. government agencies $ 14,591 $ 5,116
Investment grade corporate
equity securities 4,394 4,079
Federal Home Loan Bank of
Atlanta stock 9,733 9,733
Other 80 -
Mortgage-backed Securities:
--------------------------
Federal National Mortgage
Association 40,738 30,829
Federal Home Loan
Mortgage Corporation 78,721 71,977
Government National Mortgage
Corporation 2,835 3,212
Other 16,521 5,368
-------- --------
$167,613 $130,314
======== ========
Mortgage-backed securities at September 30, 1995 and 1994 included
$85.3 million and $55.7 million, respectively, of investments
collateralized by mortgage obligations and mortgage pass-through
securities. Liberty Bank does not invest in collateralized
mortgage obligations which are considered "high risk" as defined by
the Federal Financial Institutions Examination Council guidelines.
At September 30, 1995 and 1994, all mortgage-backed securities were
available-for-sale. Adjustable rate pass-through securities are
subject to interest rate adjustments indexed to the one year or
three year constant maturity treasury, the one to six month London
Inter-Bank Offered Rate, or the Cost of Funds Index.
At September 30, 1995, the Company had no open futures contracts or
option contracts as interest rate hedges related to investment or
mortgage-backed securities.
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<PAGE> 83
The amortized cost and estimated market value of all investments in
debt and equity securities are summarized as follows (dollars in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
At September 30,1995: Cost Gains Losses Value
- -------------------------- --------- ---------- ---------- ---------
U.S. government agencies $ 14,526 $ 94 $ 29 $ 14,591
Investment grade corporate
equity securities 4,416 - 22 4,394
Federal Home Loan Bank
of Atlanta stock 9,733 - - 9,733
Other 80 - - 80
Mortgage-backed securities 138,205 1,288 678 138,815
--------- ---------- ---------- ---------
$166,960 $ 1,382 $ 729 $167,613
========= ========== ========== =========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
At September 30,1994: Cost Gains Losses Value
- ------------------------ --------- ---------- ---------- ---------
U.S. government agencies $ 5,200 $ - $ 84 $ 5,116
Investment grade
corporate equity
securities 4,161 - 82 4,079
Federal Home Loan Bank
of Atlanta stock 9,733 - - 9,733
Mortgage-backed securities 112,544 367 1,525 111,386
-------- -------- -------- --------
$131,638 $ 367 $ 1,691 $130,314
======== ======== ======== ========
The change to stockholders' equity for the net unrealized gain or
loss on debt and equity securities during fiscal 1995 was a net
gain of $1,305,000 (net of related taxes of $672,000) and a net
loss of $1,872,000 (net of related taxes of $965,000) during fiscal
1994.
The amortized cost and estimated market value of debt and equity
securities at September 30, 1995, by contractual maturity, are
shown below. Expected maturity will differ from contractual
maturities because borrowers may have the right to prepay
obligations with or without call or prepayment penalties (dollars
in thousands):
Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less $ 4,795 $ 4,773
Due after one year through five years 13,415 13,482
Due after five years through ten years 812 810
Due after ten years - -
--------- ---------
19,022 19,065
Federal Home Loan Bank of Atlanta stock 9,733 9,733
Mortgage-backed securities 138,205 138,815
-------- --------
$166,960 $167,613
======== ========
83
<PAGE> 84
Proceeds, gross realized gains and losses on the sale of debt and
equity securities for the three years ended September 30, 1995 are
as follows (dollars in thousands):
September 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
Proceeds $50,438 $ 6,279 $11,291
Gross realized gains 255 13 133
Gross realized losses 74 20 -
5. Loans Available-for-Sale and Mortgage Banking Operations
-----------------------------------------------------------
Loans originated for sale to the secondary market, principally
residential first mortgage loans, are typically sold within ninety
days of origination. The Company had commitments to originate
residential mortgage loans of approximately $49 million, including
$1.8 million to be held in portfolio and $16.2 million on which the
interest rate had not been locked-in at September 30, 1995.
Commitments to buy and sell, respectively, residential mortgage
loans and mortgage-backed securities for mandatory delivery were
approximately $1.8 million and $32 million at September 30, 1995.
Also, at September 30, 1995, the Company bought $4 million of
optional commitments to sell residential mortgage loans. The
Company had no open futures contracts as interest rate hedges
related to loans available-for-sale or commitments to originate
residential mortgage loans at September 30, 1995.
The following summarizes the principal balance of whole loans and
participations which the Company was servicing for its portfolio
and investors (dollars in thousands):
September 30,
------------------------------------
1995 1994 1993
--------- ---------- ----------
Loans serviced for investors $ 617,549 $ 837,926 $ 784,490
Loans sub-serviced for
others 2,744 57,857 50,747
Loans serviced for Liberty
Bank's portfolio 233,436 208,172 247,980
-------- ---------- ----------
Total loans serviced $853,729 $1,103,955 $1,083,217
======== ========== ==========
Number of loans serviced 12,326 15,142 15,470
======== ========== ==========
In connection with loans serviced, there were no off-balance sheet
escrow accounts.
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<PAGE> 85
Changes in the amounts capitalized in connection with the purchase
of mortgage servicing rights are as follows (dollars in thousands):
September 30,
-----------------------------
1995 1994 1993
------- ------- -------
Balance, beginning of year $ 2,915 $ 1,491 $ 99
Acquired 337 2,138 1,649
Sold (692) (156) (82)
Amortization (484) (558) (175)
------- ------- -------
Balance, end of year $ 2,076 $ 2,915 $ 1,491
======= ======= =======
Changes in the amounts capitalized in connection with excess
servicing fees on loans originated are as follows (dollars in
thousands):
September 30,
-----------------------------
1995 1994 1993
------- ------- -------
Balance, beginning of year $ - $ 280 $ 581
Acquired - - -
Gain on realized sales - - (1)
Amortization - (280) (300)
Valuation allowance - - -
------- ------- -------
Balance, end of year $ - $ - $ 280
======= ======= =======
The following table summarizes the Company's financial data with
respect to its mortgage banking operations (dollars in thousands):
September 30,
-----------------------------
1995 1994 1993
------- ------- -------
Total revenues $ 6,602 $ 9,222 $11,366
Total expenses 4,575 5,354 6,028
------- ------- -------
Income before income taxes $ 2,027 $ 3,868 $ 5,338
======= ======= =======
Total assets $19,884 $18,191 $20,502
======= ======= =======
Depreciation expense $ 193 $ 120 $ 112
======= ======= =======
Capital expenditures for office
premises and equipment $ 112 $ 356 $ 186
======= ======= =======
85
<PAGE> 86
6. Loans
--------
Loans are summarized as follows (dollars in thousands):
September 30,
-------------------------
1995 1994
--------- ---------
Loans collateralized
by real estate:
Residential first mortgage $ 157,531 $ 125,803
Commercial first mortgage 60,730 78,036
Consumer mortgage (1) 51,786 34,104
Construction loans:
Residential real estate 69,579 53,167
Commercial real estate 18,301 18,298
Commercial business 131,963 61,579
Consumer-indirect auto loans 123,750 111,371
Consumer-other loans 19,817 10,637
--------- ---------
633,457 492,995
Allowance for estimated
losses (7,816) (5,680)
--------- ---------
$ 625,641 $ 487,315
========= =========
Weighted average interest
rate at year-end 8.92% 8.59%
========= ========
(1) Loans collateralized by the equity in the borrower's
residence.
The above balances exclude undisbursed loan commitments
representing loans in process and unused lines of credit amounting
to approximately $80.1 million and $38.3 million at September 30,
1995 and 1994, respectively.
Liberty Bank's loans to one borrower ("LTOB") limitation is 15% of
unimpaired capital and surplus (as defined by the Office of
Comptroller of the Currency) unless the loans are collateralized by
readily marketable assets, in which case the limitation is 25%.
For loans in excess of this limitation, Liberty Bank is restricted
from extending additional credit and options to renew such credits
are limited. Liberty Bank's limitation at September 30, 1995 was
approximately $11.0 million based on the 15% limitation and $18.4
million based on the 25% limitation. At September 30, 1995,
Liberty Bank had no relationships in excess of the LTOB limitation.
Liberty Bank's aggregate investment in loans collateralized by non-
residential real estate may not exceed 400% of its risk-based
capital. Liberty Bank had excess capacity to originate loans
collateralized by non-residential real estate of approximately $140
million at September 30, 1995.
The Company's exposure to credit loss in the event of non-
performance by the borrower is represented by the outstanding
principal balance of the respective loans plus the amount of
undisbursed committed funds, if any. The Company evaluates each
86
<PAGE> 87
customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if any, is based on management's credit
evaluation pursuant to the Company's lending and underwriting
policy. Collateral held varies but may include real estate and
improvements, inventory, accounts receivable and equipment or
personal property.
The loan portfolio does not contain any material concentrations of
credit risk within any one industry. Most credits are located
within Georgia, the Company's primary market area.
All restructured loans were performing at September 30, 1995. The
average yield on restructured loans was 7.98% at that date and was
not materially below the market rate of interest for such loans.
The following table sets forth the interest income that would have
been recorded under the original terms and the actual interest
income recorded for nonaccrual and for troubled debts restructured
for the year ended September 30, 1995 (dollars in thousands).
Troubled
Nonaccrual Debts
Loans Restructured
---------- ------------
Interest income that would have
been recorded under the original terms $ 227 $ 1,115
====== ========
Interest income recorded $ 137 $ 863
====== ========
7. Allowance for Estimated Loan Losses
---------------------------------------
Changes in the allowance for estimated loan losses for the three
years ended September 30, 1995 are as follows (dollars in
thousands):
September 30,
----------------------------
1995 1994 1993
------ ------ ------
Balance at beginning of year $5,680 $6,141 $5,641
Provision for estimated losses 1,440 1,500 1,979
Acquisitions 879 - 1,675
Charge-offs (2,598) (4,279) (4,698)
Recoveries 2,415 2,318 1,544
------ ------ ------
Balance end of year $7,816 $5,680 $6,141
====== ====== ======
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<PAGE> 88
8. Premises and Equipment
--------------------------
Premises and equipment are summarized as follows (dollars in
thousands):
September 30,
-------------------
1995 1994
-------- --------
Land $ 3,596 $ 3,258
Office buildings 22,528 20,127
Furniture, fixtures and equipment 11,885 10,955
-------- --------
38,009 34,340
Less accumulated depreciation 15,815 14,293
-------- --------
$ 22,194 $ 20,047
======== ========
Certain office facilities are occupied under operating lease
arrangements with future annual rentals as follows (dollars in
thousands):
Year ended September 30,:
1996 $ 274
1997 279
1998 281
1999 283
2000 281
--------
Thereafter 950
$ 2,348
========
Total rent expense was approximately $360,000, $256,000, and
$177,000 for the years ended September 30, 1995, 1994 and 1993,
respectively.
9. Real Estate
---------------
Investments in real estate are summarized as follows (dollars in
thousands):
September 30,
---------------------
1995 1994
-------- --------
Acquired through foreclosure $ 4,185 $ 10,189
Insubstance foreclosures - 32
Allowance for estimated losses (302) (2,908)
-------- --------
3,883 7,313
-------- --------
Acquired for development 312 356
Allowance for estimated losses (142) (158)
-------- --------
170 198
-------- --------
$ 4,053 $ 7,511
======== ========
Sales of real estate owned during fiscal 1995 were $5.1 million,
of which, Liberty Bank provided financing for $3.7 million.
88
<PAGE> 89
Changes in the allowance for estimated losses on real estate for
the years ended September 30, 1995, 1994, and 1993 are as follows
(dollars in thousands):
September 30,
-----------------------------
1995 1994 1993
------- ------- -------
Acquired through foreclosure
- ----------------------------
and insubstance foreclosure:
----------------------------
Balance, beginning of year $ 2,908 $ 2,277 $ 2,370
Provision for estimated losses 507 1,097 1,133
Charge-offs, net (3,113) (466) (1,226)
------- ------- -------
Balance, end of year $ 302 $ 2,908 $ 2,277
======= ======= =======
Acquired for development:
- -------------------------
Balance, beginning of year $ 158 $ 177 $ 177
Charge-offs, net (16) (19) -
------- ------- -------
Balance, end of year $ 142 $ 158 $ 177
======= ======= =======
10. Notes Payable and Other Borrowed Money
-------------------------------------------
Notes payable and other borrowed money are summarized as follows
(dollars in thousands):
September 30,
------------------
1995 1994
------- -------
Advances from the Federal Home
- ------------------------------
Loan Bank of Atlanta:
---------------------
Short term (interest rates
ranging from 5.91% to 8.95% and
5.07% to 7.91% at September 30,
1995 and 1994, respectively) $80,500 $33,250
Long term (interest rates
ranging from 5.05% to 5.09% and
5.05% to 8.95% at September 30,
1995 and 1994, respectively) 8,000 17,000
Discounts on acquired advances - 24
------- -------
$88,500 $50,274
======= =======
Liberty Bank's unused borrowing capacity with the Federal Home Loan
Bank ("FHLB") of Atlanta at September 30, 1995 was approximately
$73.5 million in advance and warehouse lines of credit.
Additionally, Liberty Bank has approximately $15 million in fed
fund lines with correspondent banks.
At September 30, 1995, contractual principal maturities of long-
term notes payable and other borrowed money are as follows (dollars
in thousands):
1996 $ -
1997 -
1998 8,000
1999 -
2000 -
2001 and thereafter -
-----------
$ 8,000
===========
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<PAGE> 90
The following table sets forth the outstanding, maximum month-end
and average balances of short-term FHLB advances and other short-
term borrowings and the associated weighted average interest rates
at the dates indicated. Average balances have been computed from
the average of month-end balances during the fiscal years indicated
(dollars in thousands).
September 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
Outstanding balance, end of period $ 80,500 $ 33,250 $ 34,000
Maximum month end balance 92,500 47,250 34,000
Average balance outstanding
during the year 52,308 29,904 21,003
Weighted average interest rate,
end of period 6.25% 5.91% 3.91%
Weighted average interest rate,
during the period 6.11% 4.48% 7.24%
Advances from the FHLB of Atlanta are collateralized by residential
first mortgage loans and mortgage-backed and government agency
securities with unpaid principal balances aggregating approximately
$140 million and $88 million at September 30, 1995 and 1994,
respectively. At September 30, 1995, Liberty Bank was required to
collateralize its advances with acceptable collateral with a
lendable collateral value equal to 100% of advances outstanding.
The lendable collateral value of the residential first mortgage
loans and mortgage-backed securities pledged to the advances was
85% and 90% of their fair market value, respectively.
During the fourth quarter of 1993, Liberty Bank refinanced $15.8
million in advance borrowings to extend the average maturity of the
debt while lowering the average cost of funds. A prepayment
penalty of $790,000 ($521,000 net of related income taxes) was
incurred and accounted for as an extraordinary item.
11. Subordinated Debentures
----------------------------
Subordinated debentures are summarized as follows (dollars in
thousands): September 30,
---------------------------
1995 1994
---------- ----------
8 1/4% Convertible subordinated
debentures due August 1, 2005 $ 664 $ 664
11% Subordinated debentures
due August 1, 2004 16,116 16,116
8 1/4% Subordinated debentures
due August 1, 2004 379 379
---------- ----------
17,159 17,159
Discounts and capitalized
issuance costs (4,658) (4,864)
---------- ----------
$ 12,501 $ 12,295
========== ==========
Accretion of discounts and
amortization issuance costs $ 206 $ 187
========== ==========
The Company's 8.25% convertible subordinated debentures originally
issued in 1985, are convertible into common stock of the Company at
a conversion price of $16.33 per share. The debentures are
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<PAGE> 91
redeemable at the option of the Company, in whole or in part, at
the principal amount plus accrued interest. The remaining
debentures are due in the Company's fiscal year ending September
30, 2005.
In 1991, the Company issued $16,153,500 and $379,500 principal
amount of 11.00% and 8.25% subordinated debentures due August 1,
2004, respectively. Both of these issues are not convertible and
may be redeemed at the option of the Company, in whole or in part,
after August 1, 1993 at the principal amount plus accrued interest
and at a premium if redeemed before August 1, 1998. Periodic
interest and principal payments on the debentures are made directly
by Liberty Bank. The initial premium was 5.00% and declines
annually each August 1 beginning in 1994. The premium at September
30, 1995 was 3.00%. There is no mandatory redemption of these
debentures prior to maturity.
The following provisions apply to all subordinated debentures. The
indentures provide, among other things, that the Company will not
dispose of the capital stock of Liberty Bank nor will it permit
Liberty Bank to issue securities that are convertible into the
capital stock of Liberty Bank if the Company would own less than
80% of the outstanding shares of any voting class of stock. The
liability of the Company on the indebtedness is subordinated to all
senior indebtedness as defined in the indentures. At September 30,
1995, the Company had approximately $812,041,000 of outstanding
indebtedness (including approximately $719,226,000 in deposits)
that would constitute senior indebtedness under the indentures.
12. Securities Sold Under Agreements to Repurchase
---------------------------------------------------
Liberty Bank enters into financing arrangements with approved
brokers, dealers and individuals whereby securities are sold under
agreements to repurchase identical or substantially identical
securities at a future date ("repurchase agreements"). These
arrangements are reflected as financing transactions in that the
securities sold are reported as assets in the accompanying
financial statements with the proceeds of sale reflected as
borrowings. These financing arrangements generally have maturities
ranging from 30 to 180 days. Generally, securities sold under
agreements to repurchase are under the control of the counterparty
during the term of the agreement. Selected data concerning
repurchase agreements is presented below (dollars in thousands).
91
<PAGE> 92
September 30,
----------------------------------
1995 1994 1993
------- ------- -------
Mortgage-backed securities
sold under agreements to
repurchase at year end:
Book value $ 4,287 $ 1,773 $ 9,218
Market value $ 4,344 $ 1,781 $ 9,247
Obligations under repurchase
agreements at year end:
Identical securities $ 4,315 $ 1,660 $ 8,474
Maximum borrowings under
repurchase agreements for
the year:
Identical securities $24,839 $ 9,493 $13,746
Average borrowings under
repurchase agreements for
the year:
Identical securities $ 8,050 $ 3,712 $ 7,609
Weighted average interest
rate on repurchase
agreements at year end: 6.07% 4.47% 3.21%
13. Income Taxes
-----------------
The Company files a consolidated federal income tax return. The
Company is allowed to determine its bad debt deductions for tax
purposes under either the percentage of taxable income method
(limited to 8% of taxable income before such deduction), or the
experience method. Generally, the experience method is based on
actual loss experience. For the years ended September 30, 1995,
1994 and 1993, the Company used the experience method bad debt
deduction since this method provided a more favorable bad debt
deduction.
The provision for federal income taxes consists of the following
(dollars in thousands):
September 30,
---------------------------
1995 1994 1993
------- ------- -------
Current $ 3,394 $ 2,557 $ 931
Deferred (187) 193 1,419
------- ------- -------
Total $ 3,207 $ 2,750 $ 2,350
======= ======= =======
Actual income taxes (including income tax (benefit) on
extraordinary items) differ from income taxes computed at the
federal corporate statutory rate of 34% as shown below:
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<PAGE> 93
September 30,
----------------------------
1995 1994 1993
-------- -------- --------
Statutory federal
income tax rate 34.0% 34.0% 34.0%
Bad debt deduction (8.9) 2.2 2.6
Amortization of intangible assets 1.3 1.0 1.5
Tax exempt interest (.9) (1.6) (2.4)
Other, net 2.9 (4.3) .1
-------- -------- --------
Effective federal income tax rate 28.4% 31.3% 35.8%
======== ======== ========
Deferred income taxes included in the consolidated statements of
financial condition is presented net of deferred tax assets. Gross
deferred tax assets and deferred tax liabilities as of September
30, 1995 and 1994 are as follows (dollars in thousands):
September 30,
-------------------
1995 1994
-------- --------
Deferred Tax Assets:
- --------------------
Loan loss reserves $ 1,652 $ 1,158
Deferred loan fees 136 214
Real estate owned loss reserves 346 352
Reserve for uncollected late fees 102 93
Purchase accounting adjustments, net 211 108
Other reserve accounts 249 161
Unrealized loss on securities available-
for-sale 248 575
Other 283 154
------- -------
Total deferred tax assets 3,227 2,815
------- -------
Deferred Tax Liabilities:
- -------------------------
Section 481 mark-to-market adjustment 384 512
Depreciation 497 634
Cancellation of indebtedness 353 366
Loan swap 140 166
Loan discounts 466 517
FHLB stock 1,275 1,275
Loan origination fees 358 -
Purchase accounting adjustments, net 251 145
Unrealized gain on securities available-
for-sale 470 125
Other, net 297 179
------- -------
Total deferred tax liabilities 4,491 3,919
------- -------
Total net deferred tax liability $ 1,264 $ 1,104
======= =======
The Company's management has determined that it is more likely than
not that its deferred tax asset 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
September 30, 1995 that may affect the realization of the Company's
93
<PAGE> 94
deferred tax assets. The Company evaluates the realizability of
deferred tax assets quarterly by assessing the need for a valuation
allowance.
Earnings appropriated to bad debt reserves established for income
tax purposes cannot be used for any purpose other than to absorb
bad debt losses without recognition of taxable income. Dividends
may be paid out of unappropriated retained earnings without the
imposition of any tax to the extent that the amounts paid as
dividends do not exceed earnings and profits as calculated for
federal income tax purposes. The Company has a taxable temporary
difference relating to its bad debt reserves for which Liberty Bank
has not provided a deferred tax liability. The temporary
difference is the amount of the base year tax bad debt reserve
(i.e., tax bad debt reserves that arose in tax years beginning
before December 31, 1987). As of the year ended September 30,
1995, the cumulative amount of this temporary difference for which
the Company is not required to recognize a deferred tax liability
is approximately $12.0 million. The amount of the unrecognized
deferred tax liability related to this temporary difference is $4.1
million.
The Company's income tax returns are periodically examined by
various taxing authorities. Currently, the Internal Revenue
Service ("IRS") is examining the 1986 through 1989 federal income
tax returns. Management does not expect that this examination will
result in a material adverse impact on the consolidated financial
statements.
The Company and other financial institutions in Georgia are subject
to the same taxes, state and local, as any other corporation in
Georgia. The Georgia corporate income tax rate is 6% and is based
on federal taxable income, with certain adjustments. The primary
difference between taxable income for state and federal income tax
purposes is interest income on United States Government
obligations, which is not taxable for state income tax purposes.
14. Preferred Stock
--------------------
On September 15, 1995 and December 2, 1994, in connection with the
acquisitions of Tifton and CBC, the Company issued $7.6 million in
Series B 6.00% Cumulative Convertible Preferred ("Series B") stock.
The shares have a liquidation preference of $25.00 per share.
Dividends on the Series B stock are cumulative at an annual rate of
$1.50 per share and are payable quarterly. Each share of the
Series B 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 Series B stock at any
time on or after January 1, 1997.
On July 31, 1995 the Company redeemed 2,537 shares of its Series A
7.75% Cumulative Convertible Preferred (Series "A") stock for
$66,879, plus accrued and unpaid dividends. Each share of the
Series A was convertible into two shares of the Company's common
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<PAGE> 95
stock. The remaining 457,463 shares of the Series A stock were
converted into 914,926 shares of the Company's common stock on that
date.
Prior to July 31, 1995, the Series A stock had a liquidation
preference of $25 per share. Dividends on the stock were
cumulative at an annual rate of $1.9375 per share and were payable
quarterly. Each share of Series A stock was convertible at the
option of the holder into two shares of common stock, at a
conversion price of $12.50.
Dividends declared during 1995 and 1994 were $864,000 and $891,000,
respectively. Dividends paid during 1995 and 1994 were $798,000
and $1,114,000, respectively.
As required by APB Opinion No. 15, supplementary primary earnings
per share data is presented for each of the years in the three-year
period ended September 30, 1995. For the computation of
supplementary primary earnings per share, shares issued July 31,
1995 for the conversion of preferred stock originally issued on
February 16, 1993, are included in the weighted average shares
outstanding from the beginning of each period (or issuance date for
1993) and, accordingly, net income has not been reduced by
preferred dividends.
Supplementary primary earnings per share is as follows:
Years ended September 30,
------------------------------------
1995 1994 1993
--------- --------- ---------
Net income per share
of common stock $ 1.97 $ 1.51 $ 1.16
Average number shares
outstanding 3,988,212 4,003,754 3,617,146
15. Regulatory Restrictions
----------------------------
Liberty Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. The regulations
require Liberty Bank to meet specific capital adequacy guidelines
that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. Liberty Bank's capital
classification is also subject to qualitative judgements by the
regulators about components, risk weightings and other factors.
Failure to meet minimum capital requirements can initiate certain
actions by regulators that could have a direct effect on the
Company's financial statements. Management believes Liberty Bank
was in compliance with its regulatory capital requirements at
September 30, 1995, and is presently considered "well capitalized"
under the Federal Deposit Insurance Corporation's prompt corrective
action guidelines.
As required by regulations, Liberty Bank, at the time of its
conversion to a stock institution, established a liquidation
account and maintains the account for the benefit of its depositors
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<PAGE> 96
at that time who continue to have funds on deposit. The initial
balance of this liquidation account was equal to the institution's
net worth prior to conversion of $15,722,000. In the event of a
complete liquidation of the institution (and only in such event),
each such depositor who continues to be a depositor at the time of
such liquidation shall be entitled to receive a liquidation
distribution from this account in the amount of the then current
adjusted balance for deposits held, before any liquidation
distribution may be made to shareholders. This account is reduced
annually in proportion to the reduction of eligible savings account
balances measured on each fiscal year end.
Liberty Bank is prohibited from declaring or paying cash dividends
on its common stock if the payment thereof would cause a reduction
in its regulatory capital below either the liquidation account or
the capital requirements set by the Office of Thrift Supervision
("OTS") or, without the prior approval of the OTS, if the amount of
dividends to be paid in any year would exceed 50% of its net income
for the fiscal year in which the dividend is declared (except that
permitted dividends may be deferred and paid in a subsequent year).
No dividends were declared during fiscal 1993 or 1994. During
fiscal 1995 Liberty bank declared and paid dividends to First
Liberty in the amounts of $6.3 million and $3.2 million,
respectively. Liberty Bank holds $3.6 million in declared but
unpaid dividends to the Company at September 30, 1995, which may be
paid without OTS notification.
The Federal Reserve Board requires depository institutions to
maintain non-interest-bearing reserves against their deposit
transaction accounts, non-personal time deposits (transferrable or
held by a person other than a natural person) with an original
maturity of less than one and one-half years and certain money
market deposit accounts. Federal Reserve regulations currently
require financial institutions to maintain average daily reserves
equal to 3% on all amounts from $4.2 million to $54.0 million of
net transactions, plus 10% on the remainder. Liberty Bank
maintained $2.9 million in reserves at September 30, 1995.
16. Employee Benefit Plans
---------------------------
The First Liberty Financial Corp. Employee Savings and Stock
Ownership Plan (the "ESSOP") is both a qualified retirement plan
and an employee stock ownership plan. The Company may make
discretionary contributions of the Company common stock to the
employee stock ownership plan portion of the ESSOP in an amount not
more than 10% of the total compensation of participants for the
plan year. Under the 401(k) portion of the ESSOP, the Company will
make matching contributions of the Company common stock in amounts
determined annually by its Board of Directors. Dividends earned on
the Company common stock are retained in the ESSOP.
The Company also has an Officer Profit Sharing Plan (the "OPSP"),
which was designed to reward the Company's officers for their
collective effort in maximizing the Company's "core earnings," (as
defined in the OPSP agreement). The OPSP provides that if core
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<PAGE> 97
earnings for the fiscal year equal or exceed a predetermined
minimum core earnings, the OPSP participants will receive
additional cash compensation based upon a percentage of annual
salary, with the percentage increasing as the amount of core
earnings increases.
The contributions to the ESSOP and the OPSP included in the
accompanying financial statements are as follows (dollars in
thousands):
September 30,
------------------------------------------
1995 1994 1993
---------- ---------- ----------
ESSOP $ 201 $ 302 $ 293
OPSP $ 501 $ 450 $ 294
The Company also has an Executive Deferred Compensation Plan (the
"EDCP"), established in 1995, in which officers holding the title
of First Vice President or above may participate. The EDCP
provides a means of enabling participants to defer portions of
their compensation in excess of the amounts which they contribute
to the ESSOP. The amount which a participant presently may defer
under the EDCP is ten percent of total annual compensation.
17. Stock Options
------------------
The Company granted options to purchase its common stock to certain
officers and key employees under an Incentive Stock Option Plan
("ISOP") which was approved by the Company's stockholders in 1984.
The options are exercisable for a period of up to five years from
the date of issuance under the Plan. The ISOP expired in 1993.
The First Liberty Financial Corp. 1992 Stock Incentive Plan (the
"1992 Plan") was adopted by the Board of Directors of the Company
on November 24, 1992 and was approved by the stockholders on March
4, 1993. It is intended to further the growth and development of
the Company by encouraging key officers of the Company or its
subsidiaries to obtain a proprietary interest in the Company by
purchasing its common stock.
The stock granted under the 1992 Plan is the $1.00 par value common
stock. There are 161,000 shares of common stock, in the aggregate,
which may be granted under the 1992 Plan, provided that the
unexercised portion of shares of common stock allocable to expired
or terminated options may become subject to options under the 1992
Plan. As of September 30, 1995, there were 44,000 shares available
for grant.
The 1992 Plan is administered by the Compensation and Benefits
Committee of the Company's Board of Directors ("the Committee").
The members of the Committee cannot participate in the 1992 Plan
and must be "disinterested persons" within the meaning of Rule 16b-
3 of the Securities Exchange Act of 1934.
Incentive stock options and other stock options granted under the
1992 Plan must be at a price not less than the fair market value of
the shares at the date of grant. Options granted under the plan
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<PAGE> 98
must be exercised within the earlier of: (i) three months after
the optionee ceases to be in the employ of the Company for any
reason other than death or disability; (ii) the expiration date as
determined by the Committee, listed in the option agreement; (iii)
immediately upon termination of employment for cause; (iv) one year
after termination of employment because of disability unless the
optionee dies within this one year period; or (v) one year after
the death of an optionee who dies (a) while in the employ of the
Company, (b) within three months after termination of employment,
or (c) within one year after employment terminated due to
disability. The Committee may extend the above expiration dates
for any non-incentive stock options it grants.
The 1992 Plan will terminate on the later of (i) the complete
exercise or lapse of the last outstanding option, or (ii) on the
last date upon which options may be granted under the plan (which
may not be later than ten years after the date on which the plan is
adopted), subject to its earlier termination by the Board of
Directors at any time.
Information with regard to options issued under the ISOP during
each of the three fiscal years in the period ended September 30,
1994 and under the 1992 plan during the years then ended is as
follows:
ISOP 1992 Plan
---------------- -----------------
Option Average Option Average
Shares Price Shares Price
------ ------- ------ -------
Options outstanding at
September 30, 1992 114,000 $ 5.48
Issued 25,000 9.38 90,000 $10.82
Exercised (25,000) 5.48 (5,000) 9.88
Canceled - - (15,000) 9.88
------- -------
Options outstanding at
September 30, 1993 114,000 6.34 70,000 11.09
Issued - - 57,000 15.22
------- -------
Options outstanding at
September 30, 1994 114,000 6.34 127,000 12.94
Issued - - 15,000 16.00
Exercised (30,000) 5.64 (7,000) 8.75
Canceled - - (30,000) 14.00
------- -------
Options outstanding at
September 30, 1995 84,000 6.58 105,000 13.36
======= =======
Under the 1992 Plan, the number of shares exercisable at September
30, 1995 and 1994 was 52,000 and 50,000, respectively. All options
under the ISOP were exercisable during the above periods.
On October 26, 1995, the Board of Directors of First Liberty (the
"Board") approved an amendment to the 1992 Plan to provide that
options granted on and after that date will be exercisable over a
period of ten years from date of grant rather than five years from
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<PAGE> 99
date of grant and to increase the number of shares available for
grant under that plan by 221,000. This amendment is subject to the
approval of First Liberty's stockholders at the 1996 Annual Meeting
of Stockholders (the "1996 Annual Meeting").
On November 21, 1995, the Board adopted the First Liberty Financial
Corp. 1995 Director Stock Option Plan (the "DSOP"), subject to the
approval of First Liberty's stockholders at the 1996 Annual
Meeting. The DSOP is intended to further the growth and
development of First Liberty by encouraging its directors who are
not employees of First Liberty to obtain proprietary interest in
First Liberty by acquiring its stock. If approved by the
stockholders, up to 50,000 shares of common stock, in the
aggregate, may be granted to non-employee directors under the DSOP.
18. Financial Instruments With Off Balance Sheet Risk
------------------------------------------------------
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing
needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments
include loan commitments and standby letters of credit. The
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
financial statements.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
loan commitments and standby letters of credit is represented by
the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The
Company has no significant concentrations of credit risk with any
individual counterparty to originate loans. The Company's lending
is concentrated in Georgia, its primary market area. The contract
or notional amounts of financial instruments with off-balance sheet
risk at September 30, 1995 and 1994 are as follows (dollars in
thousands):
September 30,
---------------------------
1995 1994
--------- ---------
Commitments to originate loans:
Fixed rate $47,236 $ 17,567
Adjustable rate 19,299 31,006
Standby letters of credit 945 180
Mandatory delivery forward
placement contracts 35,781 11,270
Optional delivery forward
placement contracts 4,000 6,000
Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent
future cash requirements. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon
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<PAGE> 100
extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but may include real
estate and improvements, marketable securities, accounts
receivable, inventory, equipment and personal property.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers.
Mandatory and optional forward placement contracts (which are held
for purposes other than trading) are used by the Company to hedge
its interest rate exposure during the period from when the Company
extends an interest rate lock to a loan applicant until the time in
which the loan is sold. Realized gains and losses on the mandatory
and optional forward contracts are recognized in gain (loss) from
sales of loans in the period settlement occurs. Unrealized gains
and losses on these contracts are included in the lower of cost or
market valuation adjustment to loans available-for-sale. The
mandatory and optional forward contracts above covered the market
risk associated with the pipeline loans less predicted fallout at
September 30, 1995 and 1994 of $40,129 and $8,678, respectively,
and the pipeline loans less predicted fallout for which interest
rates were committed of $20,741 and $8,019, respectively.
The Company has not recorded specific liabilities for credit risk
associated with off-balance sheet financial instruments. Credit
risk associated with commitments to originate loans is mitigated
through the purchase of commitments to sell such loans generally
within 90 days of origination. Credit risk associated with standby
letters of credit is considered in the assessment of the allowance
for estimated loan losses.
Liberty Bank's risk with respect to mortgage servicing losses
results from unrecoverable advances of delinquent principal,
interest and tax payments made on behalf of mortgagors. Liberty's
mortgage servicing department controls the risk of this portfolio
on an ongoing basis. Liberty Bank has not suffered significant
losses from its mortgage servicing activities.
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19. Fair Values of Financial Instruments
-----------------------------------------
The estimated fair values of the Company's financial instruments
were as follows (dollars in thousands).
September 30, 1995 September 30, 1994
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- --------- --------
Financial Assets:
-----------------
Cash, due from banks,
fed funds sold and
repurchase agreements $ 47,262 $ 47,262 $ 21,108 $ 21,108
Securities available-
for-sale 167,613 167,613 130,314 130,314
Loans, net 625,641 629,306 487,315 486,160
Loans available-for-sale 22,282 22,282 9,983 9,983
Loan servicing rights 2,076 3,463 2,915 5,867
Financial Liabilities:
----------------------
Deposits $ 719,226 $ 719,343 $561,616 $561,195
Federal Home Loan Bank
advances 88,500 88,353 50,274 49,819
Subordinated debentures 12,501 17,654 12,295 17,825
Securities sold under
agreements to repurchase 4,315 4,315 1,660 1,660
Off-Balance-Sheet Financial
---------------------------
Instruments:
------------
Standby letters of credit $ 945 $ 945 $ 180 $ 180
Commitments to originate
loans 66,535 66,611 48,573 48,427
Mandatory commitments to
sell loans 35,781 35,708 3,251 3,276
Optional commitments to
sell loans 4,000 4,003(1) 6,000 6,040(1)
Loan servicing rights - 6,397 - 6,904
(1) Excludes net unamortized option fees of $23,240 at September 30, 1995,
and $4,410 at September 30, 1994.
The fair value disclosures provided exclude certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. The disclosures also do not include certain
intangible assets, such as customer relationships, deposit base
intangible and goodwill. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
20. Contingencies
------------------
The Company is from time to time a defendant in legal actions from
normal business activities. Management does not anticipate that
the ultimate liability arising from litigation outstanding at
September 30, 1995, will have a materially adverse effect on the
Company's financial position, results of operation or liquidity.
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<PAGE> 102
The majority of First Liberty's deposits are presently insured by
the Savings Association Insurance Fund (the "SAIF"), which, along
with the Bank Insurance Fund (the "BIF"), are the two insurance
funds administered by the Federal Deposit Insurance Corporation
(the "FDIC"). Financial institutions which are members of the BIF
are experiencing substantially lower deposit insurance premiums
because the BIF has achieved its required level of reserves while
the SAIF has not yet achieved its required level of reserves. A
recapitalization plan for the SAIF under consideration by Congress
provides for a special assessment of 0.85% to 0.90% of deposits to
be imposed on all SAIF insured institutions to enable the SAIF to
achieve its required level of reserves. If the proposed assessment
of 0.85% to 0.90% was effected based on deposits as of March 31,
1995 (as proposed), First Liberty's special assessment would amount
to approximately $4.7 million to $4.9 million, before taxes,
respectively. Accordingly, this special assessment would
significantly increase non-interest expense and adversely affect
the Company's results of operations. Conversely, depending upon
First Liberty's capital level and supervisory rating, and assuming,
although there can be no assurance, that the insurance premium
levels for BIF and SAIF members are again equalized, future deposit
insurance premiums could decrease significantly for future periods,
to as low as .04% from the .23% of deposits currently paid by First
Liberty. Management considers this special assessment to be
nonrecurring and anticipates no adverse results to recurring
earnings.
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21. Financial Information of First Liberty Financial Corp. (Parent
-------------------------------------------------------------------
Only)
-----
First Liberty's statements of financial condition (parent only) as
of September 30, 1995 and 1994 and the related statements of income
and cash flows for each of the three years in the period ended
September 30, 1995 are as follows:
Statements of Financial Condition
---------------------------------
September 30,
-----------------------
1995 1994
---------- ---------
(Dollars in Thousands)
Assets:
- -------
Cash $ 75(1) $ 11(1)
Other investments 8,050(2) 9,540(2)
Real estate, net 170 198
Dividends receivable from Liberty Bank 3,555(1) 449(1)
Investment in Liberty Bank 63,375(1) 46,691(1)
Other assets 65(3) 66(3)
------- -------
Total assets $75,290 $56,955
======= =======
Liabilities and Stockholders' Equity:
- -------------------------------------
Dividends payable $ 581 $ -
Other liabilities 4,040 564
------- -------
Total liabilities 4,621 564
------- -------
Stockholders' equity:
Series A Preferred stock - 11,500
Series B Preferred stock 7,564 -
Common stock 3,983 3,031
Additional paid-in capital 25,376 15,209
Retained earnings 33,584 27,794
Net unrealized gain(loss) on securities
available-for-sale, net of taxes 431 (874)
Treasury stock at cost (269) (269)
------- -------
Total stockholders' equity 70,669 56,391
------- -------
Total liabilities and stockholders'
equity $75,290 $56,955
======= =======
(1) Eliminates in consolidation.
(2) $8.0 million in 1995 and $9.5 million in 1994 eliminates in
consolidation.
(3) $3,000 in 1995 and $4,000 in 1994 eliminates in
consolidation.
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<PAGE> 104
First Liberty Financial Corp. (Parent Only)
- -------------------------------------------
Statements of Income
- --------------------
Years Ended September 30,
--------------------------------
1995 1994 1993
------ ------ ------
(Dollars in Thousands)
Income:
- -------
Interest income on
other investments $ 302(1) $ 282(2) $ 192(2)
Cash dividends from Liberty Bank(2) 3,198 - -
Other income 1 - -
------ ------ ------
Total income 3,501 282 192
------ ------ ------
Expense:
- --------
Employee Stock Ownership
Plan contribution - - 4
Directors fees 30 18 -
Other expense 106 79 67
------ ------ ------
Total expense 136 97 71
------ ------ ------
Income before income tax expense
and equity in undistributed net
income of Liberty Bank 3,365 185 121
Income tax expense 57 63 41
------ ------ ------
Income before equity in
undistributed net income of
Liberty Bank 3,308 122 80
Equity in undistributed net
income of Liberty Bank(2) 4,763 5,927 4,132
------ ------ ------
Net income 8,071 6,049 4,212
Dividends on preferred stock 864 891 557
------ ------ ------
Net income applicable to
common stockholders $7,207 $5,158 $3,655
====== ====== ======
(1) $297,000 eliminates in consolidation.
(2) Eliminates in consolidation.
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First Liberty Financial Corp. (Parent Only)
- --------------------------------------------
Statements of Cash Flow
- -----------------------
Years Ended September 30,
----------------------------------
1995 1994 1993
-------- -------- --------
(Dollars in Thousands)
Operating Activities:
- ---------------------
Cash flows from operating activities:
Net income $ 8,071 $ 6,049 $ 4,212
Equity in undistributed earnings
of Liberty Bank (4,763) (5,927) (4,132)
Other, net (28) 198 69
------- ------- -------
Total adjustments (4,791) (5,729) (4,063)
------- ------- -------
Net cash provided by
operating activities 3,280 320 149
------- ------- -------
Investing Activities:
- ---------------------
Cash flows from investing activities:
Net decrease(increase) in
other investments 1,490 1,733 (10,217)
Cash paid in acquisitions (3,198) - -
Sale of real estate 28 27 -
------- ------- -------
Net cash provided by (used in)
investing activities (1,680) 1,760 (10,217)
------- ------- -------
Financing Activities:
- ---------------------
Cash flows from financing
activities:
Issuance of preferred stock - - 10,527
Issuance of common stock 230 - 186
Redemption of preferred stock (66) - -
Decrease in due to subsidiaries - - (323)
Dividends paid on stock (1,700) (2,077) (334)
------- ------- -------
Net cash provided by (used in)
financing activities (1,536) (2,077) 10,056
------- ------- -------
Net increase (decrease) in cash 64 3 (12)
Cash beginning of period 11 8 20
------- ------- -------
Cash end of period $ 75 $ 11 $ 8
======= ======= =======
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
----------------------
Cash paid during the year for:
Income taxes $ 2,665 $ 3,688 $ 2,745
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<PAGE> 106
22. Consolidated Condensed Quarterly Results of Income (Unaudited)
-------------------------------------------------------------------
The following summarizes the consolidated condensed quarterly results of
income (unaudited) for the year ended September 30, 1995 (dollars in
thousands, except per share data):
Quarters Ended,
---------------------------------------------------
December 31 March 31 June 30 September 30
----------- ------------ --------- ------------
Total interest income $13,498 $15,159 $16,022 $16,811
Net interest income 6,468 7,044 7,583 7,662
Provision for estimated
losses on loans 300 300 300 540
Net income 1,765 2,027 2,086 2,193
Dividends on preferred
stock 240 279 278 67
------- ------- ------- -------
Net income applicable to
common stockholders $ 1,525 $ 1,748 $ 1,808 $ 2,126
======= ======= ======= =======
Earnings per common
share:
Primary $ .50 $ .56 $ .58 $ .57
Fully diluted $ .43 $ .48 $ .50 $ .52
Dividends per common
share: $ .10 $ .10 $ .10 $ .13
The following summarizes the consolidated condensed quarterly results of
income (unaudited) for the year ended September 30, 1994 (dollars in
thousands, except per share data):
Quarters Ended,
---------------------------------------------------
December 31 March 31 June 30 September 30
----------- ------------ ---------- ------------
Total interest income $12,476 $11,665 $11,982 $12,439
Net interest income 5,873 5,434 5,928 6,210
Provision for estimated
losses on loans 375 375 375 375
Net income 1,350 1,407 1,624 1,668
Dividends on preferred
stock 223 223 222 223
------- ------- ------- -------
Net income applicable to
common stockholders $ 1,127 $ 1,184 $ 1,402 $ 1,445
======= ======= ======== =======
Earnings per common
share:
Primary $ .36 $ .38 $ .45 $ .48
Fully diluted $ .34 $ .35 $ .40 $ .41
Dividends per common
share: $ .08 $ .08 $ .08 $ .08
During the fourth quarter of fiscal 1994, all remaining commercial properties
were reevaluated in light of current economic conditions. In several cases,
management elected to reduce the net carrying value of certain properties to
facilitate near term liquidation. As a result of the reductions, Liberty
Bank recorded a provision of approximately $852,000.
Also during the fourth quarter of 1994, the Company reduced its accrued
liability relating to the IRS examination and the income tax provision by
$330,000.
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ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
For the three year period ended September 30, 1995, there has been
no disagreement between First Liberty and any accountants on any
matter of accounting principles or practices or financial statement
disclosure.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information relating to the directors of First Liberty is set forth
under the caption "Proposal No. 1 - Election of Directors -
Nominees" in First Liberty's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held on January 31, 1996.
Such information is incorporated herein by reference. The
definitive Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after First Liberty's fiscal
year end. Pursuant to instruction 3 of Item 401(b) of Regulation
S-K and General Instruction G(3) of Form 10-K, information relating
to the executive officers of First Liberty is set forth at Part I,
Item 4(A) of this Report under the caption "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information relating to executive compensation is set forth under
the caption "Proposal No. 1 - Election of Directors - Executive
Compensation" in the Proxy Statement referred to in Item 10 above.
Such information is incorporated herein by reference.
ITEM 12. STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ----------------------------------------------------------
MANAGEMENT
----------
Information regarding ownership of First Liberty's $1.00 par value
Common Stock by certain persons is set forth under the captions
"Voting - Principal Stockholders" and "Proposal 1 - Election of
Directors - Nominees" in the Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information regarding certain transactions between Liberty Bank and
affiliates of First Liberty and Liberty Bank is set forth under the
caption "Proposal 1 - Election of Directors - Transactions With
First Liberty" in the Proxy Statement referred to in Item 10 above.
Such information is incorporated herein by reference.
107
<PAGE> 108
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- ----------------------------------------------------------------
FORM 8-K
--------
(a) Documents Filed as Part of This Report:
1. Financial Statement Schedules
The Company's financial statements, the notes thereto and the
report of the independent accountants are set forth on pages 62
through 107 of this Form 10-K.
3. Exhibits
The following exhibits are filed as part of or incorporated by
reference in the Report. Where such filing is made by
incorporation by reference to a previously filed registration
statement or report, such registration statement or report is
identified in parentheses.
Exhibit No. Description
3(a)1 Articles of Incorporation (Exhibit C to
Registrant's Registration Statement on Form S-
1, No. 2-98803)
3(a)2 Articles of Amendment of Articles of
Incorporation (Exhibit 3(a) 2 to Registrant's
Annual Report on Form 10-K for the year ended
September 30, 1987)
3(a)3 Articles of Amendment of Articles of
Incorporation dated February 16, 1993
3(a)4 Articles of Amendment of Articles of
Incorporation dated November 30, 1994
3(a)5 Articles of Amendment of Articles of
Incorporation dated September 12, 1995
3(b) By-laws, as amended (Exhibit 3(b) to
Registrant's Annual Report on Form 10-K for
the year ended September 30, 1986)
3(b)1 By-Laws, as amended (Exhibit 3(b)1 to
Registrant's Annual Report on Form 10-K for
the year ended September 30, 1990)
3(b)2 By-Laws, as amended (Exhibit 3(b)2 to
Registrant's Annual Report on Form 10-K for
the year ended September 30, 1990)
108
<PAGE> 109
Exhibit No. Description
4(a) Form of Registrant's 8-1/4% Convertible
Subordinated Debenture Due August 1, 2005 and
related Indenture (Exhibit E to Registrant's
Registration Statement on Form S-1, No. 2-
98803)
4(b) Forms of Registrant's 8-1/4% Subordinated
Debenture Due August 1, 2004 and 11%
Subordinated Debenture Due August 1, 2004 and
related Indenture (Exhibit T3C to Amendment
No. 2 to Form T-3 to Registrant's Application
for Qualification of Indentures under the
Trust Indenture Act of 1939)
10(a) Plan of Conversion of Liberty Bank (Exhibit
10(a) to Registrant's Annual Report on Form
10-K for the year ended September 30, 1986)
10(b) Registrant's Employee Savings and Stock
Ownership Plan (Exhibit 4 to Registrant's
Registration Statement on Form S-8, No. 33-
24733)
10(c) Registrant's Shareholder Rights Plan dated as
of August 2, 1989 (Exhibit 4.1 to Registrant's
Current Report on Form 8-K dated August 14,
1989)
10(d) Executive Employment Agreement dated as of
November 1, 1990, among Liberty Bank,
Registrant and Robert F. Hatcher
10(e) First Amendment to Executive Employment
Agreement dated as of November 1, 1991, among
Liberty Bank, Registrant and Robert F. Hatcher
10(f) Second Amendment to Executive Employment
Agreement dated as of October 21, 1992, among
Liberty Bank, Registrant and Robert F. Hatcher
10(g) Third Amendment to Executive Employment
Agreement dated as of January 26, 1994, among
Liberty Bank, Registrant and Robert F. Hatcher
10(h) Employment Agreement dated November 5, 1987
among Registrant, Liberty Bank and Richard A.
Hills, Jr.
10(i) Employment Agreement dated August 1, 1990
between Liberty Bank and Charles G. Davis
109
<PAGE> 110
Exhibit No. Description
10(j) Employment Agreement dated June 30, 1992 among
Registrant, Liberty Bank and David L. Hall
10(k) Agreement and Plan of Merger dated as of June
3, 1992, among Liberty Bank, Registrant and
First Federal Savings and Loan Association of
Milledgeville, as amended
10(l) Purchase and Assumption Agreement dated as of
September 30, 1992, between Liberty Bank and
Bankers First Savings Bank, FSB, as amended
10(m) First Liberty Financial Corp. 1992 Stock
Incentive Plan dated as of November 24, 1992
10(n) Employment Agreement dated June 28, 1995
between Liberty Bank and J. Larry Wallace
10(o) Registrant's Officer Profit Sharing Plan as
amended and restated effective October 1, 1993
10(p) Amended and Restated Agreement and Plan of
Merger as of July 15, 1994 among Registrant,
Liberty Bank, Central Banking Company and The
Central Bank (Appendix A to Registrant's
Registration Statement on Form S-4, No. 33-
83108)
10(q) Purchase and Assumption Agreement as of
October 4, 1994 between Liberty Bank and First
Union National Bank of Georgia, as amended as
of October 31, 1994, and November 29, 1994
10(r) Agreement and Plan of Merger as of May 10,
1995 among Registrant, Liberty Bank, Tifton
Banks, Inc. and Tifton Bank & Trust Company
(Appendix to Registrant's Registration
Statement on Form S-4, No. 33-60207)
10(s) Registrant's 1995 Director Stock Option Plan
as of November 21, 1996
10(t) Registrant's Annual Report on Form 11-K for
the First Liberty Financial Corp. Employee
Savings and Stock Ownership Plan for the year
ended September 30, 1992
11 Statements of Computation of Earnings Per
Share
110
<PAGE> 111
Exhibit No. Description
12 Statements of Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Stock
Dividends
21 Subsidiaries of Registrant (Exhibit 22 to
Registrant's Annual Report on Form 10-K for
the year ended September 30, 1990)
23(a) Consent of Independent Certified Public
Accountants
23(b) Consent of KPMG Peat Marwick to incorporation
by reference of financial statements in First
Liberty's Registration Statement No. 33-24733
on Form S-8
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 26,1995, the Registrant filed a
Current Report on Form 8-K which included a
press release dated September 15, 1995
concerning the completion of its acquisition
of Tifton Banks, Inc.
111
<PAGE> 112
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST LIBERTY FINANCIAL CORP.
(Registrant)
Date: December 18, 1995 By: /s/ Robert F. Hatcher
-------------------- ---------------------------
Principal Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934,
this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Thomas H. McCook Chairman of the Board December 18, 1995
--------------------- ----------------------
Thomas H. McCook and Director
/s/ Robert F. Hatcher President
---------------------
Robert F. Hatcher Chief Executive Officer December 18, 1995
----------------------
and Director
/s/ F. Don Bradford Director December 18, 1995
--------------------- ----------------------
F. Don Bradford
/s/ Richard W. Carpenter Director December 18, 1995
--------------------- ----------------------
Richard W. Carpenter
/s/ C. Lee Ellis Director December 18, 1995
--------------------- ----------------------
C. Lee Ellis
/s/ Melvin I. Kruger Director December 18, 1995
--------------------- ----------------------
Melvin I. Kruger
/s/ Jo Slade Wilbanks Director December 18, 1995
--------------------- ----------------------
Jo Slade Wilbanks
/s/ David L. Hall Executive Vice President December 18, 1995
--------------------- ----------------------
David L. Hall and Chief Financial
Officer (Duly authorized
officer and principal
financial officer)
112
<PAGE> 113
FIRST LIBERTY FINANCIAL CORP.
Index of Exhibits
The following exhibits are filed as part of or incorporated by reference in
the Report. Where such filing is made by incorporation by reference to a
previously filed registration statement or report, such registration
statement or report is identified in parentheses.
Exhibit No. Description Page
3(a)1 Articles of Incorporation (Exhibit C to Registrant's
Registration Statement on Form S-1, No. 2-98803)
3(a)2 Articles of Amendment of Articles of Incorporation
(Exhibit 3(a) 2 to Registrant's Annual Report on Form 10-
K for the year ended September 30, 1987)
3(a)3 Articles of Amendment of Articles of Incorporation dated,
February 16, 1993
3(a)4 Articles of Amendment of Articles of Incorporation dated
November 30, 1994
3(a)5 Articles of Amendment of Articles of Incorporation dated 116
September 12, 1995
3(b) By-laws, as amended (Exhibit 3(b) to Registrant's Annual
Report on Form 10-K for the year ended September 30,
1986)
3(b)1 By-Laws, as amended (Exhibit 3(b)1 to Registrant's Annual
Report on Form 10-K for the year ended September 30,
1990)
3(b)2 By-Laws, as amended (Exhibit 3(b)2 to Registrant's Annual
Report on Form 10-K for the year ended September 30,
1990)
4(a) Form of Registrant's 8 1/4% Convertible Subordinated
Debenture and related Indenture (Exhibit E to
Registrant's Registration Statement on Form S-1, No. 2-
98803)
4(b) Forms of Registrant's 8-1/4% Subordinated Debenture Due
August 1, 2004 and 11% Subordinated Debenture Due August
1, 2004 and related Indenture (Exhibit T3C to Amendment
No. 2 to Form T-3 to Registrant's Application for
Qualification of Indentures under the Trust Indenture Act
of 1939)
10(a) Plan of Conversion of Liberty Bank (Exhibit 10(a) to
Registrant's Annual Report on Form 10-K for the year
ended September 30, 1986)
113
<PAGE> 114
Exhibit No. Description Page
10(b) Registrant's Employee Savings and Stock Ownership Plan
(Exhibit 4 to Registrant's Registration Statement on Form
S-8, No. 33-24733)
10(c) Registrant's Shareholder Rights Plan dated as of August
2, 1989 (Exhibit 4.1 to Registrant's Current Report on
Form 8-K dated August 14, 1989)
10(d) Executive Employment Agreement dated as of November 1,
1990, among Liberty Bank, Registrant and Robert F.
Hatcher
10(e) First Amendment to Executive Employment Agreement dated
as of November 1, 1991, among Liberty Bank, Registrant
and Robert F. Hatcher
10(f) Second Amendment to Executive Employment Agreement dated
as of October 21, 1992, among Liberty Bank, Registrant
and Robert F. Hatcher
10(g) Third Amendment to Executive Employment Agreement dated
as of January 26, 1994, among Liberty Bank, Registrant
and Robert F. Hatcher
10(h) Employment Agreement dated November 5, 1987 among
Registrant, Liberty Bank and Richard A. Hills, Jr.
10(i) Employment Agreement dated August 1, 1990 between Liberty
Bank and Charles G. Davis
10(j) Employment Agreement dated June 30, 1992 among
Registrant, Liberty Bank and David L. Hall
10(k) Agreement and Plan of Merger dated as of June 3, 1992,
among Liberty Bank, Registrant and First Federal Savings
and Loan Association of Milledgeville, as amended
10(l) Purchase and Assumption Agreement dated as of September
30, 1992, between Liberty Bank and Bankers First Savings
Bank, FSB, as amended
10(m) First Liberty Financial Corp. 1992 Stock Incentive Plan
dated as of November 24, 1992
10(n) Employment Agreement dated June 28, 1993 between Liberty 118
Bank and J. Larry Wallace
10(o) Registrant's Officer Profit Sharing Plan as amended and
restated effective October 1, 1994
114
<PAGE> 115
Exhibit No. Description Page
10(p) Amended and Restated Agreement and Plan of Merger as of
July 15, 1994 among Registrant, Liberty Bank, Central
Banking Company and The Central Bank (Appendix A to
Registrant's Registration Statement on Form S-4, No. 33-
83108)
10(q) Purchase and Assumption Agreement as of October 4, 1994
between Liberty Bank and First Union National Bank of
Georgia, as amended as of October 31, 1994, and November
29, 1994
10(r) Agreement and Plan of Merger as of May 10, 1995 among
Registrant, Liberty Bank, Tifton Banks, Inc. and Tifton
Bank & Trust Company (Appendix to Registrant's
Registration Statement on Form S-4, No. 33-60207)
10(s) Registrant's 1995 Director Stock Option Plan as of 119
November 21, 1995
10(t) Registrant's Annual Report on Form 11-K for the First
Liberty Financial Corp. Employee Savings and Stock
Ownership Plan for the Year ended September 30, 1992
11 Statements of Computation of Earnings Per Share 134
12 Statements of Computation of Ratio of Earnings to 136
Combined Fixed Charges and Preferred Stock Dividends
21 Subsidiaries of Registrant (Exhibit 22 to Registrant's
Annual Report on Form 10-K for the year ended September
30, 1990
23(a) Consent of Independent Certified Public Accountants 137
23(b) Consent of KPMG Peat Marwick to incorporation by
reference of financial statements in First Liberty's
Registration Statement No. 33-24733 on Form S-8
27 Financial Data Schedule
115
<PAGE> 116
Exhibit 3 (a) 5
ARTICLES OF AMENDMENT
---------------------
of
--
THE ARTICLES OF INCORPORATION
-----------------------------
of
--
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
Pursuant to Section 14-2-602 of the Georgia Business
Corporation Code, the Articles of Incorporation, as amended (the
"Articles of Incorporation"), of First Liberty Financial Corp. (the
"corporation") are hereby amended according to these Articles of
Amendment.
I.
The name of the corporation is First Liberty Financial Corp.
II.
Section 5 of the Articles of Incorporation authorizes the
issuance by the corporation, as approved by its Board of Directors
without the approval of its stockholders, of up to 5,000,000 shares
of preferred stock, without par value, in one or more series, with
the shares of each such series having such preferences, limitations
and relative rights as may be determined by the Board of Directors
and set forth in a supplementary section to the Articles of
Incorporation. In accordnace with the provisions of Section 5 of
the Articles of Incorporation, on June 22, 1994, August 24, 1994
and October 26, 1994, the Board of Directors of the corporation
duly adopted an amendment to the Articles of Incorporation which
added an Appendix B to the end of the Articles of Incorporation.
The Amendment created a series of preferred stock, designated
"Series B 6.00% Cumulative Convertible Preferred Stock," and
established the preferences, limitations and relative rights
thereof.
III.
On June 28, 1995, the Board of Directors of the corporation
duly adopted an amendment to said Appendix B to the Articles of
Incorporation increasing the number of authorized shares of Series
B 6.0% Cumulative Convertible Preferred Stock, which amendment is
set forth in Article IV below. Pursuant to Section 14-2-602 of the
Georgia Business Corporation Code, shareholder action was not
required for the adoption of the amendment.
116
<PAGE> 117
IV.
Pursuant to Section 5 of the Articles of Incorporation,
Appendix B to the Articles of Incorporation hereby is amended by
deleting the second sentence of Section 1, thereof in its entirety
and substituting in lieu thereof the following:
"The shares of such series shall be designated as Series B
6.0% Cumulative Convertible Preferred Stock (the "Series B
Preferred Stock"), and the number of shares constituting the Series
B Preferred Stock shall be 350,000."
IN WITNESS WHEREOF, the corporation has caused these Articles
of Amendment to be executed by its President and its corporate seal
to be hereunto affixed and to be attested by its Secretary, this
12th day of September, 1995.
FIRST LIBERTY FINANCIAL CORP.
By: Robert F. Hatcher
------------------------------
- ----------------- Robert F. Hatcher
President and Chief
Executive Officer
[SEAL]
ATTEST: Richard A. Hills, Jr.
- ----------------- --------------------------
Richard A. Hills, Jr.
Secretary
117
<PAGE> 118
Exhibit 10 (n)
FIRST LIBERTY BANK
- ------------------
June 28, 1995
Mr. J. Larry Wallace
Executive Vice President
First Liberty Bank
6491 Peachtree Industrial Boulevard
Atlanta, Georgia 30360
Dear Mr. Wallace:
In consideration of your many years of past service to First Liberty Bank
(the "Bank") and of your agreement to continue your employment, this letter
will confirm the following. In the event your employment is terminated due to
change of control of the Bank or of First Liberty Financial Corp., i.e., a
change of more than 24.9% in stock ownership, you will be paid six (6) months
salary at the then current rate unless the resulting ownership entity offers
you continued employment in a position with comparable responsibility and
compensation.
Sincerely,
Robert F. Hatcher
-----------------
Robert F. Hatcher
President and
Chief Executive Officer
118
<PAGE> 119
Exhibit 10 (s)
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
1995 DIRECTOR STOCK OPTION PLAN
-------------------------------
ARTICLE 1
---------
Purpose
-------
1.1 General Purpose. The purpose of this Plan is to further
---------------
the growth and development of the Company by encouraging Directors
who are not employees of the Company to obtain proprietary
interests in the Company by owning its stock. The Company intends
that the Plan will provide such persons with an added incentive to
continue to serve as Directors and will stimulate their efforts in
promoting the growth, efficiency and profitability of the Company,
thereby more closely aligning their interests with those of
stockholders generally.
1.2 Intended Tax Effects of Options. It is intended that the
-------------------------------
tax effects of any Option granted hereunder should be determined
under Code Section 83.
ARTICLE 2
---------
Definitions
-----------
The following words and phrases as used in this Plan shall
have the meanings set forth in this Article unless a different
meaning is clearly required by the context:
2.1 1933 Act shall mean the Securities Act of 1933, as
--------
amended.
2.2 1934 Act shall mean the Securities Exchange Act of 1934,
--------
as amended.
2.3 Beneficiary shall mean, with respect to an Optionee, the
-----------
Person or Persons who acquire the Options of such Optionee by
bequest or inheritance. To the extent that an Option has not yet
been distributed to such Person or Persons from a deceased
Optionee's estate, an Option may be exercised by the executor or
administrator (as applicable) of the deceased Optionee's estate.
2.4 Board shall mean the Board of Directors of the Company.
-----
2.5 Cause shall mean an act or acts by an individual involving
-----
personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty to the Company, intentional failure to perform
stated duties or willful violation of any law, rule or regulation
(other than traffic violations or similar offenses).
2.6 Code shall mean the Internal Revenue Code of 1986, as
----
amended.
119
<PAGE> 120
2.7 Committee shall mean the committee appointed by the Board
---------
to administer and interpret the Plan in accordance with Article 3
below.
2.8 Common Stock shall mean the Company's $1.00 par value
------------
common stock.
2.9 Company shall mean First Liberty Financial Corp.
-------
2.10 Director shall mean an individual who is serving as a
--------
member of the Board (i.e., a director of the Company).
2.11 Disability shall mean, with respect to an individual, the
----------
total and permanent disability of such individual as determined by
the Committee in its sole discretion.
2.12 Effective Date shall mean the date on which this Plan is
--------------
adopted by the stockholders of the Company.
2.13 Fair Market Value of the Common Stock as of a date of
-----------------
determination shall mean the following:
(a) Stock Listed and Shares Traded. If the Common Stock is
------------
listed and traded on a national securities exchange (as such term
is defined by the 1934 Act) or on The Nasdaq Stock Market on the
date of determination, the Fair Market Value per share shall be the
closing price of a share of the Common Stock on said national
securities exchange or The Nasdaq Stock Market on the date of
determination. If the Common Stock is traded in the over-the-
counter market, the Fair Market Value per share shall be the
average of the bid and asked prices on the date of determination.
(b) Stock Listed But No Shares Traded. If the Common Stock is
---------------------------------
listed on a national securities exchange or on The Nasdaq Stock
Market but no shares of the Common Stock are traded on the date of
determination but there were shares traded on dates within a
reasonable period before the date of determination, the Fair Market
Value shall be the closing price of the Common Stock on the most
recent date before the date of determination. If the Common Stock
is regularly traded in the over-the-counter market but no shares of
the Common Stock are traded on the date of determination (or if
records of such trades are unavailable or burdensome to obtain) but
there were shares traded on dates within reasonable period before
the date of determination, the Fair Market Value shall be the
average of the bid and asked prices of the Common Stock on the most
recent date before the date of determination.
(c) Stock Not Listed. If the Common Stock is not listed on a
----------------
national securities exchange or on the National Market System and
is not regularly traded in the over-the-counter meet, then the
120
<PAGE> 121
Committee shall determine the Fair Market Value of the Common Stock
from all relevant available facts, which may include the average of
the bid and ask prices reflected in the over-the-counter market on
a date within a reasonable period either before or after the date
of determination or opinions of independent experts as to value and
may take into account any recent sales and purchases of such Common
Stock to the extent they are representative. The Committee's
determination of Fair Market Value, which shall be made pursuant to
the foregoing provisions, shall be final and binding for all
purposes of this Plan.
2.14 NQSO shall mean an option to which Code Section 421 (relating
----
generally to certain ISO and other options) does not apply.
2.15 Option shall mean NQSOs granted to individuals pursuant
------
to the terms and provisions of this Plan.
2.16 Option Agreement shall mean a written agreement,
----------------
substantially in the form attached hereto as Exhibit A, executed
and dated by the Company and an Optionee, evidencing an Option
granted under the terms and provisions of this Plan, setting forth
the terms and conditions of such Option, and specifying the name of
the Optionee and the number of shares of stock subject to such
Option.
2.17 Option Price shall mean the purchase price of the shares
------------
of Common Stock underlying an Option.
2.18 Optionee shall mean an individual who is granted an
--------
Option pursuant to the terms and provisions of this Plan.
2.19 Person shall mean any individual, organization,
------
corporation, partnership or other entity.
2.20 Plan shall mean this First Liberty Financial Corp. 1995
----
Director Stock Option Plan.
ARTICLE 3
---------
Administration
--------------
3.1 General Administration. The Plan shall be administered and
----------------------
interpreted by the Committee. Subject to the express provisions of
the Plan, the Committee shall have authority (to the extent that
such authority does not disqualify the Plan from being a formula
plan within the meaning of paragraph (c)(2)(ii) of Rule 16b-3 of
the 1934 Act) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine
the terms and provisions of the Option Agreements or Options shall
be evidenced (which shall not be inconsistent with the terms of the
Plan), and to make all other determinations necessary or advisable
121
<PAGE> 122
for the administration of the Plan, all of which determinations
shall be final, binding and conclusive.
3.2 Appointment. The Board shall appoint the Committee (which
-----------
may be the Board's Compensation and Benefits Committee from among
its members to serve at the pleasure of the Board. The Board from
time to time may remove members from, or add members to, the
Committee and shall fill all vacancies thereon. The Committee at
all times shall be composed of two or more directors who are not
employees of the Company or any of its subsidiary corporations.
3.3 Organization. The Committee may select one of its members
------------
as its chairman and shall hold its meetings at such times and at
such places as it shall deem advisable. A majority of the Committee
shall constitute a quorum, and such majority shall determine its
actions. The Committee shall keep minutes of its proceedings and
shall report the same to the Board at the meeting next succeeding.
ARTICLE 4
---------
Stock
-----
The stock subject to the Options and other provisions of the
Plan shall be authorized but unissued or reacquired shares of
Common Stock. Subject to readjustment in accordance with the
provisions of Article 8, the total number of shares of Common Stock
which may be granted to, or for which Options may be granted to,
persons participating in the Plan shall not exceed in the aggregate
50,000 shares of Common Stock. Notwithstanding the foregoing,
shares of Common Stock allocable to the unexercised portion of any
expired or terminated Option returned to the Company by forfeiture
again may become subject to Options under the Plan.
ARTICLE 5
---------
Eligibility to Receive and Grant of Options
-------------------------------------------
5.1 Individuals Eligible for Grants of Options. The
------------------------------------------
individuals eligible to receive Options hereunder shall be solely
those individuals who are Directors and who are not employees of
the Company or any subsidiary corporation of the Company. Such
Directors shall receive Options hereunder in accordance with the
provisions of Section 5.2 below.
5.2 Grant of Options. Options shall be granted to Directors in
----------------
accordance with the following provisions:
(a) Initial Grant of Options. As of the Effective Date, each
------------------------
Director shall be granted an Option to purchase 5,000 shares of
Common Stock.
122
<PAGE> 123
(b) Initial Grant of Options to Newly Elected Directors. On
---------------------------------------------------
the date of his or her election as a Director by the stockholders,
each Director who is not a Director as of the Effective Date and
who previously has not received an Option pursuant to paragraph (a)
above shall be granted an Option to purchase 1,000 shares of Common
Stock.
(c) Options Granted Annually. Except as set forth below, on
------------------------
[December 1] of each year, each Director then in office who has
been elected as a Director by the stockholders shall, subject to
paragraph (b) below, be granted an Option to purchase 1,000 shares
of Common Stock, with such Option subject to the provisions of
Article 6 below. Notwithstanding the foregoing, Options shall not
be granted hereunder on December 1 of a year unless the Company's
net earnings for the fiscal year ended immediately prior to such
December 1 (the "Calculation Year") equals or exceeds 10% of the
Company's stockholders' equity at the end of the Calculation Year.
A determination of the Company's net earnings and stockholders'
equity shall be made in accordance with generally accepted
accounting principles.
ARTICLE 6
---------
Terms and Conditions of Options
-------------------------------
Options granted hereunder and Option Agreements shall comply
with and be subject to the following terms and conditions:
6.1 Requirement of Option Agreement. Upon the grant of an
-------------------------------
Option hereunder, the Committee shall cause to be prepared an
Option Agreement and shall present such Option Agreement to the
Optionee. Upon execution of such Option Agreement by the Optionee,
such Option shall be deemed to have been granted effective as of
the date of grant. The failure of the Optionee to execute the
Option Agreement within 30 days after the date of the receipt of
same shall render the Option Agreement and the underlying Option
null and void ab initio.
---------
6.2 Optionee and Number of Shares. Each Option Agreement shall
-----------------------------
state the name of the Optionee and the total number of shares of
the Common Stock to which it pertains, the Option Price, and the
date as of which the Option was granted under this Plan.
6.3 Vesting. Each Option shall become exercisable immediately
-------
upon grant of such option.
6.4 Option Price. The Option Price of the shares of Common
------------
Stock underlying each Option shall be the Fair Market Value of the
Common Stock on the date the Option is granted. Upon execution of
an Option Agreement by both the Company and Optionee, the date as
of which the Option was granted under this Plan as noted in the
123
<PAGE> 124
Option Agreement shall be considered the date on which such Option
is granted.
6.5 Terms of Options. Terms of Options granted under the Plan
----------------
shall commence on the date of grant and shall expire ten years from
that; provided, in no event shall any Option be exercisable after
ten years from the date the Option is granted. No Option shall be
granted hereunder after ten years from the date the Plan is adopted
by the Board.
6.6 Terms of Exercise. The exercise of an Option may be for
-----------------
less than the full number of shares of Common Stock subject to such
Option, but such exercise shall not be made for less than (i) 1,000
shares or (ii) the total remaining shares subject to the Option, if
such total is less than 1,000 shares. Subject to the other
restrictions on exercise set forth herein, the unexercised portion
of an Option may be exercised at a later date by the Optionee.
6.7 Method of Exercise. All Options granted hereunder shall be
------------------
exercised by written notice directed to the Secretary of the
Company at its principal place of business or to such other person
as the Committee may direct. Each notice of exercise shall identify
the Option which the Optionee is exercising (in whole or in part)
and shall be accompanied by payment of the Option Price for the
number of shares specified in such notice and by any documents
required by Section 8.1. The Company shall make delivery of such
shares within a reasonable period of time; provided, if any law or
regulation requires the Company to take any action (including, but
not limited to, the filing of a registration statement under the
1933 Act and causing such registration statement to become
effective) with respect to the shares specified in such notice
before the issuance thereof, then the date of delivery of such
shares shall be extended for the period necessary to take such
action.
6.8 Medium and Time of Payment.
--------------------------
(a) The Option Price shall be payable upon the exercise of the
Option in an amount equal to the number of shares then being
purchased times the per share Option Price. Payment, at the
election of the Optionee (or his or her successors as provided in
subsection (c) of Section 6.9), shall be (A) in cash; (B) by
delivery to the Company of a certificate or certificates for shares
of the Common Stock duly endorsed for transfer to the Company with
signature guaranteed in such manner as the Company may require, or
by instructing the Company to retain shares of Common Stock upon
the exercise of the Option with a Fair Market Value equal to the
exercise price as payment; (C) by delivery to the Company of such
other property as may be acceptable to the Committee and allowed
under applicable law; or (D) by a combination of (A), (B) and (C).
124
<PAGE> 125
(b) If all or part of the Option Price is paid by delivery of
shares of the Common Stock, on the date of such payment, the
Optionee must have held such shares for at least six months from
(i) the date of acquisition, in the case of shares acquired other
than through a stock option or other stock award plan, or (ii) the
date of grant or award in the case of shares acquired through such
a plan; and the value of such Common Stock (which shall be the Fair
Market Value of such Common Stock on the date of exercise) shall be
less than or equal to the total Option Price payment. If the
Optionee delivers Common Stock with a value that is less than the
total Option Price, then such Optionee shall pay the balance of the
total Option Price in cash or other property, as provided in
paragraph (a) above.
(c) In addition to the payment of the purchase price of the
shares then being purchased, an Optionee also shall pay in cash (or
have withheld from other compensation due from the Company) an
amount equal to the amount, if any, which the Company at the time
of exercise is required to withhold under the income tax or Federal
Insurance Contributions Act tax withholding provisions of the Code,
of the income tax laws of the state of the Optionee's residence,
and of any other applicable law.
6.9 Effect of Termination of Service or Death. Except as
-----------------------------------------
provided in paragraphs (a), (b) and (c) below, no Option shall be
exercisable unless the Optionee thereof shall have been a Director
from the date of the granting of the Option until the date of
exercise; provided, the Committee, in its sole discretion, may
waive the application of this Section and, instead, may provide a
different expiration date or dates in an Option Agreement.
(a) Termination of Service. In the event an Optionee ceases to
----------------------
be a Director for any reason other than death or Disability, any
Option or unexercised portion thereof granted to him shall
terminate on and shall not be exercisable after the earliest to
occur of (i) the expiration date of the Option, (ii) one year after
the date the Optionee ceases to be a Director, or (iii) the date on
which the Company gives notice to such Optionee of termination of
his or her service as a Director if service is terminated by the
Company or by its stockholders for Cause (an Optionee's resignation
in anticipation of termination of service by the Company or by its
stockholders for Cause shall constitute a notice of termination by
the Company); provided, the Committee may provide in the Option
Agreement that such Option or any unexercised portion thereof shall
terminate sooner. Prior to the earlier of the dates specified in
the preceding sentences of this subsection (a), the Option shall be
exercisable only in accordance with its terms and only for the
number of shares exercisable on the date of termination of service
as a Director. The question of whether an authorized leave of
absence or absence for military or government service or for any
other reason shall constitute a termination of service as a
125
<PAGE> 126
Director for purposes of the Plan shall be determined by the
Committee, which determination shall be final and conclusive.
(b) Disability. Upon the termination of an Optionee's service
----------
as a Director due to Disability, any Option or unexercised portion
thereof granted to him which is otherwise exercisable shall
terminate on and shall not be exercisable after the earlier to
occur of (i) the expiration date of such Option, or (ii) one year
after the date on which such Optionee ceases to be a Director due
to Disability; provided, the Committee may provide in the Option
Agreement that such Option or any unexercised portion thereof shall
terminate sooner. Prior to the earlier of such date, such Option
shall be exercisable only in accordance with its terms and only for
the number of shares exercisable on the date such Optionee's
service as a Director ceases due to Disability.
(c) Death. In the event of the death of the Optionee (i) while
-----
he is a Director, (ii) within one year after the date on which such
Optionee's service as a Director is terminated (for a reason other
than Cause) as provided in subsection (a) above, or (iii) within
one year after the date on which such Optionee's service as a
Director terminated due to his or her Disability, any Option or
unexercised portion thereof granted to him which is otherwise
exercisable may be exercised by the Optionee's Beneficiary at any
time prior to the expiration of one year from the date of death of
such Optionee, but in no event later than the date of expiration of
the option period; provided, the Committee may provide in the
Option Agreement that such Option or any unexercised portion
thereof shall terminate sooner. Such exercise shall be effected
pursuant to the terms of this Section as if such Beneficiary is the
named Optionee.
6.10 Restrictions on Transfer and Exercise of Options. No
------------------------------------------------
Option shall be assignable or transferable by the Optionee except
by will or by the laws of descent and distribution, and any
purported transfer shall be null and void. During the lifetime of
an Optionee, the Option shall be exercisable only by him; provided,
however, that in the event the Optionee is incapacitated and unable
to exercise Options, such Options may be exercised by such
Optionee's legal guardian, legal representative, fiduciary or other
representative whom the Committee deems appropriate based on
applicable facts and circumstances.
6.11 Rights as a Stockholder. An Optionee shall have no rights
-----------------------
as a stockholder with respect to shares covered by an Option until
date of the issuance of the shares to him and only after the Option
Price of such shares is fully paid. Unless specified in Article 8,
no adjustment will be made for dividends or other rights for which
the record date is prior to the date of such issuance.
6.12 Holding Period. Shares underlying any Option granted
--------------
126
<PAGE> 127
hereunder to an Optionee who is an "affiliate" of the Company
subject to the "short-swing profit provisions" of Section 16(b) of
the 1934 Act are subject to a six-month holding period. Such
holding period will be satisfied if an Option is exercised within
six months of the date of grant, provided that the shares acquired
upon exercise are not disposed of until a minimum of six months
have elapsed from the date of grant of the Option. Notwithstanding
the foregoing, the Committee may, in its sole discretion, waive the
preceding required holding period with respect to any Optionee.
ARTICLE 7
---------
Adjustments Upon Changes in Capitalization
------------------------------------------
7.1 Recapitalization. In the event that the outstanding shares
----------------
of the Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of a
recapitalization, reclassification, stock split, combination of
shares or dividend payable in shares of the Common Stock, the
following rules shall apply:
(a) The Committee shall make an appropriate adjustment in the
number and kind of shares available for the granting of Options
under the Plan.
(b) The Committee also shall make an appropriate adjustment in
the number and kind of shares as to which outstanding Options, or
portions thereof then unexercised, shall be exercisable; any such
adjustment in any outstanding Options shall be made without change
in the total price applicable to the unexercised portion of such
Option and with a corresponding adjustment in the Option Price per
share. No fractional shares shall be issued or optioned in making
the foregoing adjustments, and the number of shares available under
the Plan or the number of shares subject to any outstanding Options
shall be the next lower number of shares, rounding all fractions
downward.
(c) If any rights or warrants to subscribe for additional
shares are given pro rata to holders of outstanding shares of the
class or classes of stock then set aside for the Plan, each
Optionee shall be entitled to the same rights or warrants on the
same basis as holders of the outstanding shares with respect to
such portion of his or her Option as is exercised on or prior to
the record date for determining stockholders entitled to receive or
exercise such rights or warrants.
7.2 Reorganization. Subject to any required action by the
--------------
stockholders, if the Company shall be a party to any reorganization
involving merger, consolidation, acquisition of the stock or
acquisition of the assets of the Company, the Committee, in its
127
<PAGE> 128
discretion, may declare that:
(a) any Option granted but not yet exercised shall pertain to
and apply, with appropriate adjustment as determined by the
Committee, to the securities of the resulting corporation to which
a holder of the number of shares of the Common Stock subject to
such Option would have been entitled; and/or
(b) any or all Options granted hereunder are to be terminated
after giving at least 30 days' notice to the Optionees to whom such
Options have been granted.
7.3 Dissolution and Liquidation. If the Board adopts a plan of
---------------------------
dissolution and liquidation that is approved by the stockholders of
the Company, the Committee shall give each Optionee written notice
of such event at least ten days prior to its effective date, and
the rights of all Optionees shall become immediately nonforfeitable
and fully exercisable or vested (to the extent permitted under
federal or state securities laws).
7.4 Limits on Adjustments. Any issuance by the Company of
---------------------
stock of any class, or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of the
Common Stock subject to any Option, except as specifically provided
otherwise in this Article. The grant of Options pursuant to the
Plan shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, consolidate or
dissolve, or to liquidate, sell or transfer all or any part of its
business or assets. All adjustments the Committee makes under this
Article shall be conclusive.
ARTICLE 8
---------
Agreement by Optionee and Securities Registration
-------------------------------------------------
8.1 Agreement. If, in the opinion of counsel to the Company,
---------
such action is necessary or desirable, no Options shall be granted
to any Optionee, and no Stock Option shall be exercisable unless,
at the time of grant or exercise, as applicable, such Optionee (i)
represents and warrants that he will acquire the Common Stock for
investment only and not for purposes of resale or distribution, and
(ii) makes such further representations and warranties as are
deemed necessary or desirable by counsel to the Company with regard
to holding and resale of the Common Stock. The Optionee shall, upon
the request of the Committee, execute and deliver to the Company an
agreement or affidavit to such effect. Should the Committee have
reasonable cause to believe that such Optionee did not execute such
agreement or affidavit in good faith, the Company shall not be
bound by the grant of the Option or by the exercise of the Option.
128
<PAGE> 129
All certificates representing shares of Common Stock issued
pursuant to the Plan shall be marked with the following restrictive
legend or similar legend, if such marking, in the opinion of
counsel to the Company, is necessary or desirable:
The shares represented by this certificate [have not been
registered under the Securities Act of 1933, as amended,
or the securities laws of any state and] are held by an
"affiliate" (as such term is defined in Rule 144
promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended) of the
Company. Accordingly, these shares may not be sold,
hypothecated, pledged or otherwise transferred except (i)
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and any applicable
securities laws or regulation of any state with respect
to such shares, (ii) in accord accordance with Securities
and Exchange Commission Rule 144, or (iii) upon the
issuance to the Company of a favorable opinion of counsel
or the submission to the Company of such other evidence
as may be satisfactory to the Company that such proposed
sale, assignment, encumbrance or other transfer will not
be in violation of the Securities Act of 1933, as
amended, or any applicable securities laws of any state
or any rules or regulations thereunder. Any attempted
transfer of this certificate or the shares represented
hereby which is in violation of the preceding
restrictions will not be recognized by the Company, nor
will any transferee be recognized as the owner thereof by
the Company.
If the Common Stock is (A) held by an Optionee who ceases to be an
"affiliate," as that term is defined in Rule 144 of the 1933 Act,
or (B) registered under the 1933 Act and all applicable state
securities laws and regulations as provided in Section 8.2, the
Committee, in its discretion and with the advice of counsel, may
dispense with or authorize the removal of the restrictive legend
set forth above or the portion thereof which is inapplicable.
8.2 Registration. In the event that the Company in its sole
------------
discretion shall deem it necessary or advisable to register, under
the 1933 Act or any state securities laws or regulations, any
shares with respect to which Options have been granted hereunder,
then the Company shall take such action at its own expense before
delivery of the certificates representing such shares to an
Optionee. In such event, and if the shares of Common Stock of the
Company shall be listed on any national securities exchange or on
The Nasdaq Stock Market at the time of the exercise of any Option,
the Company shall make prompt application at its own expense for
the listing on such stock exchange or The Nasdaq Stock Market of
the shares of Common Stock to be issued.
129
<PAGE> 130
ARTICLE 9
---------
Effective Date
--------------
The Plan shall be effective as of the Effective Date, and no
Options shall be granted hereunder prior to said date. Adoption of
the Plan shall be approved by the stockholders of the Company at
the annual meeting of the stockholders of the Company which
immediately follows the date of approval of the Plan by the Board
of Directors of the Company. Stockholder approval shall be made by
a majority of the votes cast at a duly held meeting at which a
quorum representing a majority of all outstanding voting stock is,
either in person or by proxy, present and voting on the Plan;
provided, however, such stockholder approval must be solicited
substantially in accordance with the rules and regulations in
effect under Section 14(a) of the 1934 Act. Failure to obtain such
approval shall render the Plan and any Options granted hereunder
null and void ab initio.
---------
ARTICLE 10
----------
Amendment and Termination
-------------------------
10.1 Amendment and Termination By the Board. Subject to
--------------------------------------
Section 10.2 below, the Board shall have the power at any time to
add to, amend, modify or repeal any of the provisions of the Plan,
to suspend the operation of the entire Plan or any of its
provisions for any period or periods or to terminate the Plan in
whole or in part. In the event of any such action, the Committee
shall prepare written procedures which, when approved by the Board,
shall govern the administration of the Plan resulting from such
addition, amendment, modification, repeal, suspension or
termination.
10.2 Restrictions on Amendment and Termination.
-----------------------------------------
Notwithstanding the provisions of Section 10.1 above, the following
restrictions shall apply to the Board's authority under Section
10.1 above:
(a) Prohibition Against Adverse Effects on Outstanding
--------------------------------------------------
Options. No addition, amendment, modification, repeal, suspension
- -------
or termination shall adversely affect, in any way, the rights of
the Optionees who have outstanding Options without the consent of
such Optionees;
(b) Stockholder Approval Required for Certain Modifications.
-------------------------------------------------------
No modification or amendment of the Plan may be made without the
prior approval of the stockholders of the Company if [(i) such
modification or amendment would cause the applicable portions of
the Plan to fail to qualify as an ISO plan pursuant to Code 422,]
(ii) such modification or amendment would materially increase the
130
<PAGE> 131
benefits accruing to participants under the Plan, (iii) such
modification or amendment would materially increase the number of
securities which may be issued under the Plan, or (iv) such
modification or amendment would materially modify the requirements
as to eligibility for participation in the Plan. Clauses (ii),
(iii) and (iv) of the preceding sentence shall be interpreted in
accordance with the provisions of paragraph (b)(2) of Rule 16b-3 of
the 1934 Act. Stockholder approval shall be made by a majority of
the votes cast at a duly held meeting at which a quorum
representing a majority of all outstanding voting stock is, either
in person or by proxy, present and voting or such greater number of
shares of voting stock as may be required by applicable law;
provided, however, that for modifications described in clauses
(ii), (iii) and (iv) above, such stockholder approval must be
solicited substantially in accordance with the rules and
regulations in effect under Section 14(a) of the 1934 Act as
required by paragraph (b)(2) of Rule 16b-3 of the 1934 Act; and
(c) Six-Month Restriction on Amendments. No provision of this
-----------------------------------
Plan may be modified or amended more than once every six months,
other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules
and regulations promulgated thereunder. The preceding sentence
shall be interpreted in accordance with the provisions of paragraph
(c)(ii)(B) of Rule 16b-3 of the 1934 Act.
ARTICLE 11
----------
Miscellaneous Provisions
------------------------
11.1 Application of Funds. The proceeds received by the
--------------------
Company from the sale of the Common Stock subject to the Options
granted hereunder will be used for general corporate purposes.
11.2 Notices. All notices or other communications by an
-------
Optionee to the Committee pursuant to or in connection with the
Plan shall be deemed to have been duly given when received in the
form specified by the Committee at the location, or by the person,
designated by the Committee for the receipt thereof.
11.3 Term of Plan. Subject to the terms of Article 11, the
------------
Plan shall terminate upon the last date upon which Options may be
granted hereunder.
11.4 Compliance with Rule 16b-3. This Plan is intended to be
--------------------------
in compliance with the requirements of Rule 16b-3 as promulgated
under Section 16 of the 1934 Act.
11.5 Governing Law. The Plan shall be governed by and
-------------
construed in accordance with the laws of the State of Georgia.
131
<PAGE> 132
11.6 Additional Provisions By Committee. The Option Agreements
----------------------------------
authorized under the Plan may contain such other provisions,
including, without limitation, restrictions upon the exercise of an
Option, as the Committee shall deem advisable.
11.7 Plan Document Controls. In the event of any conflict
----------------------
between the provisions of an Option Agreement and the Plan, the
Plan shall control.
11.8 Gender and Number. Wherever applicable, the masculine
-----------------
pronoun shall include the feminine pronoun, and the singular shall
include the plural.
11.9 Headings. The titles in this Plan are inserted for
--------
convenience of reference; they constitute no part of the Plan and
are not to be considered in the construction hereof.
11.10 Legal References. Any references in this Plan to a
----------------
provision of law which is, subsequent to the Effective Date of this
Plan, revised, modified, finalized or redesignated, shall
automatically be deemed a reference to such revised, modified,
finalized or redesignated provision of law.
11.11 Unfunded Arrangement. The Plan shall not be funded, and
--------------------
except for reserving a sufficient number of authorized shares to
the extent required by law to meet the requirements of the Plan,
the Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure
the payment of any grant under the Plan.
132
<PAGE> 133
ADOPTED BY BOARD OF DIRECTORS ON NOVEMBER 21,1995.
--------------------------------------------------
APPROVED BY STOCKHOLDERS ON ____________ ___,1996.
--------------------------------------------------
133
<PAGE> 134
Exhibit 11
Statements of Computation of Earnings Per Share
September 30,
----------------------------
1995 1994
----------------------------
Primary earnings per share:
- ---------------------------
Average shares outstanding 3,167,077 3,008,350
----------- -----------
Average options outstanding 131,137 162,740
Average exercise price $ 8.10 $ 7.38
----------- -----------
Proceeds from the assumed exercise
of options outstanding $ 1,062,210 $ 1,201,021
Average market price per share 15.28 14.60
----------- -----------
Assumed shares repurchased 69,516 82,262
----------- -----------
Common stock equivalents of options
outstanding 61,621 80,478
----------- -----------
Weighted average shares outstanding
(including common stock
equivalents) 3,228,698 3,088,828
=========== ===========
Net income $ 8,070,995 $ 6,048,946
Preferred stock dividend (863,869) (891,250)
----------- -----------
Net income applicable to
common stockholders $ 7,207,126 $ 5,157,696
=========== ===========
Earnings per common share $ 2.23 $ 1.67
=========== ===========
Fully diluted earnings per share:
- ---------------------------------
Average shares outstanding 3,167,077 3,008,350
----------- -----------
Average options outstanding 131,137 162,740
Average exercise price $ 8.10 $ 7.38
----------- -----------
Proceeds from the assumed exercise
of options outstanding $ 1,062,210 $ 1,201,021
Average market price per share 20.50 14.60
----------- -----------
Assumed shares repurchased 51,815 82,262
----------- -----------
Common stock equivalents of options
outstanding 79,322 80,478
Assumed conversion of outstanding
convertible debentures (1) 40,661 40,661
Assumed conversion of outstanding
preferred stock (2) 917,832 920,000
----------- -----------
Weighted average shares outstanding
(including common stock
equivalents) 4,204,892 4,049,489
=========== ===========
134
<PAGE> 135
Exhibit 11
Statements of Computation of Earnings Per Share, Continued
September 30,
-----------------------------
1995 1994
-----------------------------
Net income $ 8,070,995 $ 6,048,946
Interest expenses associated with
the convertible debentures (3) 55,356 55,257
Income taxes (4) (18,821) (18,787)
----------- -----------
Net income adjusted $ 8,107,530 $ 6,085,416
=========== ===========
Earnings per common share $ 1.93 $ 1.50
=========== ===========
(1) Potential dilution relating to convertible debentures is
calculated as follows:
Average debentures outstanding 664,000 664,000
Conversion price 16.33 16.33
---------- ----------
Potentially dilutive shares 40,661 40,661
========== ==========
(2) Potential dilution relating to preferred stock is calculated
as follows:
Average Series A Preferred stock
outstanding 9,546,575 11,500,000
Conversion price 12.50 12.50
---------- ----------
Potentially dilutive shares 763,726 920,000
========== ==========
Average Series B Preferred stock
outstanding 3,236,226 -
Conversion price 21.00 -
----------
Potentially dilutive shares 154,106 -
==========
(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%.
135
<PAGE> 136
Exhibit 12
Statements of Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
September 30,
-------------------------------------
1995 1994 1993
-------------------------------------
Computation of Earnings:
Income before income taxes
and extraordinary item $11,278,362 $ 8,798,522 $ 7,351,970
Add:
Interest expense 32,732,917 25,116,914 29,011,595
----------- ----------- -----------
Earnings as adjusted $44,011,279 $33,915,436 $36,363,565
=========== =========== ===========
Computation of Fixed Charges:(a)
Interest expense (including
amortization of debt
expense) $32,732,917 $25,116,914 $29,011,595
Preferred stock dividends(b) 1,207,166 1,296,372 777,011
----------- ----------- -----------
$33,940,083 $26,413,286 $29,788,606
=========== =========== ===========
Ratio of earnings to combined
fixed charges and preferred
stock dividends 1.30x 1.28x 1.22x
=========== =========== ===========
(a) No portion of rental expense could be demonstrated to be
representative of the interest factor, and therefore none is
included in fixed charges.
(b) Preferred stock dividends have been increased to an amount
representing the pre-tax earnings which would be required to cover
such dividend requirements.
136
<PAGE> 137
Exhibit 23 (a)
Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, GA 30309-3630
Consent of Independent Accountants
----------------------------------
We consent to the incorporation by reference in the registration
statement of First Liberty Financial Corp. and Subsidiaries on Form S-8 (File
No. 33-56954) of our report, which includes an explanatory paragraph
concerning a change in the method of accounting for investments in 1993, dated
November 9, 1995, on our audits of the consolidated financial statements of
First Liberty Financial Corp. and Subsidiaries as of September 30, 1995 and
1994, and for the years ended September 30, 1995, 1994, and 1993, which report
is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
December 18, 1995
137
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<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 24,610
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 22,652
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 167,613
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<LOANS> 655,739
<ALLOWANCE> 7,816
<TOTAL-ASSETS> 919,274
<DEPOSITS> 719,226
<SHORT-TERM> 84,815
<LIABILITIES-OTHER> 24,063
<LONG-TERM> 20,501
<COMMON> 3,983
0
7,564
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<INCOME-PRETAX> 11,278
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<EXTRAORDINARY> 0
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<NET-INCOME> 8,071
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 8.44
<LOANS-NON> 2,415
<LOANS-PAST> 0
<LOANS-TROUBLED> 10,817
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<ALLOWANCE-OPEN> 5,680
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