<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
FIRST LIBERTY FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
FIRST LIBERTY FINANCIAL CORP.
201 SECOND STREET
MACON, GEORGIA 31297
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 29, 1997
NOTICE HEREBY IS GIVEN that the 1997 Annual Meeting of Stockholders of
First Liberty Financial Corp. (the "Company") will be held in the Ballroom of
the Crowne Plaza Hotel, 108 First Street, Macon, Georgia, on Wednesday, January
29, 1997, at 2:00 p.m., local time, for the purpose of considering and voting
upon:
1. A proposal to elect four directors.
2. Such other business as properly may come before the Annual Meeting
or any adjournments thereof.
Information relating to the above matters is set forth in the attached
Proxy Statement. Stockholders of record at the close of business on December 12,
1996 will be entitled to receive notice of and to vote at the Annual Meeting and
any adjournments thereof.
By Order of the Board of Directors.
/S/ RICHARD A. HILLS, JR.
RICHARD A. HILLS, JR.
Secretary
Macon, Georgia
December 19, 1996
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE THE PROXY CARD AND VOTE IN PERSON
IF YOU WISH.
<PAGE> 3
FIRST LIBERTY FINANCIAL CORP.
201 SECOND STREET
MACON, GEORGIA 31297
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
JANUARY 29, 1997
This Proxy Statement is furnished to the stockholders of First Liberty
Financial Corp. (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be voted at the 1997 Annual Meeting
of Stockholders and at any adjournments thereof (the "Annual Meeting"). The
Annual Meeting will be held on Wednesday, January 29, 1997, in the Ballroom of
the Crowne Plaza Hotel, 108 First Street, Macon, Georgia, at 2:00 p.m., local
time.
The approximate date on which this Proxy Statement and the accompanying
proxy card are first being sent or given to stockholders is December 19, 1995.
VOTING
GENERAL
The securities which can be voted at the Annual Meeting consist of common
stock of the Company, $1.00 par value per share (the "Common Stock"), with each
share entitling its owner to one vote on each matter submitted to the
stockholders. The record date for determining the holders of Common Stock who
are entitled to notice of and to vote at the Annual Meeting is December 12,
1996. On the record date, 7,121,251 shares of Common Stock were outstanding and
eligible to be voted at the Annual Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum at the Annual
Meeting. In determining whether a quorum exists at the Annual Meeting for
purposes of all matters to be voted on, all votes "for" or "against" as well as
all abstentions (including votes to withhold authority to vote) will be counted.
In voting for the proposal to elect directors, stockholders may vote in
favor of all nominees or withhold their votes as to specific nominees. The vote
required to approve that proposal is governed by Georgia law and is a plurality
of the votes cast by the holders of shares entitled to vote, provided a quorum
is present. Votes withheld and broker non-votes will not be counted and will
have no effect.
The Company believes that a total of 2,257,356 shares held by directors and
executive officers of the Company, constituting approximately 32% of the
outstanding Common Stock, will be voted in favor of the proposal to elect
directors.
PROXIES
All properly executed proxy cards delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. In voting by proxy, stockholders may vote in favor of all
nominees, withhold their votes as to all nominees or withhold their votes as to
specific nominees. IF NO SPECIFIC INSTRUCTIONS ARE GIVEN WITH REGARD TO THE
MATTERS TO BE VOTED UPON, THE SHARES REPRESENTED BY A SIGNED PROXY CARD WILL BE
VOTED "FOR" THE PROPOSAL LISTED ON THE PROXY CARD. If any other matters properly
come before the Annual Meeting, the persons named as proxies will vote upon such
matters according to their judgment.
<PAGE> 4
All proxy cards delivered pursuant to this solicitation are revocable at
any time at the option of the persons executing them by giving written notice to
the Secretary of the Company at First Liberty Financial Corp., 201 Second
Street, Macon, Georgia 31297, by delivering a later dated proxy card, or by
voting in person at the Annual Meeting.
All expenses incurred in connection with the solicitation of proxies will
be paid by the Company. Such costs include charges by brokers, fiduciaries and
custodians for forwarding proxy materials to beneficial owners of stock held in
their names. The Company has retained Corporate Investor Communications, Inc., a
proxy solicitation firm, to assist in the solicitation of proxies at a fee of
$3,000 plus reimbursement of out-of-pocket costs. Solicitation also may be
undertaken by mail, telephone and personal contact by directors and executive
officers of the Company without additional compensation.
STOCK OWNERSHIP
All share data has been adjusted to give effect to the Company's 3-for-2
stock split as of October 1, 1996.
Principal Stockholders
The following table sets forth information as of December 1, 1996,
regarding the ownership of Common Stock by each person known to the Company to
be the beneficial owner of more than 5% of Common Stock. [Footnotes appear after
the second following table.]
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED(1) CLASS
- ----------------------------------------------------------------------- ------------ -------
<S> <C> <C>
Thomas H. McCook....................................................... 802,987(2) 11.28%
4848 Brittany Drive
Macon, Georgia 31210
Robert F. Hatcher...................................................... 490,595(3) 6.81%
4870 Forsyth Road
Macon, Georgia 31210
Alfa Mutual Insurance Company.......................................... 409,875(4) 5.76%
C. Lee Ellis
P.O. Box 11000
Montgomery, Alabama 31698
</TABLE>
Directors and Executive Officers
The following table sets forth information as of December 1, 1996,
regarding the ownership of Common Stock by each director (including nominees for
director) of the Company and by the executive officers of the Company and its
subsidiaries, First Liberty Bank (the "Bank") and Liberty Mortgage Corporation
(the "Mortgage Company"), named in the Summary Compensation Table on pages 6 and
7, and by all directors and executive officers as a group. An asterisk (*)
indicates less than one percent (1%) of outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND POSITION OWNED(1) CLASS
- ----------------------------------------------------------------------- ------------ -------
<S> <C> <C>
F. Don Bradford........................................................ 123,096(5) 1.73%
Director
Richard W. Carpenter................................................... 115,341(6) 1.62%
Director
Charles G. Davis....................................................... 62,997(7) *
Executive Officer
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND POSITION OWNED(1) CLASS
- ----------------------------------------------------------------------- ------------ -------
<S> <C> <C>
C. Lee Ellis........................................................... 409,875(4) 5.76%
Director
Robert F. Hatcher...................................................... 490,595(3) 6.81%
Director and Executive officer
Richard A. Hills, Jr................................................... 30,143(8) *
Executive Officer
Melvin I. Kruger....................................................... 14,236(9) *
Director and nominee
Thomas H. McCook....................................................... 802,987(2) 11.28%
Director
George A. Molloy....................................................... 10,103(10) *
Executive Officer
Harold W. Peavy, Jr.................................................... 290,140(11) 4.08%
Director and nominee
Herbert M. Ponder, Jr.................................................. 8,001(12) *
Director and nominee
J. Larry Wallace....................................................... 52,735(13) *
Executive Officer
Jo Slade Wilbanks...................................................... 10,425(14) *
Director and nominee
All directors and executive officers as a group........................ 2,539,706(15) 34.35%
(18 persons)
</TABLE>
- ---------------
(1) The information shown above is based upon information furnished to the
Company by the named persons or by documents filed with the Securities and
Exchange Commission ("SEC"). Beneficial ownership as reported in the tables
has been determined in accordance with SEC regulations. Included are shares
of Common Stock which may be acquired (i) within 60 days of December 1,
1996 upon the exercise of stock options ("Option Shares"), and (ii) at any
time upon the conversion of the Company's Series B 6.0% Cumulative
Convertible Preferred Stock ("Conversion Shares"). Also included are shares
allocated to the accounts of certain executive officers under the Company's
Employee Savings and Stock Ownership Plan ("ESSOP Shares"). Not included
are shares which may be acquired upon the exercise of stock options not
exercisable within 60 days of December 1, 1996 and shares allocated to the
accounts of certain directors and executive officers under the Company's
Nonqualified Deferred Compensation Plan, with respect to which those
directors and executive officers do not have voting and investment power.
The persons listed in the tables have sole voting and investment power with
regard to the shares shown as owned by such persons unless otherwise
indicated.
(2) Includes 153,000 shares held by Mr. McCook as trustee for his children and
9,000 Option Shares.
(3) Includes 19,170 ESSOP Shares, 60,000 shares held in other retirement plans,
75,000 shares owned by two corporations with respect to which Mr. Hatcher
has sole voting and investment power, 4,025 shares owned by or for the
benefit of his wife, 11,775 shares held in a fiduciary capacity, and 95,250
Option shares. See also "Proposal -- Election of Directors -- Executive
Employment Agreements."
(4) The shares shown as owned beneficially by Alfa Mutual Insurance Company
("Alfa") include shares held by certain Alfa affiliates and 8,250 shares
held by C. Lee Ellis, a director of the Company who serves as Executive
Vice President, Investments, of Alfa, and 9,000 Option Shares under stock
options granted to Mr. Ellis. Mr. Ellis is deemed to beneficially own the
shares owned by Alfa by virtue of his position with Alfa.
3
<PAGE> 6
(5) Includes 12,340 shares owned by Mr. Bradford's wife, 1,294 shares held in a
retirement plan, 52,500 shares owned by family partnership of which Mr.
Bradford is the general partner, and 9,000 Option Shares.
(6) Includes 37,641 shares owned by a family partnership of which Mr. Carpenter
is the general partner, 60,600 shares owned by a profit-sharing plan of
which he is the beneficial owner, and 9,000 Option Shares.
(7) Includes 13,490 ESSOP shares, 675 shares held in another retirement plan,
and 17,250 Option Shares.
(8) Includes 600 shares owned by Mr. Hills jointly with his wife, 600 shares
owned solely by his wife, and 21,225 Option Shares.
(9) Includes 5,236 shares owned by Mr. Kruger jointly with his wife and 9,000
Option Shares.
(10) Includes 728 ESSOP Shares and 9,375 Option Shares.
(11) Includes 127,544 shares owned by a corporation with respect to which Mr.
Peavy has sole voting and investment power, 1,500 Option Shares, and 1,250
Conversion Shares.
(12) Includes 3,000 Option Shares.
(13) Includes 17,985 ESSOP Shares, 2,250 shares held in trust for Mr. Wallace's
children, 363 shares owned by his wife, and 21,750 Option Shares.
(14) Includes 9,000 Option Shares.
(15) Includes 78,279 ESSOP Shares, 392,625 shares owned by Alfa, 1,250
Conversion Shares, and 281,100 Option Shares.
PROPOSAL
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of nine members, eight of
whom are non-employee directors. The other director is the Company's President
and Chief Executive Officer. The Board is divided into three classes with
staggered terms so that the term of one class expires at each annual meeting of
stockholders during a three-year period and approximately one-third of the Board
members are elected annually.
The following nominees have been selected by a nominating committee of the
Board for submission to the stockholders: Harold W. Peavy, Jr. for a one-year
term expiring at the 1998 annual meeting; and Melvin I. Kruger, Jo Slade
Wilbanks, and Herbert M. Ponder, Jr. for three-year terms expiring at the 2000
annual meeting. Mr. Ponder was appointed to a new position on the Board in March
1996. Mr. Peavy, formerly the principal stockholder of Middle Georgia Bank
("MGB"), was appointed to a new position on the Board in November 1996 pursuant
to a commitment made by the Board in connection with the Company's acquisition
of MGB in November 1996 that he be so appointed and that he be nominated for
election by the stockholders at the Annual Meeting. Mr. Kruger and Ms. Wilbanks
were elected to the Board at the 1996 annual meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO ELECT THE FOUR NOMINEES NAMED ABOVE TO SERVE FOR THE TERMS
INDICATED.
If any nominee should be unavailable to serve for any reason (which is not
anticipated), the Board may designate a substitute nominee (in which event the
persons named as proxies will vote the shares represented by all valid proxy
cards for the election of such substitute nominee), allow the vacancy to remain
open until a suitable candidate is located, or determine to reduce the number of
directors.
Information as of December 1, 1996 about each of the nominees and each
director serving an unexpired term is set forth below. Their respective
ownership of common stock is set forth in the table on page 2 and 3.
NOMINEE FOR ELECTION TO A TERM EXPIRING IN 1998:
Harold W. Peavy, Jr. Mr. Peavy is the retired founder and president of
Middle Georgia Bank in Byron, Georgia. He was appointed to the Board of the
Company and the Board of the Bank in November 1996. Mr. Peavy is 60.
4
<PAGE> 7
NOMINEES FOR ELECTION TO TERMS EXPIRING IN 2000:
Melvin I. Kruger. Mr. Kruger is President and Chief Executive Officer of
L.E. Schwartz & Son, Inc., Macon, Georgia. He has served as a director of the
Company since 1993 and as a director of the Bank since July 1995. Mr. Kruger is
67.
Herbert M. Ponder, Jr. Mr. Ponder is the retired President of Bank South,
Macon, in Macon, Georgia. He has served as a director of the Company and of the
Bank since March 1996. Mr. Ponder is 61.
Jo Slade Wilbanks. Ms. Wilbanks is Central Region Manager of Georgia Power
Company, Macon, Georgia. She has served as a director of the Company since 1994
and as a director of the Bank since July 1995. Ms. Wilbanks is 49.
DIRECTORS WHOSE TERMS CONTINUE UNTIL 1998:
F. Don Bradford. Mr. Bradford is the retired Chairman of the Board and
owner of Macon Janitor Service, Inc., Macon, Georgia. He has served as a
director of the Company since 1984 and as a director of the Bank since 1966. Mr.
Bradford is 69.
Richard W. Carpenter. Mr. Carpenter is President of Realmark Holdings
Corp., Atlanta, Georgia. He has served as a director of the Company and as a
director of the Bank since 1984. Mr. Carpenter is 59.
DIRECTORS WHOSE TERMS CONTINUE UNTIL 1999:
C. Lee Ellis. Mr. Ellis is executive Vice President, Investments, of Alfa
Mutual Insurance Company, Montgomery, Alabama. Mr. Ellis has served as a
director of the Company and as a director of the Bank since 1986. Mr. Ellis is
45.
Robert F. Hatcher. Mr. Hatcher has served as President and Chief Executive
Officer of the Company and as a director of the Company since 1990. He served as
President of the Bank's Middle Georgia Division from 1988 until 1989, when he
was elected President of the Bank. In 1990, he assumed the additional title of
Chief Executive Officer of the Bank. Previously, Mr. Hatcher was Senior Vice
President of Trust Company Bank of Middle Georgia, where he had been employed
for 27 years. Mr. Hatcher is 55.
Thomas H. McCook. Mr. McCook is Vice President of Cherokee Culvert
Company, Inc., Macon, Georgia. He has served as a director of the Company since
1984, as a director of the Bank since 1978, and as Chairman of the Boards of
Directors of both entities since 1990. Mr. McCook is 57.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS; DIRECTOR COMPENSATION
The Board of Directors of the Company conducts regular meetings, generally
on a monthly basis, and also conducts some of its business through meetings of
the three committees described below. Additionally, all of the directors are
members of the Bank's Board of Directors. The Board of Directors of the Company
met 14 times during the fiscal year ended September 30, 1996. All of the
directors attended at least 75% of the Board meetings.
The Audit Committee is responsible for reviewing with the Company's
independent accountants the scope and results of their audit engagement and
management letter, consulting with management with regard to the Company's
accounting methods and the adequacy of its internal controls, and overseeing and
reviewing the Company's internal auditing procedures. Mr. Bradford, Mr.
Carpenter, Mr. Ellis, Mr. Kruger, Mr. Ponder and Ms. Wilbanks were members of
this committee during the fiscal year. The committee met 8 times during the
year.
The Corporate Strategy Committee is responsible for reviewing and
evaluating the Company's strategic alternatives and its proposed acquisitions as
recommended by the Company's management. Mr. Bradford, Mr. Carpenter, Mr. Ellis,
Mr. Hatcher, Mr. Kruger, Mr. McCook, Mr. Ponder and Ms. Wilbanks were members of
this committee during the fiscal year. The committee met 12 times during the
year.
5
<PAGE> 8
The Compensation and Benefits Committee is responsible for determining the
compensation levels of the Company's executive officers, reviewing and
evaluating the Company's various benefit programs, and reviewing and setting the
level of fees paid to directors. Mr. Bradford, Mr. Carpenter, Mr. Ellis, Mr.
Kruger, Mr. McCook, Mr. Ponder and Ms. Wilbanks were members of this committee
during the fiscal year. The committee met 6 times during the year.
In addition to these committees of the Board of Directors, certain
directors served during the year as members of the Bank's Senior Loan Committee
and its Community Reinvestment Act Committee.
Outside directors, i.e., those not employed by the Company or the Bank, are
paid the following fees: (i) Board of Directors -- Annual retainer of $6,000
paid in quarterly installments and $500 (Chairman $800) per meeting attended or
excused absence; (ii) Corporate Strategy Committee -- $250 per meeting; (iii)
other committees -- $150 per meeting. During the fiscal year ended September 30,
1996, those directors received total fees of $131,350, in the aggregate.
Effective in December 1996, the Board voted to change the committee
membership structure so that each outside director will serve only on certain
committees (and not on all committees), and to increase the fees paid for all
committee meetings to $250 ($350 for committee chairmen).
The First Liberty Financial Corp. 1995 Director Stock Option Plan (the
"DSOP") was adopted by the Board in November 1995 and approved by the
stockholders in January 1996. The DSOP is intended to further the growth and
development of the Company by encouraging non-employee directors of the Company
to expand their ownership interests in the Company by purchasing its Common
Stock. It is intended that the DSOP 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. A total
of 75,000 shares of Common Stock is authorized for issuance under the DSOP. The
DSOP is a "formula plan" which specifies when and in what amounts options are to
be granted to eligible directors. Following stockholder approval of the DSOP,
each director then in office (Mr. Bradford, Mr. Carpenter, Mr. Ellis, Mr.
Kruger, Mr. McCook and Ms. Wilbanks) received an initial grant of 7,500 shares
at an exercise price of $14.67 per share. Upon Mr. Ponder's appointment to the
board in March 1996, he received an initial grant of 1,500 shares at an exercise
price of $14.50 per share. Based upon the Company's return on equity for fiscal
year 1996 (which exceeded the 10% minimum requirement of the DSOP), each of the
seven non-employee directors of the Company during that year received an
additional grant of 1,500 shares at a price of $20.25 per share. Upon Mr.
Peavy's appointment to the Board in November 1996, he received an initial grant
of 1,500 shares at a price of $20.50 per share. No options granted under the
DSOP have been exercised and 16,500 shares are presently available for issuance
thereunder. All share data and exercise prices have been adjusted to give effect
to the Company's 3-for-2 stock split as of October 1, 1996.
EXECUTIVE COMPENSATION
The following table sets forth the total annual compensation paid to the
Company's chief executive officer and the Company's other four most highly
compensated executive officers who received an annual salary and bonus in excess
of $100,000 (collectively, the "Named Executive Officers") for each of the
Company's last three completed fiscal years. All share data has been adjusted to
give effect to the Company's 3-for-2 stock split effective as of October 1,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
----------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) (NO.)(2) ($)(3)
- ------------------------------------------ ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert F. Hatcher......................... 1996 247,008 98,803 37,500 6,250
President and Chief Executive Officer 1995 235,000 82,250 -0- 5,998
of the Company and the Bank 1994 205,000 51,250 31,500(4) 5,347
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
----------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) (NO.)(2) ($)(3)
- ------------------------------------------ ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles G. Davis.......................... 1996 132,375 25,500 15,000(5) 6,146
Executive Vice President 1995 126,125 24,400 -0- 5,805
of the Bank 1994 120,625 17,475 9,000(5) 4,237
J. Larry Wallace.......................... 1996 129,339 24,800 15,000(5) 5,298
Executive Vice President 1995 122,563 23,600 -0- 5,010
of the Bank 1994 116,875 17,025 9,000(5) 4,318
George A. Molloy.......................... 1996 128,750 25,000 7,500(5) 3,788
President and Chief Executive Officer 1995 45,032 8,333 22,500(5) 1,188
of the Mortgage Company(6) 1994 -- -- -- --
Richard A. Hills, Jr...................... 1996 118,625 23,200 7,500(5) 5,606
Executive Vice President and General 1995 114,750 22,200 -0- 4,767
Counsel, Corporate Secretary, of the 1994 109,875 15,975 9,000(5) 3,680
Company (7)
</TABLE>
- ---------------
(1) Payments under the Company's Officer Profit Sharing Plan -- See pages 8 and
9.
(2) Grants of incentive stock options under the Company's 1992 Stock Incentive
Plan (the "1992 Plan") -- See page 8. All share data has been adjusted to
give effect to the Company's 3-for-2 stock split as of October 1, 1996.
(3) Contributions by the Company under the ESSOP -- See page 10.
(4) The options granted to Mr. Hatcher in fiscal year 1994 vested in equal
amounts on the date of grant and on the first and second anniversaries of
that date. The options granted in fiscal year 1996 vest in equal amounts on
the date of grant and on the first, second and third anniversaries of that
date. All unvested options vest in the event of a "change of control" of
the Company.
(5) The options granted to Mr. Davis, Mr. Wallace and Mr. Hills in fiscal year
1994 vest in equal amounts on the first, second and third anniversaries of
the date of grant. The options granted to Mr. Molloy in fiscal year 1995
vest in equal amounts on the first, second and third anniversaries of the
date of grant. The options granted to Mr. Davis, Mr. Wallace, Mr. Molloy
and Mr. Hills in fiscal year 1996 vest in equal amounts on the date of
grant and on the first, second and third anniversaries of that date. All
unvested options vest in the event of a "change of control" of the Company.
(6) Mr. Molloy was employed by the Mortgage Company in May 1995.
(7) Mr. Hills also holds the positions of Senior Vice President and General
Counsel and Corporate Secretary of the Bank.
EXECUTIVE EMPLOYMENT AGREEMENTS
Mr. Hatcher. Robert F. Hatcher was employed as President of the Bank's
Middle Georgia Region effective February 1988, and was elected President of the
Bank in October 1989. On September 28, 1990, Mr. Hatcher was elected President
and Chief Executive Officer of the Company and the Bank. Effective as of
November 1, 1990, the Company and the Bank entered into an Executive Employment
Agreement with Mr. Hatcher, which provided for (a) Mr. Hatcher's employment at
the pleasure of the Board of Directors, (b) a salary subject to annual review by
the Board, (c) the grant to Mr. Hatcher of stock options, (d) the payment to him
of one year's salary if his employment is terminated for any reason other than
cause, and (e) the payment of two years' salary in the event of a "change of
control" of the Company or the Bank unless he is offered a comparable position
with an acquiring company. Additionally, Mr. Hatcher is entitled to other
employment benefits made available to other officers of the Company generally.
The agreement has been amended in each successive year to provide for salary
increases and the grant of additional stock options as disclosed in this and
prior proxy statements. On October 23, 1996, the Board authorized an increase in
Mr. Hatcher's annual salary to $260,000 (effective as of October 1, 1996) and
granted to him options to
7
<PAGE> 10
purchase 30,000 shares of Common Stock at a price of $17.25 per share, vesting
as to 7,500 shares each on the date of grant and one, two and three years from
that date, subject to an acceleration of vesting in the event of a "change of
control" of the Company.
Mr. Davis. Charles G. Davis was employed by the Bank in 1976 and presently
serves as Executive Vice President in charge of operations. The Bank entered
into an agreement with Mr. Davis on August 1, 1990, which provides for the
payment to him of one year's salary if his employment is terminated for any
reason other than cause or in the event of a "change in control" of the Company
or the Bank.
Mr. Wallace. J. Larry Wallace was employed by the Bank in 1983 and
presently serves as Executive Vice President in charge of construction lending.
The Bank entered into an agreement with Mr. Wallace on June 28, 1995, which
provides for the payment to him of six months salary if his employment is
terminated in the event of a "change in control" of the Company or the Bank
unless he is offered a comparable position with an acquiring company.
Mr. Hills. Richard A. Hills, Jr. was employed by the Company and the Bank
in 1987 and presently serves as Executive Vice President and General Counsel of
the Company, as Senior Vice President and General Counsel of the Bank, and as
Secretary of both entities. The Company and the Bank entered into an agreement
with Mr. Hills on November 5, 1987, which provides for the payment to him of one
year's salary if his employment is terminated for any reason other than cause or
in the event of a "change in control" of the Company or the Bank.
Mr. Molloy. George A. Molloy was employed as President and Chief Executive
Officer of the Mortgage Company in May 1995. The Mortgage Company entered into
an agreement with Mr. Molloy on May 23, 1995, which provides for the payment to
him of six months salary if his employment is terminated in the event of a
"change in control" of the Company or the Bank or the Mortgage Company unless he
is offered a comparable position with an acquiring company.
STOCK OPTION PLANS
All share data and exercise prices have been adjusted to give effect to the
Company's 3-for-2 stock split as of October 1, 1996.
1983 Plans. In 1983, the Company established two stock option plans, the
1983 Incentive Stock Option Plan (the "ISO Plan") and the 1983 Restricted Stock
Purchase Plan (the "Restricted Plan"), to attract key executive personnel and to
encourage their continued employment. The ISO Plan provided for the grant of
options intended to qualify as "incentive stock options" under the Internal
Revenue Code, while the Restricted Plan was intended to supplement the ISO Plan
as an "overflow" mechanism should any incentive stock option granted pursuant to
the ISO Plan fail for any reason to qualify as such. Both plans were
administered by the Compensation and Benefits Committee of the Company (the
"Compensation Committee"). Prior to the expiration of the plans in 1993, options
with respect to 171,000 shares of Common Stock had been granted and were still
exercisable and, as of September 30, 1996, options with respect to 119,400 of
those shares had been exercised.
1992 Plan. In 1992, the Company adopted a new stock option plan, the First
Liberty Financial Corp. 1992 Stock Incentive Plan (the "1992 Plan"), which was
approved by the Company's stockholders in 1993. The 1992 Plan was amended in
1995 to increase by 331,500 the number of shares of Common Stock available for
grant, and to extend the exercise period for newly granted options to ten years,
and that amendment was approved by the Company's stockholders in 1996. This plan
was 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 1992 Plan provides for both
incentive stock options ("ISOs") and non-incentive options. The 1992 Plan is
administered by the Compensation Committee.
A total of 573,000 shares of Common Stock is reserved for issuance under
the 1992 Plan. As of September 30, 1996, options with respect to 309,750 shares
of Common Stock had been granted and were still exercisable, and options with
respect to 18,000 shares of Common Stock had been exercised. The exercise
8
<PAGE> 11
price of each option is determined by the Compensation Committee, although the
exercise price for ISOs may not be less than 100% of fair market value of the
Common Stock as of the date of grant.
During the fiscal year ended September 30, 1996, options with respect to
152,250 shares of Common Stock were granted under that plan to the Named
Executive Officers and four other executive officers of the Company. Such
options vest in equal amounts on the date of grant and on the first, second, and
third anniversaries of that date, subject to an acceleration of vesting in the
event of a "change of control" of the Company. The Company did not "re-price"
any options during the year.
The following table lists all grants of options under the 1992 Plan to the
Named Executive Officers, for the fiscal year ended September 30, 1996, and
contains certain information about the potential realizable value of those
options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------ ANNUAL
NUMBER OF% OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- --------------------------------- --------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Hatcher................ 37,500 24.63% 14.50 10/1/05 341,961 866,597
Charles G. Davis................. 15,000 9.85% 14.67 1/31/06 138,388 350,703
J. Larry Wallace................. 15,000 9.85% 14.67 1/31/06 138,388 350,703
George A. Molloy................. 7,500 4.93% 14.67 1/31/06 69,194 175,352
Richard A. Hills, Jr............. 7,500 4.93% 14.67 1/31/06 69,194 175,352
</TABLE>
- ---------------
(1) Assumes a ten-year option term.
The following table summarizes the aggregate number of options exercised
during fiscal year 1996 by the Named Executive Officers and the aggregated
values of all options held by the Named Executive Officers as of September 30,
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS
ACQUIRED ON (NO.) AT FISCAL YEAR-END(1)($)
EXERCISE VALUE --------------------------- ---------------------------
NAME (NO.) REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Hatcher......... 30,000 312,900 87,750 18,750 646,898 40,688
Charles G. Davis.......... 15,000 182,640 17,250 14,250 141,840 41,520
J. Larry Wallace.......... 3,000 33,540 21,750 14,250 184,875 41,520
George A. Molloy.......... -0- -0- 9,375 20,625 48,750 101,250
Richard A. Hills, Jr...... 1,650 17,886 21,225 8,625 198,918 30,270
</TABLE>
- ---------------
(1) Such value is computed by subtracting the option exercise price from the
then current market price of the Common Stock and multiplying that result
by the applicable number of shares.
OTHER COMPENSATION AND BENEFIT PLANS
Officer Profit Sharing Plan. The Company adopted the Officer Profit
Sharing Plan (the "OPSP") in 1990. Generally, all officers of the Company and
its subsidiaries are eligible to participate in the OPSP, which is designed to
reward them for their collective effort in maximizing the Company's "core
earnings," i.e., the Company's net income from recurring operations. The OPSP
provides that if core earnings for the fiscal year in question 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
9
<PAGE> 12
amount of core earnings increases. If the Company's minimum core earnings goal
for the fiscal year in question is not attained, no payments are made under the
OPSP for that year. If the minimum core earnings goal is attained, there is a
"base payment" for all participants, a portion of which is allocated to a
performance component for participants other than the Company's executive
officers. Payment of the full performance component is dependent upon each
participant's performance of certain pre-determined goals for the year. The
Company's executive officers other than Mr. Hatcher are entitled to receive two
times the applicable base payment and Mr. Hatcher is entitled to receive between
three and five times the applicable base payment, as determined annually by the
Compensation and Benefits Committee (the "Committee"). For the fiscal year ended
September 30, 1996, minimum core earnings for the purpose of the OPSP was set at
$8.5 million, which would have entitled each participant to a base payment of 5%
of salary. The minimum core earnings goal was exceeded by $1.6 million and the
base payment was accordingly increased to 10% of salary under the OPSP. The OPSP
is administered by the Committee, which annually establishes the minimum level
of core earnings for the OPSP and the salary percentages applicable thereto.
Employee Savings and Stock Ownership Plan. The First Liberty Financial
Corp. Employee Savings and Stock Ownership Plan ("ESSOP") combines in one plan a
Section 401(k) cash-or-deferred plan with an employee stock ownership plan. All
employees of the Company and its subsidiaries who meet certain criteria as to
hours of service are eligible to participate in the ESSOP. An ESSOP participant
may elect to contribute on a before-tax basis up to 10% of his or her
compensation per year, subject to a maximum dollar limitation which is adjusted
for inflation from time to time. The ESSOP offers five investment alternatives,
including Common Stock, in which a participant may invest the funds allocated to
his or her account.
The Company is required to make Employer Matching Contributions of 50% of
the participants' net before-tax contributions, up to a maximum of 6% of each
participant's compensation for each plan year. Additionally, the Company may
make Employer Discretionary Contributions to the ESSOP in an amount equal to not
more than 10% of the total compensation paid to each participant during the plan
year. The Company's contributions to the ESSOP with respect to any participant
become 20% vested after three years of service and vest in increments of 20% for
each year of service thereafter, generally becoming 100% vested after seven
years of service. Effective January 1, 1997, those contributions will become
100% vested after five years of service.
Nonqualified Deferred Compensation Plan. In 1994, the Company adopted the
First Liberty Financial Corp. Executive Deferred Compensation Plan renamed the
Nonqualified Deferred Compensation Plan (the "NDCP"). The NDCP is an unfunded
plan maintained for the purpose of allowing compensation payable to a select
group of highly compensated officers and directors (including members of the
Bank's numerous community boards of directors) to be deferred, based upon an
election. The Company has limited the officer eligibility to participate in the
NDCP to those officers having the title of First Vice President or above, a
group presently comprising approximately twenty officers.
The NDCP enables its officer participants to defer up to 10% of the amount
they would otherwise receive as total compensation and have those funds invested
by an independent trustee in one or more of five investment alternatives,
including Common Stock. Director participants are permitted to have their funds
invested only in Common Stock.
Additionally, to the extent that officer participants in the NDCP do not
receive their full entitlement of Employer Matching Contributions or Employer
Discretionary Contributions under the ESSOP due to limitations imposed on their
maximum contributions by required discrimination tests, those participants are
eligible to defer such amounts under the NDCP. The Company's contributions of
such amounts to the NDCP have the same vesting as under the ESSOP.
TRANSACTIONS WITH THE COMPANY
Loans. The Bank has a policy of offering loans to its directors, officers
and employees (who in some cases also are directors, officers and employees of
the Company) for the financing and improvement of their personal residences as
well as consumer loans. If to directors and certain executive officers and if
required by applicable Banking regulations, all such loans are approved in
advance by the Bank's Board of Directors and
10
<PAGE> 13
are made on substantially the same terms, including interest rates and
collateral, as those for comparable transactions prevailing at the time with
unrelated persons and do not involve more than the normal risk of collectibility
or contain other unfavorable features.
During the fiscal year ended September 30, 1996, there were no executive
officers or directors of the Company who had loans from the Bank in excess of an
aggregate amount of $60,000 per person.
Loans as a Percentage of Stockholders' Equity. As of September 30, 1996,
the aggregate outstanding balance of the Bank's loans to executive officers and
directors of the Company and the Bank was approximately $86,400 or 0.1% of
stockholders' equity.
Other Transactions. During the fiscal year ended September 30, 1996, there
were no transactions with the Company or any of its subsidiaries in which the
amount involved exceeded $60,000 and in which any director or executive officer
of the Company, any nominee for election as a director, any principal
stockholder, or any member of the immediate family of any of them had a direct
or indirect material interest. See also "Proposal -- Election of Directors."
REPORT ON EXECUTIVE COMPENSATION
The First Liberty Financial Corp. Compensation and Benefits Committee (the
"Committee") makes this report on executive compensation for the fiscal year
ended September 30, 1996.
One of the Committee's responsibilities is to determine the compensation of
the executive officers of First Liberty Financial Corp. and its subsidiaries
(the "Company"), including those named in the Summary Compensation Table which
appears elsewhere in this proxy statement. The components of executive
compensation are salary, incentive stock options, bonus awards under the
Company's Officer Profit Sharing Plan (the "OPSP"), and contributions by the
Company to its retirement plan, the Employee Savings and Stock Ownership Plan
(the "ESSOP") and, under certain circumstances, the Nonqualified Deferred
Compensation Plan (the "NDCP"). Since the basis for determining the ESSOP and
NDCP components of compensation was no different for executive officers than it
was for other participants in those plans during fiscal 1996, those plans will
not separately be discussed in this report.
It is the policy of the Committee to determine the salary components of
executive compensation principally upon the basis of corporate performance,
although the elements of corporate performance may vary from year to year and
among the various executive officers. Among the performance factors which the
Committee considers are corporate profitability, capital levels, and corporate
performance relative to such industry standards as problem asset levels, loan
production, regulatory compliance, and asset-liability management. The Committee
does not have a formula by which it calculates the relative weight of these
performance factors, but it gives significant subjective weight to the increase
in the overall value of the Company from year to year. The Committee also
considers how the overall level of the Company's executive compensation compares
with the executive compensation levels of similar-sized bank and thrift holding
companies in the Southeastern United States.
In order to better carry out its responsibilities, the Committee has
continued its prior practice of employing a professional compensation and
benefits consultant to conduct an annual executive compensation review for the
Company and to make recommendations to the Committee based upon that review. In
general, the consultant found that the salary component of executive
compensation within the Company was generally within competitive market limits
and that the chief executive officer's salary was within competitive limits. The
consultant also determined that the bonus component of executive compensation
was within competitive limits. All other employment benefits of the executive
officer group were found to be generally within competitive limits.
In setting the fiscal 1996 compensation of Robert F. Hatcher, the Company's
President and Chief Executive Officer, which included a salary increase of
approximately 5% and a continuation of the level of his OPSP bonus award within
a range of from 30% to 50% of salary, the Committee did not apply an objective
11
<PAGE> 14
formula but did take into account the factors listed below. It should, however,
be noted that the amount of the base OPSP bonus award is objectively determined
for all officers of the Company, including Mr. Hatcher.
1. During fiscal 1995, the Company continued to increase in value, as
reflected by an approximate 25% increase in stockholders' equity from
fiscal 1994. During that same period, the market value of the Company's
common stock increased by approximately 49%.
2. The Company continued to be profitable for the sixth consecutive
year following two years of losses. Net income for fiscal 1995 increased by
approximately 33% from fiscal 1994.
3. The Company's non-performing assets declined by approximately 55%
during fiscal 1995, thereby further increasing the Company's earnings
potential.
Early in fiscal 1996 the Committee granted to all of the Company's
executive officers, including Mr. Hatcher, options to acquire an aggregate of
133,500 shares of common stock [adjusted to give effect to the Company's 3-for-2
stock split as of October 1, 1996] as an additional element of compensation for
a job well done in fiscal 1995. In doing so, the Committee took into
consideration the amount other options previously granted to that group.
The Committee had no interlocks or relationships requiring disclosure under
applicable SEC rules during fiscal 1996.
FIRST LIBERTY FINANCIAL CORP.
COMPENSATION AND BENEFITS COMMITTEE:
C. Lee Ellis, Chairman
F. Don Bradford
Richard W. Carpenter
Melvin I. Kruger
Thomas H. McCook
Herbert M. Ponder, Jr.
Jo Slade Wilbanks
12
<PAGE> 15
PERFORMANCE GRAPH
The following graph shows the comparison of five-year cumulative total
return among (i) the Company's Common Stock, (ii) the Standard & Poor's 500
Stock Index, and (iii) the NASDAQ Bank Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG FIRST LIBERTY FINANCIAL CORP., THE S&P 500 INDEX
AND THE NASDAQ BANK INDEX
<TABLE>
<CAPTION>
FIRST LIB-
MEASUREMENT PERIOD ERTY FINL
(FISCAL YEAR COVERED) CORP S & P 500 NASDAQ BANK
<S> <C> <C> <C>
9/91 100 100 100
9/92 165 111 136
9/93 301 125 184
9/94 265 130 194
9/95 406 169 244
9/96 506 203 312
</TABLE>
- ---------------
* $100 INVESTED ON 09/30/91 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
COMPLIANCE WITH SECTION 16(A) OF THE 1934 ACT
Section 16(a) of the 1934 Act and regulations of the SEC require the
Company's executive officers and directors and persons who beneficially own more
than ten percent of any class of equity securities of the Company, as well as
certain affiliates of such persons, to file initial reports of ownership of any
equity securities of the Company and subsequent reports of changes in ownership
of such securities with the SEC and the National Association of Securities
Dealers, Inc. Such persons also are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file. Based solely on its
review of the copies of such reports received by it and written representations
from such reporting persons that no other reports were required for those
persons, the Company believes that, during the fiscal year ended September 30,
1996, all filing requirements applicable to its directors and executive officers
were complied with in a timely manner.
SPECIAL NOTE CONCERNING INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. has served as independent accountants
of the Company or the Bank each year since 1977 and is considered by management
of the Company to be well qualified. The Board
13
<PAGE> 16
of Directors has selected Coopers & Lybrand L.L.P. to serve as the Company's
independent accountants for the fiscal year ending September 30, 1997.
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1998 Annual Meeting
of Stockholders of the Company must be received by the Company at its
headquarters at 201 Second Street, Macon, Georgia 31297, addressed to the
attention of the Secretary, on or before August 21, 1997 to be eligible for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors of the Company knows of no matters other than those
referred to in the accompanying Notice of Annual Meeting of Stockholders which
may properly come before the Annual Meeting. However, if any other matter should
be properly presented for consideration and voting at the Annual Meeting or any
adjournments thereof, it is the intention of the persons named as proxies on the
enclosed form of proxy card to vote the shares represented by all valid proxy
cards in accordance with their judgment of what is in the best interest of the
Company.
ANNUAL REPORTS
A copy of the Summary Annual Report to Stockholders is being mailed to each
stockholder of record together with these proxy materials. The audited financial
statements of the Company for the year ended September 30, 1996, together with
Management's Discussion and Analysis of Financial Conditions and Results of
Operations, are included in Appendix A to this Proxy Statement. The Company has
filed with the Securities and Exchange Commission its Annual Report on Form 10-K
for the fiscal year ended September 30, 1996. This Annual Report on Form 10-K
contains detailed information concerning the Company and its operations which is
not included in the Summary Annual Report to Stockholders, or in Appendix A to
this Proxy Statement. A COPY OF THIS REPORT WILL BE FURNISHED TO STOCKHOLDERS
WITHOUT CHARGE UPON REQUEST IN WRITING TO: Richard A. Hills, Jr., Secretary,
First Liberty Financial Corp., 201 Second Street, Macon, Georgia 31297. THE
ANNUAL REPORT ON FORM 10-K, THE SUMMARY ANNUAL REPORT AND APPENDIX A ARE NOT A
PART OF THE COMPANY'S SOLICITING MATERIAL.
14
<PAGE> 17
APPENDIX A
---------------------
FIRST LIBERTY FINANCIAL CORP.
FINANCIAL INFORMATION
---------------------
THE ANNUAL REPORT ON FORM 10-K, THE SUMMARY ANNUAL REPORT AND THIS APPENDIX A
ARE NOT A PART OF FIRST LIBERTY FINANCIAL CORP.'S SOLICITING MATERIAL.
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
BACKGROUND
First Liberty Financial Corp.'s ("First Liberty") financial results of
operations continued favorable trends during fiscal 1996. The positive trends
reflect the results 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.
In February 1993, First Liberty issued 460,000 shares of Series A 7.75%
Cumulative Convertible Preferred ("Series A") stock. 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. In
July 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 1,372,389 shares of the Company's common stock, at a conversion
price of $8.33 per share of common stock.
In December 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 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.
In September 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 November 15, 1996, the Company acquired by merger Middle Georgia Bank
("MGB"). MGB on the date of acquisition held the following approximate balances:
loans of $67 million, cash and investments of $58 million, premises and
equipment of $1 million and deposits of $117 million. This business combination
has been accounted for utilizing the pooling-of-interests method of accounting.
In December 1994 and September 1995, in connection with the respective
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.
In August 1996, First Liberty announced a three-for-two stock split. The
split was effective October 1, 1996 and paid in the form of a stock dividend.
In September 1996, First Liberty issued a redemption notice for the
Company's 8.25% convertible debentures. As of September 30, 1996 $62,000 plus
accrued interest was payable to holders on the redemption date of October 7,
1996. The remaining holders elected to convert into common stock at the
conversion price of $10.89 per share.
In October 1996, First Liberty commenced operations at NewSouth Financial
Services, Inc. ("NewSouth"), a consumer finance subsidiary. NewSouth will
provide consumer finance services in select communities throughout Georgia.
A-1
<PAGE> 19
NET INCOME
First Liberty's core income was $10.1 million compared to $8.1 million a
year earlier. Core income per fully diluted share increased 18% to $1.52 for
fiscal 1996 from $1.29 per share for fiscal 1995. Core earnings represent
earnings exclusive of a one-time Federal Deposit Insurance Corporation ("FDIC")
assessment of $3.6 million ($2.3 million net of tax) to recapitalize the Savings
Association Insurance Fund ("SAIF"), recorded September 30, 1996 pursuant to a
law enacted on that date.
First Liberty's net income for the year ended September 30, 1996 was $7.8
million compared to $8.1 million for the year ended September 30, 1995 and $6.0
million for the year ended September 30, 1994. First Liberty's income before
income taxes was $11.7 million for the year ended September 30, 1996 compared to
$11.3 million in 1995 and $8.8 million in 1994.
For the year ended September 30, 1996, First Liberty Bank ("Liberty Bank")
(excluding contributions of Liberty Mortgage Corporation) contributed $12.6
million of core income before taxes, compared to core income of $9.1 million in
1995 and core income of $4.7 million in 1994. These amounts represent 83%, 81%
and 54% of First Liberty's income before income taxes for 1996, 1995 and 1994,
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.
For the year ended September 30, 1996, Liberty Mortgage Corporation
("Liberty Mortgage") contributed $2.5 million of income before income taxes,
compared to $2.0 million in 1995 and $3.9 million in 1994. These amounts
represent 17%, 18% and 44% of First Liberty's core income before income taxes
for 1996, 1995 and 1994, respectively.
Included in Liberty Mortgage's income before income taxes are net gains on
sale of loans, securities and loan servicing rights of approximately $2.6
million, $2.0 million and $3.8 million for the fiscal years ended September 30,
1996, 1995, and 1994, respectively. The decrease in these net gains from 1994
thru 1995 was 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 INTEREST INCOME
Net interest income increased by $5.5 million or 19% during fiscal 1996 as
compared to 1995 due to growth in earning assets. Net interest income increased
by $5.3 million or 23% during fiscal 1995 as compared to 1994 due to a $8.2
million reduction in nonperforming assets, growth in earning assets and an
expansion of the net interest margin to 3.95% in 1995 from 3.76% in 1994. See
"Nonperforming Assets and Credit Risk" -- herein.
A-2
<PAGE> 20
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 liabilities. Average balances for
1995 and 1994 have been restated to reflect the conversion from month-end to
daily balances in computing averages.
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- -------------------------- --------------------------
AVERAGE RATE/ AVERAGE RATE/ AVERAGE RATE/
BALANCE INTEREST YIELD BALANCE INTEREST YIELD BALANCE INTEREST YIELD
-------- ------- ----- -------- ------- ----- -------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1)............................... $687,673 $62,021 9.02% $556,971 $49,990 8.98% $500,023 $41,827 8.37%
Mortgage-backed securities............. 144,583 10,543 7.29% 134,500 9,103 6.77% 99,704 5,629 5.65%
Investments............................ 36,551 2,391 6.54% 34,872 2,320 6.65% 23,360 1,106 4.73%
-------- ------- -------- ------- -------- -------
Total interest-earning
assets..................... 868,807 $74,955 8.62% 726,343 $61,413 8.46% 623,087 $48,562 7.79%
======= ======= =======
Other assets........................... 93,059 72,048 81,761
-------- -------- --------
Total assets................. $961,866 $798,391 $704,848
======== ======== ========
Savings deposits....................... $ 48,183 $ 1,211 2.51% $ 45,695 $ 1,226 2.68% $ 42,688 $ 1,090 2.55%
Time deposits.......................... 444,897 25,670 5.77% 395,705 20,792 5.25% 347,203 15,558 4.48%
Other deposits......................... 239,279 5,000 2.09% 196,328 4,149 2.11% 166,412 3,148 1.89%
Short-term borrowings.................. 106,239 6,108 5.75% 58,746 3,785 4.10% 32,620 1,470 4.51%
Long-term borrowings(2)................ 27,345 2,823 10.32% 25,206 2,781 11.03% 41,283 3,851 9.33%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities................ 865,943 $40,812 4.71% 721,680 $32,733 4.54% 630,206 $25,117 3.98%
======= ======= =======
Other liabilities...................... 20,600 13,796 19,000
Equity................................. 75,323 62,915 55,642
-------- -------- --------
Total liabilities and
equity..................... $961,866 $798,391 $704,848
======== ======== ========
Interest rate spread................... 3.91% 3.92% 3.81%
===== ===== =====
Net interest margin.................... 3.93% 3.95% 3.76%
===== ===== =====
</TABLE>
- ---------------
(1) Includes nonperforming loans.
(2) Includes subordinated debt.
A-3
<PAGE> 21
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).
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1996 VS 1995 1995 VS 1994
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
------ ------- ------ ------- ------ ------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Changes in:
Interest income:
Loans(1)................... $ 243 $11,731 $ 57 $12,031 $3,052 $4,764 $ 347 $ 8,163
Mortgage-backed
securities.............. 704 682 53 1,439 1,119 1,964 391 3,474
Investments................ (38) 112 (2) 72 448 545 221 1,214
------ ------- ----- ------- ------ ------ ----- -------
Total interest
income........... 909 12,525 108 13,542 4,619 7,273 959 12,851
------ ------- ----- ------- ------ ------ ----- -------
Interest expense:
Savings deposits........... (77) 67 (4) (14) 55 77 4 136
Time deposits.............. 2,040 2,585 253 4,878 2,686 2,173 375 5,234
Other deposits............. (47) 907 (10) 850 369 566 66 1,001
Short-term borrowings...... (408) 3,060 (329) 2,323 632 1,177 506 2,315
Long-term borrowings(2).... (178) 235 (15) 42 704 (1,500) (274) (1,070)
------ ------- ----- ------- ------ ------ ----- -------
Total interest
expense.......... 1,330 6,854 (105) 8,079 4,446 2,493 677 7,616
------ ------- ----- ------- ------ ------ ----- -------
Net interest income.......... $ (421) $ 5,671 $ 213 $ 5,463 $ 173 $4,780 $ 282 $ 5,235
====== ======= ===== ======= ====== ====== ===== =======
</TABLE>
- ---------------
(1) Includes nonperforming loans.
(2) Includes subordinated debt.
INTEREST RATE RISK
Interest rate risk is a measure of exposure to changes in net interest
income and theoretical market value of net assets due to changes in market
interest rates. The differential (known as "gap"), is the difference between
interest-earning assets and interest-bearing 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
interest-earning assets over interest-bearing liabilities, while a negative gap
indicates an excess of interest-bearing liabilities over interest-earning
assets. Gap analysis does not consider the effects of principal amortization,
estimated prepayments, the velocity of interest rate changes, competitive
factors or consumer preferences, and as such may not be a reliable indicator of
interest rate risk. First Liberty's interest rate risk will generally be more
positive or asset sensitive than depicted through gap analysis.
In addition to gap analysis, management also employs a cash flow simulation
model to estimate changes in net interest income and theoretical market values
under various interest rate scenarios. The cash flow simulation model considers
the impact of principal amortization, estimated prepayments and the velocity of
interest rate changes. As such, the cash flow simulation will generally provide
a better indication of interest rate risk.
During the first quarter of fiscal 1996, short term interest rates
generally decreased and fluctuated through the remainder of the year. First
Liberty's asset sensitivity contributed to a slight compression to interest rate
spreads during the first half of fiscal 1996. Throughout fiscal 1996, management
has continued a plan to
A-4
<PAGE> 22
reduce the level of asset sensitivity to hedge against declining rate
environments. As of September 30, 1996, in management's opinion, First Liberty's
interest rate risk position was basically neutral.
During 1996 the interest rate sensitivity of First Liberty's balance sheet
increased. Management considers interest-earning assets and interest-bearing
liabilities which reprice or mature within one year to be interest sensitive. At
September 30, 1996 interest-sensitive assets were $543 million or 51% of total
assets compared to interest-sensitive liabilities of $631 million or 59% of
total assets. A year ago interest-sensitive assets were $501 million or 54% of
total assets compared to interest-sensitive liabilities of $440 million or 48%
of total assets.
A-5
<PAGE> 23
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, 1996.
The information presented may not be indicative of actual future trends of net
interest income in rising or declining interest rate environments.
<TABLE>
<CAPTION>
6 MONTHS
LESS THAN 1 MONTH 2 MONTHS 3 MONTHS TO 1
1 MONTH TO 2 MONTHS TO 3 MONTHS TO 6 MONTHS YEAR
--------- ----------- ----------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)(2)................................................ $ 238,530 $ 15,473 $18,675 $ 36,959 $ 77,855
Securities................................................. 33,449 5,926 20,774 33,993 31,889
Fed funds sold and repurchase agreements................... 8,707 21,000 -- -- --
-------- -------- ------- -------- --------
Total financial assets.............................. $ 280,686 $ 42,399 $39,449 $ 70,952 $109,744
======== ======== ======= ======== ========
Interest-bearing liabilities:
Deposits:
Savings(3)............................................... $ 638 $ 629 $ 620 $ 1,811 $ 3,404
Money Market............................................. 70,268 -- -- -- --
Interest-bearing deposits(3)............................. 1,870 1,836 1,804 5,222 9,635
Time..................................................... 44,767 36,567 24,188 93,497 145,066
-------- -------- ------- -------- --------
Total interest-bearing deposits..................... 117,543 39,032 26,612 100,530 158,105
Other borrowings............................................. 137,286 20,000 -- 31,033 1,000
-------- -------- ------- -------- --------
Total financial liabilities......................... $ 254,829 $ 59,032 $26,612 $ 131,563 $159,105
======== ======== ======= ======== ========
Current period gap........................................... $ 25,857 $ (16,633) $12,837 $ (60,611) $(49,361)
Cumulative gap............................................... $ 25,857 $ 9,224 $22,061 $ (38,550) $(87,911)
Cumulative gap as a% of total assets........................ 2.4% 0.9% 2.1% - 3.6% - 8.2%
<CAPTION>
1 YEAR OVER
TO 2 YEARS 2 YEARS TOTAL
---------- -------- --------
<S> <C> <C> <C>
Interest-earning assets:
Loans(1)(2)................................................ $ 41,155 $327,048 $755,695
Securities................................................. 27,134 46,852 200,017
Fed funds sold and repurchase agreements................... -- -- 29,707
-------- -------- --------
Total financial assets.............................. $ 68,289 $373,900 $985,419
======== ======== ========
Interest-bearing liabilities:
Deposits:
Savings(3)............................................... $ 6,018 $ 33,289 $ 46,409
Money Market............................................. -- -- 70,268
Interest-bearing deposits(3)............................. 16,415 63,134 99,916
Time..................................................... 77,058 41,619 462,762
-------- -------- --------
Total interest-bearing deposits..................... 99,491 138,042 679,355
Other borrowings............................................. 9,774 14,366 213,459
-------- -------- --------
Total financial liabilities......................... $ 109,265 $152,408 $892,814
======== ======== ========
Current period gap........................................... $ (40,976) $221,492 $ 92,605
Cumulative gap............................................... $ (128,887) $ 92,605
Cumulative gap as a% of total assets........................ - 12.0% 8.6%
</TABLE>
- ---------------
(1) The portfolio of loans available-for-sale are included in the less than
three months repricing periods 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.
A-6
<PAGE> 24
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, 1996.
The information presented may not be indicative of actual future trends of net
interest income in rising or declining interest rate environments.
<TABLE>
<CAPTION>
LESS
THAN 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS
3 MONTHS TO 6 MONTHS TO 1 YEAR TO 3 YEARS TO 5 YEARS TO 10 YEARS
-------- ----------- --------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)(2)............................... $272,678 $ 36,959 $ 77,855 $ 102,400 $ 157,218 $49,154
Securities................................ 60,149 33,993 31,889 40,802 12,765 8,949
Fed funds sold and repurchase
agreements............................. 29,707 -- -- -- -- --
-------- -------- -------- -------- -------- -------
Total financial assets............ $362,534 $ 70,952 $ 109,744 $ 143,202 $ 169,983 $58,103
======== ======== ======== ======== ======== =======
Interest-bearing liabilities:
Deposits:
Savings(3)................................ $ 1,887 $ 1,811 $ 3,404 $ 11,572 $ 7,954 $11,639
Money Market.............................. 70,268 -- -- -- -- --
Interest-bearing deposits(3).............. 5,510 5,222 9,635 30,840 19,119 24,244
Time...................................... 105,522 93,497 145,066 102,209 16,468 --
-------- -------- -------- -------- -------- -------
Total interest-bearing deposits... 183,187 100,530 158,105 144,621 43,541 35,883
Other borrowings............................ 157,286 31,033 1,000 9,774 -- 14,366
-------- -------- -------- -------- -------- -------
Total financial liabilities....... $340,473 $$131,563 $ 159,105 $ 154,395 $ 43,541 $50,249
======== ======== ======== ======== ======== =======
Current period gap.......................... $ 22,061 $ (60,611) $ (49,361) $ (11,193) $ 126,442 $ 7,854
Cumulative gap.............................. $ 22,061 $ (38,550) $ (87,911) $ (99,104) $ 27,338 $35,192
Cumulative gap as a% of total assets....... 2.1% - 3.6% - 8.2% - 9.3% 2.6% 3.3%
<CAPTION>
10 YEARS OVER
TO 20 YEARS 20 YEARS TOTAL
----------- -------- --------
<S> <C> <C> <C>
Interest-earning assets:
Loans(1)(2)............................... $41,832 $ 17,599 $755,695
Securities................................ 8,030 3,440 200,017
Fed funds sold and repurchase
agreements............................. -- -- 29,707
------- ------- --------
Total financial assets............ $49,862 $ 21,039 $985,419
======= ======= ========
Interest-bearing liabilities:
Deposits:
Savings(3)................................ $ 7,881 $ 261 $ 46,409
Money Market.............................. -- -- 70,268
Interest-bearing deposits(3).............. 5,346 -- 99,916
Time...................................... -- -- 462,762
------- ------- --------
Total interest-bearing deposits... 13,227 261 679,355
Other borrowings............................ -- -- 213,459
------- ------- --------
Total financial liabilities....... $13,227 $ 261 $892,814
======= ======= ========
Current period gap.......................... $36,635 $ 20,778 $ 92,605
Cumulative gap.............................. $71,827 $ 92,605
Cumulative gap as a% of total assets....... 6.7% 8.6%
</TABLE>
- ---------------
(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.
A-7
<PAGE> 25
LOAN LOSS PROVISION AND ALLOWANCE FOR LOAN LOSSES
During fiscal 1996, the provision for estimated losses on loans was $1.8
million compared to $1.4 million during 1995 and $1.5 million during 1994.
During 1996, total loans held-for-investment increased by 15% while
nonperforming loans increased somewhat. Additionally, net charge-offs have
increased due to a decrease in the level of recoveries. Accordingly, the
provision for estimated losses on loans increased by 24% during 1996. During
1995, total loans held-for-investment (net of acquisitions) increased by 16%,
while nonperforming loans and net charge-offs declined significantly. The
provision for estimated losses on loans during 1995 dropped by 4% from 1994.
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. The provision for loan losses during 1992 was elevated as economic
conditions were relatively weak. The allocation of the allowance for estimated
losses for the years indicated was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------------------------
1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
------------- ------------- ------------- ------------- -------------
AMT % AMT % AMT % AMT % AMT %
------- --- ------- --- ------- --- ------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage:
Residential................ $ 244 20 $ 313 25 $ 240 26 $ 379 25 $ 350 34
Commercial(2).............. 525 9 775 12 1,434 19 1,139 22 1,470 23
Residential construction..... 305 12 402 11 209 11 157 9 161 8
Commercial business.......... 2,145 26 1,507 21 1,130 12 1,494 11 1,513 10
Consumer(3).................. 3,625 33 2,654 31 1,357 32 1,366 33 1,232 25
Unallocated.................. 1,767 -- 2,165 -- 1,310 -- 1,606 -- 915 --
------ --- ------ --- ------ --- ------ --- ------ ---
Total.............. $8,611 100% $7,816 100% $5,680 100% $6,141 100% $5,641 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
- ---------------
(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).
A-8
<PAGE> 26
Changes in the allowance for estimated losses on loans for the five years
ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year............... $ 7,816 $ 5,680 $ 6,141 $ 5,641 $ 4,864
Provision for estimated losses......... 1,788 1,440 1,500 1,979 3,950
Acquisitions........................... -- 879 -- 1,675 --
Recoveries............................. 1,467 2,415 2,318 1,544 1,440
Charge-offs............................ (2,460) (2,598) (4,279) (4,698) (4,613)
------- ------- ------- ------- -------
Balance, end of year..................... $ 8,611 $ 7,816 $ 5,680 $ 6,141 $ 5,641
======= ======= ======= ======= =======
Allowance for loan losses to
non-performing loans................... 241.6% 323.6% 124.5% 97.6% 158.1%
Allowance for loan losses to total loans
held-for-investment.................... 1.2% 1.2% 1.2% 1.3% 1.2%
</TABLE>
The following table summarizes charge-offs and recoveries by loan type:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Charge-Offs:
Residential real estate..................... $ 76 $ 193 $ 116 $ 381 $ 876
Commercial real estate...................... -- 426 205 559 846
Commercial business......................... 161 587 715 1,651 1,213
Consumer.................................... 2,223 1,392 3,243 2,107 1,678
------ ------ ------ ------ ------
2,460 2,598 4,279 4,698 4,613
------ ------ ------ ------ ------
Recoveries:
Residential real estate..................... 22 31 185 216 207
Commercial real estate...................... -- 3 -- 141 278
Commercial business......................... 115 810 271 217 397
Consumer.................................... 1,330 1,571 1,862 970 558
------ ------ ------ ------ ------
1,467 2,415 2,318 1,544 1,440
------ ------ ------ ------ ------
Net charge-offs............................... $ 993 $ 183 $1,961 $3,154 $3,173
====== ====== ====== ====== ======
Percentage of average loans................... .14% .03% 0.39% 0.60% .57%
====== ====== ====== ====== ======
</TABLE>
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 serious doubts regarding the ability of the
A-9
<PAGE> 27
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.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------
1996 1995 1994 1993 1992
------ ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.................................. $3,564 $ 2,415 $ 4,362 $ 6,295 $ 3,569
Loans past due 90 days or more and still
accruing........................................ -- -- 200 -- --
------ ------- ------- ------- -------
Total nonperforming loans............... 3,564 2,415 4,562 6,295 3,569
Real estate acquired through foreclosure.......... 2,751 4,185 10,189 9,342 10,849
Insubstance foreclosures.......................... -- -- 32 4,665 8,117
Other repossessed assets.......................... 276 193 168 158 112
------ ------- ------- ------- -------
Total nonperforming assets.............. $6,591 $ 6,793 $14,951 $20,460 $22,647
====== ======= ======= ======= =======
Total nonperforming assets as a
percentage of total assets............ .62% .74% 2.16% 2.81% 3.33%
====== ======= ======= ======= =======
Troubled debt restructurings...................... $5,252 $10,817 $12,199 $12,554 $13,723
====== ======= ======= ======= =======
</TABLE>
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, 1996 foreclosed properties included three commercial
properties with aggregate investments (net of reserves) of approximately $1.3
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 were reserved for in prior
years, as discussed below, due to the permanent impairment of such assets.
During fiscal 1996 and 1995, five of the six properties were sold.
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.
On October 1, 1995 the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan",
as amended by SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, an Amendment of SFAS No. 114". As a
result, the following loans were considered impaired as of September 30, 1996.
See Notes 1 and 6 to First Liberty's Consolidated Financial Statements contained
in Item 8 -- "Financial Statements and Supplementary Data" -- herein.
<TABLE>
<CAPTION>
CARRYING
BALANCE RESERVE VALUE
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Residential first mortgage........................................... $ 566 $ 57 $ 509
Commercial first mortgage............................................ 354 35 319
Commercial business.................................................. 752 296 456
Consumer(1).......................................................... 3,055 1,465 1,590
------ ------ ------
$ 4,727 $ 1,853 $2,874
====== ====== ======
</TABLE>
- ---------------
(1) Includes consumer mortgage loans (such as second mortgage loans and home
equity lines of credit).
A-10
<PAGE> 28
NONINTEREST 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. Additionally, Liberty Mortgage
may sell servicing rights during favorable market conditions as a part of its
portfolio management process.
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:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loan activity:
Loans originated..................................... $377,994 $161,344 $374,673
Loan servicing rights sold........................... 104,761 249,502 254,120
-------- -------- --------
Loan servicing contributed to (withdrawn from)
portfolio......................................... $273,233 $(88,158) $120,553
======== ======== ========
Percentage sold...................................... 28% 155% 68%
======== ======== ========
Operating results:
Gain(loss) on sale of loans and securities........... $ 1,770 $ (354) $ 453
Gain on sale of loan servicing rights................ 790 2,353 3,367
-------- -------- --------
Net gain on sale of loans and securities and loan
servicing rights.................................. $ 2,560 $ 1,999 $ 3,820
======== ======== ========
Net gain as a percentage of loans originated......... .68% 1.24% 1.02%
======== ======== ========
</TABLE>
During 1996, improving business conditions resulted in increased loan
originations as compared to 1995. Additionally, the accounting change which
allows for recognition of the value of mortgage servicing rights allowed for a
reduction in the percentage of servicing rights sold. As such, the loan
servicing portfolio increased by $147 million during 1996. During 1995 soft
business conditions existed in the mortgage banking industry. These conditions
resulted in lower loan originations as compared to 1994. 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.
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:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1996 1995 1994
------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net book value sold:
Assets available-for-sale............................. $3,581 $58,689 $5,699
Net gain on sale...................................... 11 181 8
</TABLE>
During 1995, investment activity consisted principally of the liquidation
of securities acquired in bank acquisitions during the year. As of September 30,
1996, Liberty Bank's investments and mortgage-backed securities
available-for-sale totalled $200 million and represented 100% of total
investments and mortgage-backed securities.
Deposit account service charges increased by $1.0 million during 1996 as
compared to 1995, and $632,000 during 1995 as compared to 1994 principally due
to average transaction accounts increasing 20% and 21% for the same periods
principally as a result of acquisition activity and internal growth.
Other income in fiscal 1996 was $673,000 compared to $716,000 and $708,000
during fiscal 1995 and 1994, respectively.
A-11
<PAGE> 29
NONINTEREST EXPENSE
On September 30, 1996 First Liberty recorded a SAIF deposit insurance
expense of $3.6 million as a result of the one-time SAIF assessment. The amount
was $2.3 million after tax and represented $.35 per fully diluted share.
Total noninterest expense increased by $6.1 million or 24.5% during fiscal
1996 compared to fiscal 1995 and increased $1.4 million or 6.0% during fiscal
1995 compared to fiscal 1994. The principal factor contributing to increased
noninterest expense was the $3.6 million SAIF assessment explained above (1996
only) and the incremental cost of acquired operations.
During 1995, three acquisitions were completed which increased noninterest
expense by direct incremental costs of approximately $1.2 million in 1996 as
compared to 1995 and $2.0 million in 1995 as compared to 1994. The breakdown of
direct incremental costs in 1996 and 1995 related to acquired operations were as
follows.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Compensation, payroll taxes and fringe benefits.......................... $ 654 $ 826
Occupancy and equipment.................................................. 138 246
Federal deposit insurance premiums....................................... 69 233
Amortization of intangible assets........................................ 152 325
Other.................................................................... 233 372
------ ------
$1,246 $2,002
====== ======
</TABLE>
During 1996 Liberty Bank recorded $413,000 for possible losses on sales of
foreclosed real estate as compared to $507,000 and $1.1 million in 1995 and
1994, respectively. The ending allowance for losses on foreclosed real estate
for 1996, 1995 and 1994 was $382,000, $302,000 and $2.9 million, respectively.
See "Nonperforming Assets and Credit Risk" -- herein.
The following table summarizes the significant components of other expense:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Postage and freight...................................... $ 914 $ 776 $ 716
Insurance and bonds...................................... 189 189 223
Telephone................................................ 698 597 532
Stationery and supplies.................................. 602 559 436
Losses................................................... 435 760 437
Other.................................................... 1,274 1,358 1,012
------ ------ ------
$4,112 $4,239 $3,356
====== ====== ======
</TABLE>
INCOME TAXES
Income tax expense for the years ended September 30, 1995 and 1994 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 after such
item for the years ended September 30, 1996, 1995 and 1994 was 33.4%, 28.4% and
31.3%, respectively.
At September 30, 1996 First Liberty had gross deferred tax assets of
approximately $4.3 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
A-12
<PAGE> 30
uncertainties existing at September 30, 1996 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.
During the fiscal year ended September 30, 1996, First Liberty and the
Internal Revenue Service ("IRS") reached a settlement in connection with the
IRS's examination of First Liberty's federal income tax returns for the tax
years ended September 30, 1986 through 1989. The settlement is reflected in the
financial statements for the year ending September 30, 1996 and did not have a
material impact on the consolidated financial statements.
A-13
<PAGE> 31
LOANS
The following table states the composition of Liberty Bank's loan portfolio
at the indicated dates.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ------ -------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential permanent first
mortgages:
Held-for-investment:
Fixed rate.................... $ 47,098 6 $ 43,930 7 $ 48,396 10 $ 65,762 12
Adjustable rate............... 95,907 13 113,601 17 77,407 15 48,964 9
-------- --- -------- --- -------- --- -------- ---
143,005 19 157,531 24 125,803 25 114,726 21
-------- --- -------- --- -------- --- -------- ---
Available-for-sale:
Fixed rate.................... 25,637 3 21,307 3 8,005 2 60,398 11
Adjustable rate............... 1,269 1 975 -- 1,978 -- 9,649 2
-------- --- -------- --- -------- --- -------- ---
26,906 4 22,282 3 9,983 2 70,047 13
-------- --- -------- --- -------- --- -------- ---
Residential construction........... 88,416 12 69,579 11 53,167 11 43,533 8
Commercial construction............ 24,185 3 18,301 3 18,298 4 12,967 2
Commercial permanent(1)............ 44,797 6 60,730 9 78,036 15 89,889 17
-------- --- -------- --- -------- --- -------- ---
157,398 21 148,610 23 149,501 30 146,389 27
-------- --- -------- --- -------- --- -------- ---
Consumer(2)........................ 237,398 31 195,353 30 156,112 31 157,420 29
Commercial(3)...................... 190,988 25 131,963 20 61,579 12 53,097 10
-------- --- -------- --- -------- --- -------- ---
428,386 56 327,316 50 217,691 43 210,517 39
-------- --- -------- --- -------- --- -------- ---
755,695 100% 655,739 100% 502,978 100% 541,679 100%
=== === === ===
Allowance for estimated losses..... (8,611) (7,816) (5,680) (6,141)
-------- -------- -------- --------
Total.................... $747,084 $647,923 $497,298 $535,538
======== ======== ======== ========
<CAPTION>
1992
--------------------
% OF
AMOUNT TOTAL
--------- ------
<S> <C> <C>
Residential permanent first
mortgages:
Held-for-investment:
Fixed rate.................... $ 95,945 17
Adjustable rate............... 63,598 12
-------- ---
159,543 29
-------- ---
Available-for-sale:
Fixed rate.................... 60,656 11
Adjustable rate............... 8,074 2
-------- ---
68,730 13
-------- ---
Residential construction........... 36,918 7
Commercial construction............ 14,640 3
Commercial permanent(1)............ 96,084 17
-------- ---
147,642 27
-------- ---
Consumer(2)........................ 118,600 22
Commercial(3)...................... 49,063 9
-------- ---
167,663 31
-------- ---
543,578 100%
===
Allowance for estimated losses..... (5,641)
--------
Total.................... $ 537,937
========
</TABLE>
- ---------------
(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.
A-14
<PAGE> 32
During 1996, the commercial loan portfolio increased by $59 million, or
45%, as a part of Liberty Bank's strategic plan to emphasize commercial loans as
a targeted line. Management would anticipate a continued expansion of commercial
loans in 1997, but at a slower rate of growth.
The following table sets forth the scheduled contractual repayments of
Liberty Bank's construction and commercial business loans at September 30, 1996.
Adjustable rate loans are included in their respective principal repayment date
categories.
<TABLE>
<CAPTION>
CONSTRUCTION COMMERCIAL
------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Amounts due:
Within 1 year(1)............................................... $ 94,171 $ 77,557
After 1 year through 5 years................................... 18,082 89,575
After 5 years.................................................. 348 23,856
-------- --------
$112,601 $190,988
======== ========
</TABLE>
- ---------------
(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, 1996 due after one year by fixed and
adjustable rates.
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
RATE RATE
------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Construction........................................................ $ 3,443 $ 14,987
Commercial.......................................................... 82,546 30,885
------- -------
$85,989 $ 45,872
======= =======
</TABLE>
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The following table summarizes securities available-for-sale:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
TYPES OF INVESTMENTS 1996 1995 1994
-------------------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investment securities:
U.S. government agencies............................. $ 9,792 $ 14,591 $ 5,116
Investment grade corporate debt and equity
securities........................................ 4,666 4,394 4,079
Federal Home Loan Bank of Atlanta stock.............. 9,733 9,733 9,733
Other................................................ 90 80 --
Mortgage-backed securities:
Federal National Mortgage Corporation................ 76,628 40,738 30,829
Federal Home Loan Mortgage Association............... 82,985 78,721 71,977
Government National Mortgage Association............. 2,376 2,835 3,212
Other................................................ 13,747 16,521 5,368
-------- -------- --------
Total securities available-for-sale.......... $200,017 $167,613 $130,314
======== ======== ========
</TABLE>
A-15
<PAGE> 33
The stated contractual maturities and weighted average yield of securities
available-for-sale at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS
1 YEAR THROUGH THROUGH AFTER 10
TYPES OF INVESTMENT OR LESS 5 YEARS 10 YEARS YEARS TOTAL
--------------------------------------- ------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
Federal Home Loan Bank of Atlanta
stock............................. $ 9,733 $ -- $ -- $ -- $ 9,733
Investment grade corporate equity
securities........................ 4,666 -- -- -- 4,666
U.S. government agencies............. 4,101 5,691 -- -- 9,792
Other................................ 90 -- -- -- 90
------- ------- ------- -------- --------
18,590 5,691 -- -- 24,281
------- ------- ------- -------- --------
Weighted average yield................. 6.60% 6.40% -- -- 6.55%
------- ------- ------- -------- --------
Mortgage-backed securities:
Federal National Mortgage
Association....................... -- 12,190 25,236 39,202 76,628
Federal Home Loan Mortgage
Corporation....................... 2,211 11,333 11,380 58,061 82,985
Government National Mortgage
Association....................... -- -- 454 1,922 2,376
Other................................ -- 1,121 -- 12,626 13,747
------- ------- ------- -------- --------
2,211 24,644 37,070 111,811 175,736
------- ------- ------- -------- --------
Weighted average yield................. 5.29% 6.27% 6.84% 7.14% 6.93%
------- ------- ------- -------- --------
Total securities
available-for-sale......... $20,801 $30,335 $ 37,070 $111,811 $200,017
======= ======= ======= ======== ========
Weighted average yield................. 6.46% 6.29% 6.84% 7.14% 6.88%
======= ======= ======= ======== ========
</TABLE>
Collateralized mortgage obligations of $124 million are included in
mortgage-backed securities and have anticipated weighted average effective
maturities of less than five years.
In the third quarter of fiscal 1996 First Liberty undertook a portfolio
investment strategy to address the need to proactively manage several
situations. Among the primary situations was that the Federal Home Loan Bank of
Atlanta ("FHLB") exercised their legislative authority to force redemption of
the Company's FHLB stock in excess of required minimums. A forced redemption of
FHLB stock would result in the liquidation of a deferred tax liability related
to untaxed dividend income which would reduce future net interest income.
Additionally, Liberty Bank sought to reduce interest rate risk due to declining
interest rate environments.
The portfolio investment strategy implemented during 1996 involved the
purchase of $45 million in short term average life (one to two years)
collateralized mortgage obligations funded with adjustable rate FHLB advances.
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
% OF % OF % OF
TYPE OF ACCOUNT AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------------- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Total savings:
Regular(1).......................... $ 46,409 6% $ 49,914 7% $ 41,320 8%
Money market(2)..................... 70,268 9 70,098 10 57,648 10
-------- --- -------- --- -------- ---
Total savings......................... 116,677 15 120,012 17 98,968 18
-------- --- -------- --- -------- ---
</TABLE>
A-16
<PAGE> 34
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
% OF % OF % OF
TYPE OF ACCOUNT (CONTINUED) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------------- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Demand deposits:
Consumer
Interest-earning(3).............. 84,718 11 81,005 11 59,945 11
Non-interest-earning............. 15,386 2 13,876 2 8,090 1
Commercial.......................... 67,982 9 51,787 7 25,049 4
Custodial accounts.................. 12,969 2 11,344 2 14,410 3
-------- --- -------- --- -------- ---
Total demand deposits................. 181,055 24 158,012 22 107,494 19
-------- --- -------- --- -------- ---
Time deposits:
1.00%-3.00%........................ 203 -- 812 -- 112 --
3.01%-5.00%........................ 37,508 5 54,435 8 235,412 42
5.01%-7.00%........................ 416,239 55 360,899 50 97,170 17
7.01%-9.00%........................ 7,355 1 23,112 3 20,510 4
9.01%-11.00%....................... 1,457 -- 1,944 -- 1,947 --
11.01%-13.00%....................... -- -- -- -- 3 --
-------- --- -------- --- -------- ---
Total time deposits................... 462,762 61 441,202 61 355,154 63
-------- --- -------- --- -------- ---
Total deposits........................ $760,494 100% $719,226 100% $561,616 100%
======== === ======== === ======== ===
Weighted average rate at year end..... 4.32% 4.49% 3.84%
======== ======== ========
Contractual maturities of time
deposits:
Within 1 year....................... $340,126 $257,701 $180,403
1 to 5 years........................ 122,636 183,473 174,751
over 5 years........................ -- 28 --
-------- -------- --------
$462,762 $441,202 $355,154
======== ======== ========
</TABLE>
- ---------------
(1) The range of nominal interest rates was 2.00% to 3.25% at September 30,
1996, 2.50 to 3.50% at September 30, 1995 and 3.00% at September 30, 1994.
(2) The range of nominal interest rates was 2.45% to 4.00% at September 30, 1996
and 2.45% to 3.75% at September 30, 1995 and 1994.
(3) The range of nominal interest rates was 1.75% to 3.25% at September 30,
1996, 2.40% to 3.25% at September 30, 1995 and 2.50% to 2.95% at September
30, 1994.
As of September 30, 1996 the amount and remaining term to maturity for time
deposits in the amount of $100,000 or greater is as follows; approximately $30.1
million in three months or less, approximately $19.4 million in over three
months through six months, approximately $23.7 million in over six months
through twelve months, and approximately $11.6 million in over twelve months.
Included in total deposits are accounts having balances in excess of
$100,000 totalling approximately $136 million, $103 million and $60.2 million at
September 30, 1996, 1995 and 1994, respectively.
Certain deposits are collateralized by mortgage-backed and investment
securities aggregating approximately $26.7 million and $19.5 million at
September 30, 1996 and 1995, respectively.
In the second quarter of fiscal 1996, First Liberty began a wholesale and
brokered certificate of deposit program as part of their overall funding
strategy. Since 1995 brokered deposits have grown to $16.0 million and wholesale
deposits have grown to $20.9 million. These deposits represent 4.9% of total
deposits. The wholesale and brokered program provides a source of funds that can
be utilized as an attractive alternative to other borrowing lines and
competitive deposit pricing.
A-17
<PAGE> 35
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.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Outstanding balance, end of period......................... $184,660 $ 88,500 $ 50,250
Maximum month end balance.................................. 184,660 107,500 83,250
Average balance............................................ 106,047 62,091 57,809
Weighted average interest rate, end of period............ 5.45% 6.14% 6.16%
Weighted average interest rate, during the period........ 5.71% 6.07% 5.52%
</TABLE>
Advances from the FHLB are collateralized by residential first mortgage
loans and mortgage-backed and government agency securities with unpaid principal
balances aggregating approximately $195 million, $140 million and $88 million at
September 30, 1996, 1995 and 1994, respectively. At September 30, 1996, 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 1996 the FHLB of Atlanta imposed a maximum investment in its capital
stock equal to $500,000 over the required minimum. During the quarter ended
September 30, 1996, Liberty Bank increased its advances from the FHLB of Atlanta
to avoid a forced redemption of its excess FHLB of Atlanta stock.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Management is currently reviewing the
provisions of SFAS No. 125 and does not believe that the Company's financial
statements will be materially negatively impacted by the adoption.
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 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 the Company beginning
October 1, 1996. Management believes that the adoption of SFAS No. 121 will not
have a material impact on the Company's financial statements.
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
A-18
<PAGE> 36
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 effective for the
Company for the year ending September 30, 1997. As such, SFAS No. 123 was
adopted effective October 1, 1996 for disclosure purposes only and did not
impact the Company's financial position or results of operations.
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, 1996.
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, 1996:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
--------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Core capital............................. $62,673 5.89 $31,915 3.00 $30,758 2.89
Tangible capital......................... 61,003 5.74 15,933 1.50 45,070 4.24
Risk-based capital....................... 82,676 10.75 61,520 8.00 21,156 2.75
</TABLE>
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.
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
and 1996. 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 paid dividends in the amount of $3.6 million to First Liberty during fiscal
1996.
A-19
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................................... A-21
Consolidated Statements of Financial Condition as of September 30, 1996 and 1995..... A-22
Consolidated Statements of Income for each of the three years in the period ended
September 30, 1996................................................................. A-23
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended September 30, 1996.................................................... A-25
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1996................................................................. A-26
Notes to Consolidated Financial Statements........................................... A-28
</TABLE>
A-20
<PAGE> 38
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,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996 in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for impaired loans and mortgage
servicing rights in 1996.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
November 5, 1996, except as to the information
presented in the first paragraph of
Note 3, for which the date
is November 15, 1996.
A-21
<PAGE> 39
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1995
---------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and due from banks................................................ $ 37,925 $ 24,610
Federal funds sold and repurchase agreements........................... 29,707 22,652
Securities available-for-sale, at market value......................... 200,017 167,613
Loans available-for-sale, net, at market value......................... 26,906 22,282
Loans, net............................................................. 720,178 625,641
Accrued interest receivable............................................ 7,312 6,406
Premises and equipment, net............................................ 22,151 22,194
Real estate, net....................................................... 2,512 4,053
Intangible assets...................................................... 10,211 11,315
Mortgage servicing rights.............................................. 6,132 2,076
Advances to attorneys for loans originated............................. 1,729 3,220
Deferred federal income taxes.......................................... 450 --
Other assets........................................................... 5,961 7,212
---------- --------
Total assets................................................. $1,071,191 $919,274
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand........................................... $ 81,139 $ 63,323
Interest-bearing demand.............................................. 99,916 94,689
Savings.............................................................. 116,677 120,012
Time................................................................. 462,762 441,202
---------- --------
Total deposits............................................... 760,494 719,226
Notes payable and other borrowed money................................. 184,660 88,500
Subordinated debentures................................................ 12,155 12,501
Securities sold under agreements to repurchase......................... 16,644 4,315
Checks payable on loans originated..................................... 4,450 7,119
Deferred federal income taxes.......................................... -- 1,264
Other liabilities...................................................... 16,338 15,680
---------- --------
Total liabilities............................................ 994,741 848,605
---------- --------
Commitments and contingencies.......................................... -- --
Stockholders' equity:
Series B, 6.00% Cumulative Convertible Preferred Stock ($25.00 stated
value, 302,580 shares authorized, issued and outstanding)......... 7,564 7,564
Common stock ($1.00 par value, 37,500,000 shares authorized,
6,103,452 and 5,973,924 shares issued, respectively, and 6,069,942
and 5,940,414 shares outstanding, respectively)................... 6,104 5,974
Additional paid-in capital........................................... 26,132 25,376
Retained earnings.................................................... 36,804 31,593
Net unrealized gain on securities available-for-sale, net of taxes... 115 431
Treasury stock at cost (33,510 shares)............................... (269) (269)
---------- --------
Total stockholders' equity................................... 76,450 70,669
---------- --------
Total liabilities and stockholders' equity................... $1,071,191 $919,274
========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-22
<PAGE> 40
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Loans.................................................... $ 62,021 $ 49,990 $ 41,827
Securities............................................... 12,263 10,957 6,481
Federal funds sold and repurchase agreements............. 671 466 254
Other interest income.................................... 127 77 --
---------- ---------- ----------
Total interest income............................ 75,082 61,490 48,562
---------- ---------- ----------
Interest Expense:
Deposits................................................. 31,881 26,167 19,796
Short-term borrowings.................................... 6,108 3,785 1,470
Long-term borrowings..................................... 2,823 2,781 3,851
---------- ---------- ----------
Total interest expense........................... 40,812 32,733 25,117
---------- ---------- ----------
Net interest income................................... 34,270 28,757 23,445
Provision for estimated losses on loans.................. 1,788 1,440 1,500
---------- ---------- ----------
Net interest income after provision for estimated
losses on loans..................................... 32,482 27,317 21,945
---------- ---------- ----------
Noninterest Income:
Loan servicing fees...................................... 2,354 2,398 2,870
Gain on sale of investment securities.................... 11 34 --
Gain (loss) on sale of loans and mortgage-backed
securities............................................ 1,770 (207) 461
Gain on sale of servicing................................ 790 2,353 3,367
Deposit account service charges.......................... 4,509 3,491 2,859
Other income............................................. 673 716 708
---------- ---------- ----------
Total noninterest income......................... 10,107 8,785 10,265
---------- ---------- ----------
42,589 36,102 32,210
---------- ---------- ----------
Noninterest Expense:
Compensation, taxes and benefits......................... 14,449 12,442 11,960
Occupancy and equipment.................................. 3,499 2,965 2,765
Advertising.............................................. 904 856 854
Professional fees........................................ 820 765 815
Data processing.......................................... 772 718 655
Federal deposit insurance premiums....................... 5,019 1,740 1,551
Amortization of intangible assets........................ 1,113 729 375
Net cost of operation of other real estate............... 229 370 1,080
Other expenses........................................... 4,112 4,239 3,356
---------- ---------- ----------
Total noninterest expense........................ 30,917 24,824 23,411
---------- ---------- ----------
Income before income tax expense......................... 11,672 11,278 8,799
---------- ---------- ----------
</TABLE>
A-23
<PAGE> 41
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income Tax Expense (Benefit):
Current.................................................. 5,858 3,394 2,557
Deferred................................................. (1,956) (187) 193
---------- ---------- ----------
3,902 3,207 2,750
---------- ---------- ----------
Net income............................................... 7,770 8,071 6,049
Dividends on preferred stock............................. 454 864 891
---------- ---------- ----------
Net income applicable to common stockholders............. $ 7,316 $ 7,207 $ 5,158
========== ========== ==========
Earnings Per Common Share:
Primary.................................................. $ 1.21 $ 1.48 $ 1.11
Fully diluted............................................ $ 1.17 $ 1.29 $ 1.00
Dividends Per Common Share:................................ $ .34 $ .28 $ .21
Average Number of Shares Outstanding:
Primary.................................................. 6,056,372 4,843,047 4,633,242
Fully diluted............................................ 6,672,680 6,307,338 6,074,234
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-24
<PAGE> 42
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED
PREFERRED COMMON PAID-IN RETAINED GAIN (LOSS) ON
STOCK STOCK CAPITAL EARNINGS SECURITIES
--------- ------ ---------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1993................................. $11,500 $4,547 $ 15,209 $22,083 $ 998
Series A, 7.75% Cumulative Convertible Preferred stock
dividends declared, $1.94 per share........................ -- -- -- (891) --
Common stock dividends declared, $0.21 per share............. -- -- -- (963) --
Repayment of obligations under Employee Stock Ownership
Plan....................................................... -- -- -- -- --
Net unrealized loss on securities available-for-sale, net of
taxes...................................................... -- -- -- -- (1,872)
Net income................................................... -- -- -- 6,049 --
-------- ------- ------- ------- -------
Balances at September 30, 1994................................. 11,500 4,547 15,209 26,278 (874)
Series B, 6.00% Cumulative Convertible Preferred stock
issued -- $25.00 stated value -- 302,580 shares............ 7,564 -- (545) -- --
Series A, 7.75% Cumulative Convertible Preferred stock
dividends declared, $1.45 per share........................ -- -- -- (669) --
Series B, 6.00% Cumulative Convertible Preferred stock
dividends declared, $0.64 per share........................ -- -- -- (195) --
Common stock dividends declared, $0.28 per share............. -- -- -- (1,417) --
Conversion of 457,463 shares of Series A, 7.75% Cumulative
Convertible Preferred stock into 1,372,389 shares of Common
stock, and 2,537 shares redeemed for $26.20 per share...... (11,500) 1,371 10,519 (456) --
Common stock issued for exercise of stock options -- 55,500
shares..................................................... -- 56 193 (19) --
Net unrealized gain on securities available-for-sale, net of
taxes...................................................... -- -- -- -- 1,305
Net income................................................... -- -- -- 8,071 --
-------- ------- ------- ------- -------
Balances at September 30, 1995................................. 7,564 5,974 25,376 31,593 431
Series B, 6.00% Cumulative Convertible Preferred stock
dividends declared, $0.64 per share........................ -- -- -- (454) --
Common stock dividends declared, $0.34 per share............. -- -- -- (2,076) --
Conversion of $602,000 in 8.25% Convertible Debentures into
55,261 shares of Common stock.............................. -- 55 536 (2) --
Common stock issued for exercise of stock options -- 74,400
shares..................................................... -- 75 220 (25) --
Dividends paid for fractional shares in three-for-two stock
split effective October 1, 1996............................ -- -- -- (2) --
Net unrealized loss on securities available-for-sale, net of
taxes...................................................... -- -- -- -- (316)
Net income................................................... -- -- -- 7,770 --
-------- ------- ------- ------- -------
Balances at September 30, 1996................................. $ 7,564 $6,104 $ 26,132 $36,804 $ 115
======== ======= ======= ======= =======
<CAPTION>
OBLIGATIONS
UNDER
EMPLOYEE
STOCK TOTAL
TREASURY OWNERSHIP STOCKHOLDERS'
STOCK PLAN EQUITY
-------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances at September 30, 1993................................. $ (269) $(184) $53,884
Series A, 7.75% Cumulative Convertible Preferred stock
dividends declared, $1.94 per share........................ -- -- (891)
Common stock dividends declared, $0.21 per share............. -- -- (963)
Repayment of obligations under Employee Stock Ownership
Plan....................................................... -- 184 184
Net unrealized loss on securities available-for-sale, net of
taxes...................................................... -- -- (1,872)
Net income................................................... -- -- 6,049
----- ----- -------
Balances at September 30, 1994................................. (269) -- 56,391
Series B, 6.00% Cumulative Convertible Preferred stock
issued -- $25.00 stated value -- 302,580 shares............ -- -- 7,019
Series A, 7.75% Cumulative Convertible Preferred stock
dividends declared, $1.45 per share........................ -- -- (669)
Series B, 6.00% Cumulative Convertible Preferred stock
dividends declared, $0.64 per share........................ -- -- (195)
Common stock dividends declared, $0.28 per share............. -- -- (1,417)
Conversion of 457,463 shares of Series A, 7.75% Cumulative
Convertible Preferred stock into 1,372,389 shares of Common
stock, and 2,537 shares redeemed for $26.20 per share...... -- -- (66)
Common stock issued for exercise of stock options -- 55,500
shares..................................................... -- -- 230
Net unrealized gain on securities available-for-sale, net of
taxes...................................................... -- -- 1,305
Net income................................................... -- -- 8,071
----- ----- -------
Balances at September 30, 1995................................. (269) -- 70,669
Series B, 6.00% Cumulative Convertible Preferred stock
dividends declared, $0.64 per share........................ -- -- (454)
Common stock dividends declared, $0.34 per share............. -- -- (2,076)
Conversion of $602,000 in 8.25% Convertible Debentures into
55,261 shares of Common stock.............................. -- -- 589
Common stock issued for exercise of stock options -- 74,400
shares..................................................... -- -- 270
Dividends paid for fractional shares in three-for-two stock
split effective October 1, 1996............................ -- -- (2)
Net unrealized loss on securities available-for-sale, net of
taxes...................................................... -- -- (316)
Net income................................................... -- -- 7,770
----- ----- -------
Balances at September 30, 1996................................. $ (269) $ -- $76,450
===== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-25
<PAGE> 43
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Cash flows from operating activities:
Net income............................................. $ 7,770 $ 8,071 $ 6,049
Adjustments to reconcile net income to cash provided
by(used in) operations:
Depreciation......................................... 1,936 1,727 1,618
Deferred income tax expense (benefit)................ (1,956) (187) 193
Amortization of loan fees (costs), net............... 113 (623) (776)
Provision for estimated losses on loans and real
estate............................................ 2,201 1,947 2,597
Amortization of intangibles.......................... 1,113 729 375
Dividends received on stock.......................... (272) (254) (416)
Loss(gain) on sales of loans, mortgage-backed and
investment securities............................. (1,781) 173 (461)
Loans available-for-sale:
Disbursements........................................ (140,618) (57,020) (160,060)
Purchases............................................ (228,087) (69,590) (190,758)
Sales................................................ 365,341 113,053 402,506
Repayments........................................... 600 791 8,079
Increase in accrued interest receivable................ (906) (1,475) (431)
Increase(decrease) in accrued interest payable......... 33 170 (26)
Other, net............................................. (2,750) 9,328 (1,399)
--------- --------- ---------
Total adjustments................................. (5,033) (1,231) 61,041
--------- --------- ---------
Net cash provided by operating activities................... 2,737 6,840 67,090
--------- --------- ---------
Investing Activities:
Cash flows from investing activities:
Net increase in federal funds sold and repurchase
agreements........................................... (7,055) (15,917) (3,309)
Investment securities available-for-sale:
Purchases............................................ (10) (11,211) (5,176)
Sales................................................ 819 30,960 74
Maturities........................................... 4,000 3,000 2,843
Mortgage-backed securities available-for-sale:
Purchases............................................ (77,187) (64,450) (59,864)
Sales................................................ 2,763 19,478 6,205
Principal repayments................................. 36,959 23,041 33,891
Net increase in loans.................................. (97,754) (76,552) (19,800)
Purchases of premises and equipment.................... (1,899) (1,447) (1,743)
Proceeds from sales of real estate..................... 3,714 1,612 1,821
Net decrease(increase) in advances to attorneys for
loans originated..................................... 1,491 (1,956) 17,448
Cash received in acquisitions, net..................... -- 86,220 --
--------- --------- ---------
Net cash used in investing activities..................... (134,159) (7,222) (27,610)
--------- --------- ---------
</TABLE>
A-26
<PAGE> 44
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Financing Activities:
Cash flows from financing activities:
Net increase(decrease) in deposits..................... 41,122 (33,300) 15,656
Notes payable and other borrowed money:
Proceeds............................................. 605,762 380,000 176,000
Repayments........................................... (509,602) (342,415) (197,008)
Net increase (decrease) in securities sold under
agreements to repurchase............................. 12,329 2,655 (6,814)
Net increase(decrease) in checks payable on loans
originated........................................... (2,669) 3,295 (22,422)
Redemption of preferred stock.......................... -- (66) --
Issuance of common stock............................... 270 230 --
Dividends paid on stock................................ (2,475) (1,700) (2,077)
--------- --------- ---------
Net cash provided by(used in) financing activities..... 144,737 8,699 (36,665)
--------- --------- ---------
Net increase in cash and due from banks................ 13,315 8,317 2,815
Cash and due from banks beginning of period............ 24,610 16,293 13,478
--------- --------- ---------
Cash and due from banks end of period.................. $ 37,925 $ 24,610 $ 16,293
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest............................................... $ 40,780 $ 32,564 $ 25,144
Income taxes........................................... 5,687 2,665 3,688
Noncash Investing and Financing Activities:
Real estate foreclosed................................. $ 2,028 $ 1,462 $ 1,492
Financing of sales of foreclosed real estate........... 350 3,678 3,339
Conversion of mortgage loans into mortgage-backed
securities........................................... -- -- 596
Dividends declared but not paid on preferred stock..... 114 66 --
Dividends declared but not paid on common stock........ 524 515 --
Acquisitions:
Fair value of assets acquired............................. -- $(113,176) --
Fair value of liabilities assumed......................... -- 199,396 --
---------
Net cash received........................................... -- $ 86,220 --
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-27
<PAGE> 45
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
First Liberty Financial Corp. ("First Liberty") is a savings and loan
holding company which owns and operates First Liberty Bank ("Liberty Bank") and
its wholly-owned subsidiaries, Liberty Mortgage Corporation ("Liberty Mortgage")
and NewSouth Financial Services, Inc. ("NewSouth"). Liberty Bank operates as a
system of community banks throughout Georgia. Liberty Mortgage originates first
mortgage loans throughout Georgia and the southeastern states.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First Liberty
and its wholly-owned subsidiaries, Liberty Bank and 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
Held-to-maturity securities are 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, adjusted for premiums and discounts
that are recognized in interest income using the interest method over the period
to maturity.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings.
Debt and equity securities that are not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale and represent those securities intended to be held for an
indefinite period of time, including securities that management intends to use
as part of its asset/liability strategy, or that may be sold in response to
interest rates, change in prepayment risk, the need to increase regulatory
capital or other similar factors. Available-for-sale securities are reported at
fair value, with unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity until realized. This amount is
reported net of income taxes. As of September 30, 1996 and 1995, the Company's
entire portfolio of debt and equity securities was classified as
available-for-sale.
Gains or losses on sales of securities are determined based upon the
specific identification method.
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.
A-28
<PAGE> 46
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Loans which are delinquent 90 days (four payments) or over generally are
placed on non-accrual status unless the collectibility of principal and 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
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan",
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, an Amendment of SFAS No. 114". Under
these new standards, a loan is considered impaired, based on current information
and events, if it is probable that the Company will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement.
The Company uses several factors in determining if a loan is impaired under
SFAS No. 114. Quarterly asset classification procedures generally include a
review of significant loans and lending data, including loan payment status and
borrowers' financial data and operation factors, such as cash flows and
operating income or loss. The measurement of impaired loans is generally based
on the present value of expected future cash flows discounted at the historical
effective interest rate of the loan, except that collateral dependent loans are
measured for impairment at the fair value of the collateral. The adoption of
SFAS No. 114 resulted in no additional provision for loan losses at October 1,
1995.
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.
MORTGAGE SERVICING RIGHTS
The Company adopted SFAS No. 122 "Accounting for Mortgage Servicing
Rights", effective October 1, 1995. SFAS No. 122 requires that the right to
service mortgage loans for others be recognized as an asset, whether that
servicing right is acquired or originated. The total cost of mortgage loans sold
or securitized is allocated to the loans and to the mortgage servicing rights
based upon their relative fair values. Mortgage servicing rights are 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
A-29
<PAGE> 47
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, and the excess (deficient)
servicing fees receivable (payable) are evaluated for impairment based on their
fair value. Fair values of servicing rights are determined by estimating the
present value of future net servicing income considering the average interest
rate and the average remaining lives of the related loans being serviced. 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 mortgage 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 accumulated
depreciation are removed from the accounts. Any resulting gain or loss is
reflected in current income.
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.
A-30
<PAGE> 48
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization and 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, 1996 and 1995 was $4.6
million and $3.5 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 and 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.
Mortgage Servicing Rights and Excess Servicing Fees. The fair value
is estimated by discounting future cash flows from servicing fees using
discount rates that approximate current market rates.
Deposit Liabilities. The fair values disclosed for deposits (i.e.,
interest and non-interest checking), regular savings, 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 102.0% at September 30,
1996 and 103.0% at September 30, 1995.
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
A-31
<PAGE> 49
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
ADVERTISING
Advertising costs are expensed as incurred.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred tax balances are regularly adjusted through the consolidated statements
of income 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 AND RESTATEMENTS
Certain reclassifications have been made to the 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation.
All references to number of shares, per share amounts, stock option data
and market prices have been restated to give retroactive effect to the
three-for-two stock split in the form of a stock dividend effective on October
1, 1996.
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. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS No. 125 is effective for transfers and
A-32
<PAGE> 50
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and is to be applied prospectively. Management is currently
reviewing the provisions of SFAS No. 125 and does not believe that the Company's
financial statements will be materially negatively impacted by the adoption.
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
the Company beginning October 1, 1996. Management believes that the adoption of
SFAS No. 121 will not have a material impact on the Company's financial
statements.
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 effective for the Company for the year ending September 30,
1997. As such, SFAS No. 123 was adopted effective October 1, 1996 for disclosure
purposes only and did not impact the Company's financial position or results of
operations.
3. ACQUISITIONS
On November 15, 1996, the Company acquired by merger Middle Georgia Bank
("MGB"). On the merger date MGB had total assets of approximately $129 million,
total liabilities of $119 million and total stockholders' equity of $10.1
million. This business combination has been accounted for utilizing the pooling-
of-interests method of accounting. The following table shows the pro forma
effect of the above transaction on results of operations for the periods prior
to the combination. The results listed are not necessarily indicative of
A-33
<PAGE> 51
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
future operations and they exclude the pro forma effects of prior year
acquisitions accounted for under the purchase method.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1995 1994
------- ------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total Revenue:
First Liberty................................................... $85,189 $70,275 $58,827
MGB............................................................. 10,664 10,081 8,184
Combined..................................................... $95,853 $80,356 $67,011
Net Income:
First Liberty................................................... $ 7,770 $ 8,071 $ 6,049
MGB............................................................. 1,167 1,274 1,151
Combined..................................................... $ 8,937 $ 9,345 $ 7,200
Earnings Per Common Share:
First Liberty
Primary...................................................... $ 1.21 $ 1.48 $ 1.11
Fully diluted................................................ 1.17 1.29 1.00
MGB
Primary...................................................... 5.84 6.37 5.75
Fully diluted................................................ 5.84 6.37 5.75
Combined
Primary...................................................... 1.20 1.42 1.09
Fully diluted................................................ 1.16 1.26 1.01
</TABLE>
In September 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.
In March 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.
In December 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 prior to 1996 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.
The following table presents unaudited proforma results of operations for
the year ended September 30, 1995, after giving effect to the amortization of
intangibles and other proforma adjustments, as if the purchase acquisitions
previously discussed had occurred at the beginning of the 1995 period. 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
A-34
<PAGE> 52
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have been, if the acquisitions had occurred at the beginning of the year
presented (dollars and shares outstanding in thousands).
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
(UNAUDITED)
<S> <C>
Net interest income before provision for estimated losses on loans.............. $31,674
Net income...................................................................... 8,309
Earnings Per Common Share:
Primary....................................................................... $ 1.45
Fully diluted................................................................. 1.26
Average Shares Outstanding:
Primary....................................................................... 4,844
Fully diluted................................................................. 6,617
</TABLE>
4. SECURITIES AVAILABLE-FOR-SALE
Investment and mortgage-backed securities available-for-sale are summarized
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Investment Securities:
U.S. government agencies..................................... $ 9,792 $ 14,591
Investment grade corporate equity securities................. 4,666 4,394
Federal Home Loan Bank of Atlanta stock...................... 9,733 9,733
Other........................................................ 90 80
Mortgage-backed Securities:
Federal National Mortgage Association........................ 76,628 40,738
Federal Home Loan Mortgage Corporation....................... 82,985 78,721
Government National Mortgage Corporation..................... 2,376 2,835
Other........................................................ 13,747 16,521
-------- --------
$200,017 $167,613
======== ========
</TABLE>
Mortgage-backed securities at September 30, 1996 and 1995 included $124
million and $85.3 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, 1996 and 1995, 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
11th District Cost of Funds Index.
At September 30, 1996, the Company had no open futures contracts or option
contracts as interest rate hedges related to investment or mortgage-backed
securities.
A-35
<PAGE> 53
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of all investments in debt
and equity securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
At September 30, 1996:
U.S. government agencies.................... $ 9,824 $ 24 $ 56 $ 9,792
Investment grade corporate equity
securities............................... 4,688 -- 22 4,666
Federal Home Loan Bank of Atlanta stock..... 9,733 -- -- 9,733
Other....................................... 90 -- -- 90
Mortgage-backed securities.................. 175,508 1,073 845 175,736
-------- ------ ---- --------
$ 199,843 $1,097 $923 $ 200,017
======== ====== ==== ========
At September 30, 1995:
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
======== ====== ==== ========
</TABLE>
The change to stockholders' equity for the net unrealized gain or loss on
debt and equity securities during fiscal 1996 was a net loss of $316,000 (net of
related tax benefit of $163,000) and a net gain of $1.3 million (net of related
taxes of $672,000) during fiscal 1995.
The amortized cost and estimated market value of debt and equity securities
at September 30, 1996, 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:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Due in one year or less.......................................... $ 8,887 $ 8,857
Due after one year through five years............................ 5,715 5,691
-------- --------
14,602 14,548
Federal Home Loan Bank of Atlanta stock.......................... 9,733 9,733
Mortgage-backed securities....................................... 175,508 175,736
-------- --------
$ 199,843 $ 200,017
======== ========
</TABLE>
Proceeds, gross realized gains and losses on the sale of debt and equity
securities for the three years ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1995 1994
------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Proceeds.................................................... $3,581 $50,438 $6,279
Gross realized gains........................................ 13 255 13
Gross realized losses....................................... 2 74 20
</TABLE>
A-36
<PAGE> 54
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 or purchase residential mortgage loans of
approximately $76 million, including $1.6 million to be held in Liberty Bank's
portfolio and $43 million on which the interest rate had not been locked-in at
September 30, 1996. Commitments to buy and sell, respectively, residential
mortgage loans and mortgage-backed securities for mandatory delivery were
approximately $500,000 and $43 million at September 30, 1996. Also, at September
30, 1996, the Company bought $2.0 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, 1996.
The following summarizes the principal balance of whole loans and
participations which the Company was servicing for its portfolio and investors):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1996 1995 1994
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans serviced for investors........................ $ 788,624 $617,549 $ 837,926
Loans sub-serviced for others....................... 2,324 2,744 57,857
Loans serviced for Liberty Bank's portfolio......... 210,003 233,436 208,172
---------- -------- ----------
Total loans serviced...................... $1,000,951 $853,729 $1,103,955
========== ======== ==========
Number of loans serviced............................ 13,873 12,326 15,142
========== ======== ==========
</TABLE>
In connection with loans serviced, there were no off-balance sheet escrow
accounts.
Changes in the amounts capitalized in connection with mortgage servicing
rights are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year................................... $2,076 $2,915 $1,491
Capitalized................................................ 4,812 337 2,138
Sold....................................................... (46) (692) (156)
Amortization............................................... (710) (484) (558)
------ ------ ------
Balance, end of year......................................... $6,132 $2,076 $2,915
====== ====== ======
</TABLE>
The Company capitalized $1.8 million and amortized $151,000 in originated
mortgage servicing rights during fiscal 1996.
A-37
<PAGE> 55
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Company's financial data with respect to
its mortgage banking operations:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenues............................................ $ 7,743 $ 6,602 $ 9,222
Total expenses............................................ 5,212 4,575 5,354
------- ------- -------
Income before income taxes................................ $2,531 $ 2,027 $ 3,868
======= ======= =======
Total assets.............................................. $19,410 $19,884 $18,191
======= ======= =======
Depreciation expense...................................... $ 215 $ 193 $ 120
======= ======= =======
Capital expenditures for office premises and equipment.... $ 146 $ 112 $ 356
======= ======= =======
</TABLE>
6. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans collateralized by real estate:
Residential first mortgage................................. $143,005 $157,531
Commercial first mortgage.................................. 44,797 60,730
Consumer mortgage(1)....................................... 61,400 51,786
Construction loans:
Residential real estate.................................... 88,416 69,579
Commercial real estate..................................... 24,185 18,301
Commercial business.......................................... 190,988 131,963
Consumer -- indirect auto loans.............................. 154,869 123,750
Consumer -- other loans...................................... 21,129 19,817
-------- --------
728,789 633,457
Allowance for estimated losses............................... (8,611) (7,816)
-------- --------
$720,178 $625,641
======== ========
</TABLE>
- ---------------
(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 $104 million
and $80.1 million at September 30, 1996 and 1995, 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, 1996 was
approximately $12.4 million based on the 15% limitation and $20.7 million based
on the 25% limitation. At September 30, 1996, Liberty Bank had no relationships
in excess of the LTOB limitation.
A-38
<PAGE> 56
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $167 million at September 30, 1996.
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 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.
At September 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled $4.7
million, with a corresponding valuation allowance of $1.9 million. For the
period ended September 30, 1996, the average recorded investment in impaired
loans was approximately $3.9 million. Interest income recognized by the Company
on impaired loans, not placed on nonaccrual, (during the portion of the year
that they were impaired) was not significant.
All restructured loans were performing at September 30, 1996. The average
yield on restructured loans was 8.37% 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,
1996.
<TABLE>
<CAPTION>
TROUBLED
NONACCRUAL DEBTS
LOANS RESTRUCTURED
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest income that would have been recorded under the original
terms................................................................ $334 $499
==== ====
Interest income recorded............................................... $165 $440
==== ====
</TABLE>
7. ALLOWANCE FOR ESTIMATED LOAN LOSSES
Changes in the allowance for estimated loan losses for the three years
ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.............................. $ 7,816 $ 5,680 $ 6,141
Provision for estimated losses............................ 1,788 1,440 1,500
Acquisitions.............................................. -- 879 --
Charge-offs............................................... (2,460) (2,598) (4,279)
Recoveries................................................ 1,467 2,415 2,318
------- ------- -------
Balance end of year....................................... $ 8,611 $ 7,816 $ 5,680
======= ======= =======
</TABLE>
A-39
<PAGE> 57
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land............................................................. $ 3,602 $ 3,596
Office buildings................................................. 22,984 22,528
Furniture, fixtures and equipment................................ 13,240 11,885
------- -------
39,826 38,009
Less accumulated depreciation.................................... 17,675 15,815
------- -------
$22,151 $22,194
======= =======
</TABLE>
Certain office facilities are occupied under operating lease arrangements
with future annual rentals as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Year ended September 30:
1997............................... $ 279
1998............................... 281
1999............................... 283
2000............................... 281
2001............................... 228
Thereafter......................... 722
------
$2,074
======
</TABLE>
Total rent expense was approximately $452,000, $360,000, and $256,000 for
the years ended September 30, 1996, 1995 and 1994, respectively.
9. REAL ESTATE
Investments in real estate are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Acquired through foreclosure..................................... $2,751 $4,185
Allowance for estimated losses................................... (382) (302)
------ ------
2,369 3,883
------ ------
Acquired for development......................................... 268 312
Allowance for estimated losses................................... (125) (142)
------ ------
143 170
------ ------
$2,512 $4,053
====== ======
</TABLE>
Sales of real estate owned (gross of gains and losses) during fiscal 1996
and 1995 were $4.2 million and $5.1 million, respectively, of which, Liberty
Bank provided financing for $350,000 and $3.7 million during the same periods.
A-40
<PAGE> 58
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the allowance for estimated losses on real estate for the years
ended September 30, 1996, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1995 1994
------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Acquired through foreclosure:
Balance, beginning of year.............................. $ 302 $ 2,908 $2,277
Provision for estimated losses.......................... 413 507 1,097
Charge-offs, net........................................ (333) (3,113) (466)
------ ------- ------
Balance, end of year.................................... $ 382 $ 302 $2,908
====== ======= ======
Acquired for development:
Balance, beginning of year.............................. $ 142 $ 158 $ 177
Charge-offs, net........................................ (17) (16) (19)
------ ------- ------
Balance, end of year.................................... $ 125 $ 142 $ 158
====== ======= ======
</TABLE>
10. NOTES PAYABLE AND OTHER BORROWED MONEY
Notes payable and other borrowed money are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Advances from the Federal Home Loan Bank of Atlanta:
Short term (interest rates ranging from 5.42% to 6.05% and
5.91% to 8.95% at September 30, 1996 and 1995,
respectively).............................................. $164,449 $80,500
Long term (interest rates ranging from 4.64% to 7.14% and
5.05% to 5.09% at September 30, 1996 and 1995,
respectively).............................................. 20,211 8,000
-------- -------
$184,660 $88,500
======== =======
</TABLE>
Liberty Bank's unused borrowing capacity with the Federal Home Loan Bank
("FHLB") of Atlanta at September 30, 1996 was approximately $32.4 million in
advance and warehouse lines of credit. Additionally, Liberty Bank has
approximately $30.0 million in fed fund lines with correspondent banks.
At September 30, 1996, contractual principal maturities of long-term notes
payable and other borrowed money are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1997......................................... $ --
1998......................................... 8,000
1999......................................... 10,000
2000......................................... --
2001......................................... --
2002 and thereafter.......................... 2,211
-------
$ 20,211
=======
</TABLE>
A-41
<PAGE> 59
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Outstanding balance, end of period....................... $164,449 $80,500 $33,250
Maximum month end balance................................ 164,449 92,500 47,250
Average balance outstanding during the year.............. 91,298 49,279 28,668
Weighted average interest rate, end of period............ 5.50% 6.25% 5.91%
Weighted average interest rate, during the period........ 5.81% 6.11% 4.48%
</TABLE>
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 $195 million and $140 million at
September 30, 1996 and 1995, respectively. At September 30, 1996, 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.
11. SUBORDINATED DEBENTURES
Subordinated debentures are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
8 1/4% Convertible subordinated debentures due August 1, 2005.... $ 62 $ 664
11% Subordinated debentures due August 1, 2004................... 16,116 16,116
8 1/4% Subordinated debentures due August 1, 2004................ 379 379
------- -------
16,557 17,159
Discounts and capitalized issuance costs......................... (4,402) (4,658)
------- -------
$12,155 $12,501
======= =======
Accretion of discounts and amortization of issuance costs........ $ 244 $ 206
======= =======
</TABLE>
On September 5, 1996 the Company issued a redemption notice for the
Company's 8 1/4% convertible debentures due August 1, 2005. As of September 30,
1996, $62,000 plus accrued interest was payable to holders on the redemption
date of October 7, 1996. The remaining holders elected to convert into common
stock at the conversion price of $10.89 per share.
In 1991, the Company issued $16.2 million and $379,000 principal amount of
11.00% and 8 1/4% 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, 1996 was 2.00%. 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, 1996,
A-42
<PAGE> 60
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company had approximately $962 million of outstanding indebtedness
(including approximately $760 million 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.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995 1994
------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-backed securities sold under agreements to repurchase at
year end:
Book value....................................................... $23,088 $ 4,287 $1,773
Market value..................................................... $23,010 $ 4,344 $1,781
Obligations under repurchase agreements at year end:
Identical securities............................................. $16,644 $ 4,315 $1,660
Maximum borrowings under repurchase agreements for the year:
Identical securities............................................. $29,402 $24,839 $9,493
Average borrowings under repurchase agreements for the year:
Identical securities............................................. $14,941 $ 9,463 $3,898
Weighted average interest rate on repurchase agreements at year
end:............................................................. 4.89% 6.07% 4.47%
</TABLE>
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 tax years ended September 30, 1995 and 1994,
Liberty Bank determined its bad debt reserve deduction based on the actual loss
experience method. For the tax year ended September 30, 1996, Liberty Bank
determined its bad debt reserve deduction based on the percentage of taxable
income method.
The provision for federal income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1995 1994
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... $ 5,858 $3,394 $2,557
Deferred.................................................... (1,956) (187) 193
------- ------ ------
Total............................................. $ 3,902 $3,207 $2,750
======= ====== ======
</TABLE>
A-43
<PAGE> 61
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.............................. 34.7% 34.0% 34.0%
Bad debt deduction............................................. -- (8.9) 2.2
Amortization of intangible assets.............................. 1.8 1.3 1.0
Tax exempt interest............................................ (.8) (.9) (1.6)
Other, net..................................................... (2.3) 2.9 (4.3)
---- ---- ----
Effective federal income tax rate.............................. 33.4% 28.4% 31.3%
==== ==== ====
</TABLE>
Deferred income taxes included in the consolidated statements of financial
condition is presented net. Gross deferred tax assets and deferred tax
liabilities as of September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1996 1995
------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Allowance for estimated loan losses......................... $1,970 $ 1,652
Deferred loan fees.......................................... 51 136
Real estate owned loss allowance............................ 44 346
Reserve for uncollected late fees........................... 89 102
Purchase accounting adjustments, net........................ 155 211
Other reserves.............................................. 236 249
Unrealized loss on securities available-for-sale............ 91 248
SAIF recapitalization assessment............................ 1,261 --
Other....................................................... 359 283
------ -------
Total deferred tax assets........................... 4,256 3,227
------ -------
Deferred Tax Liabilities:
Section 481 mark-to-market adjustment....................... 264 384
Depreciation................................................ 280 497
Cancellation of indebtedness................................ 346 353
Loan swap................................................... 116 140
Loan discounts.............................................. 437 466
FHLB stock.................................................. 1,313 1,275
Loan origination fees....................................... 370 358
Purchase accounting adjustments, net........................ 172 251
Unrealized gain on securities available-for-sale............ 152 470
Other, net.................................................. 356 297
------ -------
Total deferred tax liabilities........................... 3,806 4,491
------ -------
Total net deferred tax asset (liability)............ $ 450 $(1,264)
====== =======
</TABLE>
The Company's management has determined that it is more likely than not
that its net 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, 1996 that may affect the realization of the Company's
A-44
<PAGE> 62
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1996, 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 $4.2 million.
The Company's income tax returns are periodically examined by various
taxing authorities. During the fiscal year ended September 30, 1996, First
Liberty and the Internal Revenue Service ("IRS") reached a settlement in
connection with the IRS's examination of the Company's federal income tax
returns for the tax years ended September 30, 1986 through 1989. This settlement
is reflected in the financial statements for the year ending September 30, 1996
and did not have a material 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
In September 1995 and December 1994, in connection with the respective
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 1.79
shares of common stock, at a conversion price of $14.00 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.
In July 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 three
shares of the Company's common stock. The remaining 457,463 shares of the Series
A stock were converted into 1,372,389 shares of the Company's common stock on
that date.
Prior to July 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 three shares of common stock, at a
conversion price of $8.33.
Dividends declared during 1996 and 1995 were $454,000 and $864,000,
respectively. Dividends paid during 1996 and 1995 were $406,000 and $798,000,
respectively.
As required by APB Opinion No. 15, supplementary primary earnings per share
data is presented for each of the years effected in the three-year period ended
September 30, 1996. For the computation of supplementary primary earnings per
share, shares issued in July 1995 for the conversion of preferred stock
originally
A-45
<PAGE> 63
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued in February 1993, are included in the weighted average shares outstanding
from the beginning of each period and, accordingly, net income has not been
reduced by preferred dividends.
Supplementary primary earnings per share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net income per share of common stock........................ $ 1.31 $ 1.01
Average number of shares outstanding........................ 5,982,318 6,005,631
</TABLE>
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 Liberty Bank's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Liberty Bank's
capital amounts and classifications are also subject to qualitative judgements
by the regulators about components, risk weightings and other factors. Failure
to meet minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that could have a direct material
effect on the Company's financial statements.
Quantitative measures established by regulation to ensure capital adequacy
require Liberty Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and core capital (as defined in the regulations) to
risk-weighted assets (as defined), and of tangible capital (as defined) to
assets (as defined). As of September 30, 1996 Liberty Bank met all capital
adequacy requirements to which it is subject.
As of September 30, 1996, the most recent notification from the Office of
Thrift Supervision ("OTS"), Liberty Bank was categorized as well capitalized
under the regulatory framework for prompt corrective action.
The following table reflects Liberty Bank's compliance with its regulatory
capital requirements at September 30, 1996:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
--------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Core capital............................. $62,673 5.89 $31,915 3.00 $30,758 2.89
Tangible capital......................... 61,003 5.74 15,933 1.50 45,070 4.24
Risk-based capital....................... 82,676 10.75 61,520 8.00 21,156 2.75
</TABLE>
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 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 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
and 1996. During fiscal 1995 Liberty bank declared and paid dividends to First
Liberty in the
A-46
<PAGE> 64
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of $6.3 million and $3.2 million, respectively. Liberty Bank paid
dividends to the Company during fiscal 1996 in the amount of $3.6 million.
The Federal Reserve Board requires depository institutions to maintain
noninterest-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 $4.3 million to $52.0 million of net transactions, plus 10% on
the remainder. Liberty Bank maintained $4.7 million in reserves at September 30,
1996.
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 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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ESSOP......................................................... $211 $201 $302
OPSP.......................................................... $710 $501 $450
</TABLE>
The Company also has a Nonqualified Deferred Compensation Plan (the "NDCP")
(formerly known as the Executive Deferred Compensation Plan) established in
1995, in which directors and officers holding the title of First Vice President
or above may participate. The NDCP provides a means of enabling participating
officers to defer portions of their compensation in excess of the amounts which
they contribute to the ESSOP and participating directors to defer the fees
received for their services. The amount which a participant presently may defer
under the NDCP 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 in November 1992 and
approved by the stockholders in March 1993. The stock granted under the 1992
Plan is the $1.00 par value common stock. The Company has been authorized to
A-47
<PAGE> 65
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issue up to 573,000 shares of common stock, in the aggregate, under the 1992
Plan, and unexercised option shares of common stock allocable to expired or
terminated options may again be granted under that plan. As of September 30,
1996, there were 245,250 shares available for grant. The 1992 Plan is
administered by the Compensation and Benefits Committee of the Company's Board
of Directors ("the Committee").
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 must be exercised within the earlier
of: (i) three months after the optionee ceases to be employed by 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
employed by 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, 1996 and under the 1992
plan during the years then ended is as follows:
<TABLE>
<CAPTION>
ISOP 1992 PLAN
----------------- -----------------
OPTION AVERAGE OPTION AVERAGE
SHARES PRICE SHARES PRICE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Options outstanding at September 30,
1993.................................... 171,000 $4.23 105,000 $ 7.39
Issued.................................... -- -- 85,500 10.15
------- -------
Options outstanding at September 30,
1994.................................... 171,000 4.23 190,500 8.63
Issued.................................... -- -- 22,500 10.67
Exercised................................. (45,000) 3.76 (10,500) 5.83
Canceled.................................. -- -- (45,000) 9.33
------- -------
Options outstanding at September 30,
1995.................................... 126,000 4.39 157,500 8.91
Issued.................................... -- -- 152,250 14.59
Exercised................................. (74,400) 3.62 -- --
------- -------
Options outstanding at September 30,
1996.................................... 51,600 5.50 309,750 11.70
======= =======
</TABLE>
Under the 1992 Plan, the number of shares exercisable at September 30, 1996
and 1995 was 152,000 and 78,000, 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 date of grant and to increase the number of
shares available for grant under that plan. This amendment was approved by 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"), which was approved by 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. Up to 75,000 shares of common stock, in the
aggregate, may be granted to non-employee directors under the DSOP.
A-48
<PAGE> 66
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with regard to options issued under the DSOP during the fiscal
year ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
DSOP
------------------
OPTION AVERAGE
SHARES PRICE
------ -------
<S> <C> <C>
Options outstanding at September 30, 1995......................... -- $ --
Issued............................................................ 46,500 14.66
------
Options outstanding at September 30, 1996......................... 46,500 14.66
======
</TABLE>
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Commitments to originate loans:
Fixed rate..................................................... $86,163 $47,236
Adjustable rate................................................ 35,607 19,299
Standby letters of credit........................................ 240 945
Delivery forward placement contracts:
Mandatory...................................................... 43,164 35,781
Optional....................................................... 2,000 4,000
</TABLE>
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 creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
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
A-49
<PAGE> 67
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996 and 1995 of $45,310
and $40,129, 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.
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were as
follows.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash, due from banks, fed funds sold and repurchase
agreements....................................... $ 67,632 $ 67,632 $ 47,262 $ 47,262
Securities available-for-sale....................... 200,017 200,017 167,613 167,613
Loans, net.......................................... 720,178 719,380 625,641 629,306
Loans available-for-sale............................ 26,906 26,906 22,282 22,282
Mortgage servicing rights........................... 6,132 7,959 2,076 3,463
Financial Liabilities:
Deposits............................................ $760,494 $760,136 $719,226 $719,343
Federal Home Loan Bank advances..................... 184,660 184,812 88,500 88,353
Subordinated debentures............................. 12,155 16,887 12,501 17,654
Securities sold under agreements to repurchase...... 16,644 16,644 4,315 4,315
Off-Balance-Sheet Financial Instruments:
Standby letters of credit........................... $ 240 $ 240 $ 945 $ 945
Commitments to originate loans...................... 76,452 76,624 66,535 66,611
Mandatory commitments to sell loans................. 43,164 43,298 35,781 35,708
Optional commitments to sell loans.................. 2,000 2,007(1) 4,000 4,003(1)
Loan servicing rights............................... -- 5,034 -- 6,397
</TABLE>
- ---------------
(1) Excludes net unamortized option fees of $17,369 at September 30, 1996, and
$23,240 at September 30, 1995.
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.
A-50
<PAGE> 68
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996, will have a
materially adverse effect on the Company's financial position, results of
operations or liquidity.
21. FINANCIAL INFORMATION OF FIRST LIBERTY FINANCIAL CORP. (PARENT ONLY)
First Liberty's statements of financial condition (parent only) as of
September 30, 1996 and 1995 and the related statements of income and cash flows
for each of the three years in the period ended September 30, 1996 are as
follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Cash............................................................ $ 92(1) $ 75(1)
Other investments............................................... 6,850(1) 8,050(1)
Real estate, net................................................ 142 170
Dividends receivable from Liberty Bank.......................... -- 3,555(1)
Investment in Liberty Bank...................................... 71,341(1) 63,375(1)
Other assets.................................................... 1 65
------- -------
Total assets.......................................... $78,426 $75,290
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable............................................... $ 638 $ 581
Other liabilities............................................... 1,338 4,040
------- -------
Total liabilities..................................... 1,976 4,621
------- -------
Stockholders' equity:
Series B Preferred stock...................................... 7,564 7,564
Common stock.................................................. 6,104 5,974
Additional paid-in capital.................................... 26,132 25,376
Retained earnings............................................. 36,804 31,593
Net unrealized gain on securities available-for-sale, net of
taxes...................................................... 115 431
Treasury stock at cost........................................ (269) (269)
------- -------
Total stockholders' equity............................ 76,450 70,669
------- -------
Total liabilities and stockholders' equity............ $78,426 $75,290
======= =======
</TABLE>
- ---------------
(1) Eliminates in consolidation.
A-51
<PAGE> 69
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST LIBERTY FINANCIAL CORP. (PARENT ONLY)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income:
Interest income on other investments........................... $ 233(1) $ 302(1) $ 282(2)
Cash dividends from Liberty Bank(2)............................ 3,555 3,198 --
Other income................................................... 1 1 --
------ ------ ------
Total income........................................... 3,789 3,501 282
------ ------ ------
Expense:
Directors fees................................................. -- 30 18
Other expense.................................................. 117 106 79
------ ------ ------
Total expense.......................................... 117 136 97
------ ------ ------
Income before income tax expense and equity in undistributed net
income of Liberty Bank......................................... 3,672 3,365 185
Income tax expense............................................... 40 57 63
------ ------ ------
Income before equity in undistributed net income of Liberty
Bank........................................................... 3,632 3,308 122
Equity in undistributed net income of Liberty Bank(2)............ 4,138 4,763 5,927
------ ------ ------
Net income....................................................... 7,770 8,071 6,049
Dividends on preferred stock..................................... 454 864 891
------ ------ ------
Net income applicable to common stockholders..................... $7,316 $7,207 $5,158
====== ====== ======
</TABLE>
- ---------------
(1) $231,000 in 1996 and $297,000 in 1995 eliminates in consolidation.
(2) Eliminates in consolidation.
A-52
<PAGE> 70
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST LIBERTY FINANCIAL CORP. (PARENT ONLY)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Cash flows from operating activities:
Net income............................................... $ 7,770 $ 8,071 $ 6,049
Equity in undistributed earnings of Liberty Bank......... (4,138) (4,763) (5,927)
Other, net............................................... 917 (28) 198
------- ------- -------
Total adjustments................................... (3,221) (4,791) (5,729)
------- ------- -------
Net cash provided by operating activities..................... 4,549 3,280 320
------- ------- -------
Investing Activities:
Cash flows from investing activities:
Net decrease in other investments........................ 1,200 1,490 1,733
Cash paid in acquisitions................................ (3,555) (3,198) --
Sale of real estate...................................... 28 28 27
------- ------- -------
Net cash provided by (used in) investing activities........... (2,327) (1,680) 1,760
------- ------- -------
Financing Activities:
Cash flows from financing activities:
Issuance of common stock................................. 270 230 --
Redemption of preferred stock............................ -- (66) --
Dividends paid on stock.................................. (2,475) (1,700) (2,077)
------- ------- -------
Net cash used in financing activities......................... (2,205) (1,536) (2,077)
------- ------- -------
Net increase in cash........................................ 17 64 3
Cash beginning of period.................................... 75 11 8
------- ------- -------
Cash end of period.......................................... $ 92 $ 75 $ 11
======= ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Income taxes............................................. $ 5,687 $ 2,665 $ 3,688
</TABLE>
A-53
<PAGE> 71
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996:
<TABLE>
<CAPTION>
QUARTERS ENDED,
--------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30(1)
----------- -------- ------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income..................... $18,259 $18,159 $18,985 $19,679
Net interest income....................... 8,225 8,196 8,674 9,175
Provision for estimated losses on loans... 300 300 300 888
Net income................................ 2,375 2,479 2,585 331
Dividends on preferred stock.............. 113 113 113 115
------- ------- ------- -------
Net income applicable to common
stockholders............................ $ 2,262 $ 2,366 $ 2,472 $ 216
======= ======= ======= =======
Earnings per common share:
Primary................................. $ .37 $ .39 $ .41 $ .04
Fully diluted........................... .36 .37 .39 .04
Dividends per common share:............... .08 .08 .09 .09
</TABLE>
- ---------------
(1) The fourth quarter included a one-time FDIC assessment to recapitalize the
SAIF in the amount of $3.6 million pre tax, equaling $2.3 million and $.35
per fully diluted share after tax.
The following summarizes the consolidated condensed quarterly results of
income (unaudited) for the year ended September 30, 1995:
<TABLE>
<CAPTION>
QUARTERS ENDED,
-----------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
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................................... $ .33 $ .37 $ .39 $ .39
Fully diluted............................. .29 .32 .33 .35
Dividends per common share:................. .07 .07 .07 .07
</TABLE>
A-54
<PAGE> 72
APPENDIX B
REVOCABLE PROXY
FIRST LIBERTY FINANCIAL CORP.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS FOR THE
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby acknowledges receipt of the enclosed Notice of Annual
Meeting (the "Notice") and Proxy Statement for the 1997 Annual Meeting of
Stockholders (the "Annual Meeting") of First Liberty Financial Corp. (the
"Company"), and hereby appoints THOMAS H. McCOOK, ROBERT F. HATCHER, and RICHARD
A. HILLS, JR., and each of them, proxies with full powers of substitution, to
act for and in the name of the undersigned to vote all shares of Common Stock of
the Company which the undersigned is entitled to vote on all matters which may
come before the Annual Meeting, to be held in the Ballroom of the Crowne Plaza
Hotel, 108 First Street, Macon, Georgia, on the date and at the time specified
in the Notice, and at any and all adjournments thereof, as indicated below.
<TABLE>
<C> <S> <C>
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees listed below
(INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN THE LIST BELOW)
Harold W. Peavy, Jr. (term expiring 1998)
Melvin I. Kruger, Jo Slade Wilbanks, and Herbert M. Ponder, Jr. (terms
expiring 2000)
2. In their discretion, the proxies are authorized to vote upon such other business as
properly may come before the Annual Meeting and any adjournments thereof.
</TABLE>
(Continued and to be signed on other side)
(Continued from other side)
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES "FOR" THE
PROPOSAL LISTED ON THE REVERSE SIDE OF THIS PROXY CARD. IF ANY OTHER BUSINESS IS
PRESENTED AT THE ANNUAL MEETING, THIS PROXY CARD WILL BE VOTED BY THE PROXIES IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED TO A VOTE OF THE STOCKHOLDERS AT THE ANNUAL
MEETING.
If the undersigned is present and elects to withdraw this proxy card and vote
in person at the Annual Meeting or any adjournments thereof and notifies the
Secretary of the Company at the Annual Meeting of the decision of the
undersigned to withdraw this proxy card, then the power of said proxies shall be
deemed terminated and of no further force and effect.
Please mark, date and sign exactly as
your name appears on this proxy card.
When shares are held jointly, both
holders should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title. If the holder is a
corporation or partnership, the full
corporate or partnership name should
be signed by a duly authorized
officer.
-------------------------------------
SIGNATURE
-------------------------------------
SIGNATURE, IF SHARES HELD JOINTLY
DATE:
-------------------------------------
<PAGE> 73
FIRST LIBERTY FINANCIAL CORP (LOGO)
