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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
---------------------------------
OR
- ---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14417
------------------------------------------
FIRST LIBERTY FINANCIAL CORP.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1680650
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(State of incorporation) (I.R.S. Employer Identification No.)
201 Second Street, Macon, Georgia 31297
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(Address of principal executive offices) (Zip Code)
(912) 743-0911
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Exhibit index appears on page 22.
There were 3,979,742 shares of Common Stock outstanding as of
February 13, 1996.
Page 1 of 25
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FIRST LIBERTY FINANCIAL CORP.
-----------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
FOR THE QUARTER ENDED DECEMBER 31, 1995
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Table of Contents
PART I - FINANCIAL INFORMATION
- ------------------------------
Item Page
- ---- ----
1. Financial Statements:
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Independent Accountants' Report 12
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
- ---------------------------
4. Submission of Matters to a Vote of Securities Holders 20
6. Exhibits and Reports on Form 8-K 20
Signatures 21
Index of Exhibits 22
2
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Financial Condition
- ----------------------------------------------
(Unaudited)
- -----------
December 31, September 30,
--------------- ---------------
1995 1995
- -------------------------------------------------------------------------------
(dollars in thousands)
Assets
- ------
Cash and due from banks $ 33,066 $ 24,610
Federal funds sold and repurchase agreements 1,825 22,652
Securities available-for-sale, at
market value 171,934 167,613
Loans available-for-sale, net at market value 35,868 22,282
Loans, net 624,455 625,641
Accrued interest receivable 6,701 6,406
Premises and equipment, net 21,909 22,194
Real estate, net 4,136 4,053
Intangible assets 11,046 11,315
Advances to attorneys for loans originated 8,309 3,220
Other assets 7,859 9,288
-------- --------
Total assets $927,108 $919,274
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $716,655 $719,226
Notes payable and other borrowed money 92,500 88,500
Subordinated debentures 12,556 12,501
Securities sold under agreements to repurchase 10,348 4,315
Checks payable on loans originated 8,618 7,119
Other liabilities 13,362 16,944
-------- --------
Total liabilities 854,039 848,605
-------- --------
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, 25,000,000
shares authorized, 3,994,682 and 3,982,616
shares issued, respectively, and 3,972,342 and
3,960,276 shares outstanding, respectively) 3,995 3,983
Additional paid-in capital 25,432 25,376
Retained earnings 35,329 33,584
Net unrealized gain on securities
available-for-sale, net of taxes 1,018 431
Treasury stock at cost (22,340 shares) (269) (269)
-------- --------
Total stockholders' equity 73,069 70,669
-------- --------
Total liabilities and stockholders' equity $927,108 $919,274
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income
- ---------------------------------
(Unaudited)
- -----------
Three Months Ended
December 31,
---------------------------------
1995 1994
- -----------------------------------------------------------------------------
(dollars in thousands, except per share data)
Interest Income:
- ----------------
Loans $14,928 $11,009
Securities 3,013 2,403
Federal funds sold 302 86
Other interest income 16 -
------- -------
Total interest income 18,259 13,498
------- -------
Interest Expense:
- -----------------
Deposits 8,032 5,435
Short-term borrowings 1,375 860
Long-term borrowings 627 735
------- -------
Total interest expense 10,034 7,030
------- -------
Net interest income 8,225 6,468
Provision for estimated losses on loans 300 300
------- -------
Net interest income after provision for
estimated losses on loans 7,925 6,168
------- -------
Non-Interest Income:
- --------------------
Loan servicing fees 613 626
Gain on sale of investment securities 11 -
Gain on sale of loans and
mortgage-backed securities 382 4
Gain on sale of servicing 264 448
Deposit account service charges 1,093 831
Other income (loss) (5) 35
------- -------
Total non-interest income 2,358 1,944
------- -------
Total net and non-interest income 10,283 8,112
------- -------
Non-Interest Expense:
- ---------------------
Compensation, payroll taxes and fringe
benefits 3,631 2,854
Occupancy and equipment 846 667
Advertising 226 218
Professional fees 147 142
Data processing 221 148
Federal deposit insurance premiums 371 389
Amortization of intangible assets 278 113
Net cost of operation of other real estate 8 196
Other expenses 942 694
------- -------
Total non-interest expense 6,670 5,421
------- -------
Income before income tax expense 3,613 2,691
Income tax expense 1,238 926
------- -------
Net income 2,375 1,765
Dividends on preferred stock 113 240
------- -------
Net income applicable to common stockholders$ 2,262 $ 1,525
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
4
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income, continued
- --------------------------------------------
(Unaudited)
- -----------
Three Months Ended
December 31,
-------------------------------
1995 1994
- ------------------------------------------------------------------------------
Earnings Per Common Share:
- --------------------------
Primary $ .56 $ .50
Fully diluted $ .54 $ .43
Dividends Per Common Share: $ .13 $ .10
- ---------------------------
Average Number of Shares Outstanding:
- -------------------------------------
Primary 4,038,045 3,080,051
Fully diluted 4,438,831 4,094,625
The accompanying notes are an integral part of the consolidated financial
statements.
5
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows
- -------------------------------------
(Unaudited)
- -----------
Three Months Ended
December 31,
-------------------------------
1995 1994
- ------------------------------------------------------------------------------
(dollars in thousands)
Operating Activities:
- ---------------------
Cash flows from operating activities:
Net income $ 2,375 $ 1,765
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation 474 423
Amortization of loan fees (65) (187)
Provision for estimated losses
on loans and real estate 305 438
Amortization of intangibles 278 113
Dividends received on stock (69) (56)
Gain on sales of loans, mortgage-
backed and investment securities (393) (4)
Loans available-for-sale:
Disbursements (29,323) (649)
Purchases (42,800) (14,141)
Sales 58,910 18,574
Repayments 23 80
Increase in accrued interest receivable (295) (478)
Increase in accrued interest payable 482 688
Other, net (3,001) 1,282
-------- --------
Total adjustments (15,474) 6,083
-------- --------
Net cash provided by (used in)
operating activities (13,099) 7,848
-------- --------
Investing Activities:
- ---------------------
Cash flows from investing activities:
Net decrease in federal funds sold
and repurchase agreements 20,827 4,479
Investment securities available-for-sale:
Purchases - (7,876)
Sales 819 2,980
Maturities 3,200 2,000
Mortgage-backed securities available-for-sale:
Purchases (15,370) (31,481)
Repayments 8,001 6,574
Loan disbursements (87,214) (74,668)
Loan purchases (1,419) (4,759)
Loan repayments 88,104 59,315
Purchases of premises and equipment (191) (170)
Proceeds from sales of real estate 1,482 33
Net increase in advances to
attorneys for loans originated (5,089) (157)
Net cash received in acquisitions - (1,192)
-------- --------
Net cash provided by (used in)
investing activities 13,150 (44,922)
-------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
6
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows, continued
- ------------------------------------------------
(Unaudited)
- -----------
Three Months Ended
December 31,
----------------------------
1995 1994
- ------------------------------------------------------------------------------
(dollars in thousands)
Financing Activities:
- ---------------------
Cash flows from financing activities:
Net decrease in deposits (2,613) (7,166)
Notes payable and other borrowed money:
Proceeds 115,000 84,500
Repayments (111,000) (33,880)
Net increase (decrease) in securities sold
under agreements to repurchase 6,033 (993)
Net increase (decrease) in checks payable
on loans originated 1,499 (199)
Issuance of common stock 63 -
Dividends paid on stock (577) -
-------- --------
Net cash provided by financing activities 8,405 42,262
-------- --------
Net increase in cash and due from banks 8,456 5,188
Cash and due from banks beginning of period 24,610 16,293
-------- --------
Cash and due from banks end of period $ 33,066 $ 21,481
======== ========
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
----------------------
Cash paid during the year for:
Interest $ 9,552 $ 6,420
Income taxes 177 -
Noncash investing and financing activities:
Real estate foreclosed $ 1,473 $ 211
Financing of sales of foreclosed
real estate 174 305
Dividends declared but not paid
on preferred stock 113 240
Dividends declared but not paid
on common stock 516 301
Acquisitions:
Fair value of assets acquired - $(56,221)
Fair value of liabilities assumed - 55,029
--------
Net cash received - $ (1,192)
========
The accompanying notes are an integral part of the consolidated financial
statements.
7
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
-----------
1. Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies of First Liberty Financial Corp. and
Subsidiaries ("the Company") conform to generally accepted accounting
principles and to general practice within the savings and loan industry. The
interim consolidated financial statements included herein are unaudited but
reflect all adjustments which, in the opinion of management, are necessary to
a fair presentation of the consolidated financial position, results of
operations and cash flows for the interim periods presented. All adjustments
reflected in the interim financial statements are of a normal recurring
nature. Such financial statements should be read in conjunction with the
financial statements and notes thereto and the report of independent
accountants included in the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1995. The year end balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The results of
operations for the three months ended December 31, 1995 are not necessarily
indicative of the results to be expected for the full year.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year consolidated financial
statements presentation.
2. Earnings Per Share
------------------
Earnings per share are computed on the weighted average number of shares
outstanding including common stock equivalents, if dilutive. For computing
primary earnings per share, stock options exercisable at a price less than
average market price during the period are considered common stock equivalents.
Fully diluted earnings per share assumes (i) the conversion, if dilutive, of
all convertible debt as of the beginning of the year (or date of issue), with
the elimination of the related interest expense net of applicable income
taxes, (ii) the exercise of all stock options below the market price at
December 31 or the average market price for the quarter, and (iii) the
conversion, if dilutive, of all convertible preferred stock as of the beginning
of the year (or date of issue), with the elimination of dividends declared.
8
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------------------------------------------
(Unaudited)
-----------
3. Sale of Servicing
-----------------
During the three months ended December 31, 1995, Liberty Mortgage Corporation
("Liberty Mortgage"), the Company's mortgage banking subsidiary, sold bulk loan
servicing rights with aggregate principal balances of $43 million, compared to
$40 million, a year earlier. This resulted in recognizing a gain on the sale
of servicing of $264,000 for the three months ended December 31, 1995 compared
to $448,000 for the same period a year ago. The servicing rights sold
generally related to loans originated for sale and sold within the last six
months. The servicing sale during the quarter ended December 31, 1995
included principal balances of $21 million in which Liberty Mortgage granted
recourse to the buyer. Accordingly, the gain related to such rights of
$250,000 was deferred and will be recognized in the period that the recourse
expires.
4. Mortgage Servicing Rights
-------------------------
Liberty Mortgage invests in mortgage servicing rights ("MSRs") resulting from
loans originated or purchased through correspondent relationships. The
investment in MSRs has the effect of reducing the basis in the loans purchased
or originated, and increasing the gain (or reducing the loss) on sales of
loans. The following table outlines the activity in MSRs for the three month
periods ended December 31, 1995 and 1994 (dollars in thousands).
Three Months Ended
December 31,
-----------------------------
1995 1994
-----------------------------
Capitalized $ 742 $ 39
Sold 32 62
Amortized 94 127
Net investment at December 31 2,692 2,765
Prior to October 1, 1995 Liberty Mortgage recorded mortgage servicing rights
relating only to loans purchased. Effective October 1, 1995 the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 122
"Accounting for Mortgage Servicing Rights". This statement amends SFAS No.
65 "Accounting for Certain Mortgage Banking Activities" and requires a mortgage
banking enterprise to recognize as seperate assets MSRs regardless of whether
the MSRs are purchased or originated. SFAS No. 122 also requires the
allocation of the total cost of the mortgage loans to the mortgage servicing
rights and the loan (without the mortgage servicing rights), based on their
relative fair values if it is practicable to estimate those fair values.
Mortgage servicing rights are then amortized in proportion to and over the
period of estimated net servicing income and should be evaluated for impairment
based on their fair value. The estimated combined fair value of these assets
exceeded the book value at December 31, 1995. When determining fair value the
Company considers the date of origination, the average note rate and the
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average remaining term and estimated prepayment speeds. The fair value is
calculated by estimating the present value of future net servicing income. As
a result of the adoption of SFAS No. 122, the Company capitalized and
amortized MSRs for the three months ended December 31, 1995 of $437,000 and
$6,000, respectively, associated with loans originated.
5. Acquisitions
------------
On January 19, 1996 the Company announced an agreement to acquire Middle
Georgia Bank in Byron, Georgia. Middle Georgia Bank has two offices,
approximately $110 million in assets, $100 million in deposits, and $63 million
in loans. This transaction is expected to close in the fourth quarter of
fiscal 1996, subject to regulatory approval. The transaction, if approved, is
expected to be accounted for as a pooling-of-interests.
On September 15, 1995 the Company acquired by merger Tifton Banks, Inc. of
Tifton Georgia, and its subsidiary, Tifton Bank & Trust Company ("Tifton
Bank"). Tifton Bank, on the date of acquisition, held the following
approximate balances: loans of $42 million, cash and investments of $21
million, premises and equipment of $1 million and deposits of $45 million.
Intangible assets resulting from the acquisition amounted to approximately $2
million.
On March 24, 1995, the Company acquired three banking offices located in
Sylvania, Vidalia and Waycross, Georgia from a commercial bank. Total assets
acquired were approximately $3 million and total cash received and deposits
assumed were approximately $95 million. Intangible assets resulting from the
acquisition were approximately $4 million.
On December 2, 1994, the Company acquired Central Banking Company 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.
The financial institutions acquired during fiscal 1995 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.
6. Adoption of SFAS No. 114 and 118
--------------------------------
On October 1, 1995, the Company adopted SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," which amended SFAS
No. 114. Under the new standards, a loan is considered impaired, based upon
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. Uncollateralized
loans are measured for impairment based on the present value of expected
future cash flows discounted at the historical effective interest rate, while
all collateral-dependent loans
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are measured for impairment based on the fair value of the collateral. The
adoption of SFAS No. 114 resulted in no additional provision for credit losses
at October 1, 1995 or during the three months ended December 31, 1995.
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $3.2 million, with a
corresponding valuation allowance of $1.2 million. For the period ended
December 31, 1995, the average recorded investment in impaired loans was
approximately $3.1 million. Interest income recognized by the Company on
impaired loans (during the portion of the year that they were impaired) was
not significant.
The Company uses several factors in determining if a loan is impaired under
SFAS No. 114. The internal asset classification procedures include a thorough
review of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrowers' financial data, and borrowers' operating factors such as cash
flows, operating income or loss, and other factors. Loans continue to be
classified as impaired unless they are brought fully current and the
collection of scheduled interest and principal is considered probable.
11
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Coopers & Lybrand
Report of Independent Accountants
- ---------------------------------
To the Board of Directors
First Liberty Fianncial Corp.
We have reviewed the accompanying consolidated financial statements of First
Liberty Financial Corp. and Subsidiaries as of December 31, 1995 and 1994 and
for the three-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 13, 1996
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
- --------
First Liberty Financial Corp. is a unitary savings and loan holding company for
First Liberty Bank ("Liberty Bank"). The consolidated financial statements
include the accounts of First Liberty Financial Corp., Liberty Bank, a wholly-
owned subsidiary of First Liberty Financial Corp., and Liberty Mortgage
Corporation ("Liberty Mortgage"), a wholly-owned subsidiary of Liberty Bank
(collectively known as "the Company").
Liquidity
- ---------
The Company's primary sources of funds are deposits, loan repayments, sales and
maturities of securities, loan sales, repurchase agreements, advances from the
Federal Home Loan Bank of Atlanta and various other borrowings. Deposits
provide a source of funds that are highly dependent on market and other
conditions, while loan repayments are a relatively stable source of funds.
The liquidity of Liberty Bank's operation is measured by the ratio of cash and
short-term investments (as defined by federal regulations) to the sum of
withdrawable deposits and borrowings maturing within one year. Federal
regulations currently require institutions to maintain a liquidity ratio of at
least 5%. Liberty Bank was in compliance with its requirements at December 31,
1995.
Capital Resources
- -----------------
The Office of Thrift Supervision ("OTS") capital regulations include a core
capital requirement, a tangible capital requirement and a risk-based capital
requirement. Subject to certain exceptions, each of these capital standards
must be no less stringent than the capital standards applicable to national
banks, although the risk-based capital requirement for savings institutions
may deviate from the risk-based capital standards applicable to national banks
to reflect interest rate risk or other risks if the deviations in the
aggregate do not result in materially lower levels of capital being required
of savings institutions than would be required of national banks.
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The following table reflects Liberty Bank's compliance with its regulatory
capital requirements at December 31, 1995 (dollars in thousands):
Actual for Liberty Bank Regulatory Requirement
- -----------------------------------------------------------------
% of % of
Capital Adjusted Adjusted Excess
Requirement Amount Assets Amount Amount Amount
- ----------------------------------------------------------------------------
Tangible $54,232 5.92% $13,736 1.50% $40,496
- ----------------------------------------------------------------------------
Core $56,146 6.12% $27,529 3.00% $28,617
- ----------------------------------------------------------------------------
Risk-based $75,100 11.58% $51,877 8.00% $23,223
- ----------------------------------------------------------------------------
The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes
five classifications for institutions based upon the capital requirements.
Each appropriate banking agency, such as the OTS for Liberty Bank, must
establish by regulation the parameters of each such classification. Based on
final regulations promulgated by the OTS, Liberty Bank is considered well-
capitalized. Failure to maintain that status could result in greater
regulatory oversight or restrictions on Liberty Bank's activities.
Commitments
- -----------
Commitments to originate loans are generally made at the market rate prevailing
at the time of issuance. The Company had open commitments to originate
residential mortgage loans of approximately $73 million, including $652,000 to
be held in portfolio and $26 million on which the interest rate had not been
locked-in at December 31, 1995. Commitments to buy and sell residential
mortgage loans and mortgage-backed securities for mandatory delivery were
approximately $500,000 and $55 million, respectively, at December 31, 1995.
Also at December 31, 1995, the Company bought $6 million of optional
commitments to sell residential mortgage loans. Loans in process (which
represent undisbursed loan commitments related to construction loans) and
unused lines of credit amounted to $72 million at December 31, 1995.
Results of Operations
- ---------------------
The Company's consolidated net income for the quarter ended December 31, 1995
was $2.4 million compared to $1.8 million for the quarter ended December 31,
1994. The Company's net income is affected by the level of its non-interest
income, non-interest expense and the level of earnings of its mortgage banking
operations. However, the Company's net income is most significantly affected
by the difference between interest income on its loan and investment portfolios
and the interest expense of its deposits and borrowings ("net interest
income"). Net interest income is affected by several factors, but is most
affected by the volume of and interest rates on interest-earning assets and
interest-bearing
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liabilities. The following tables reflect the effective yields and costs of
funds for the three month periods ended December 31, 1995 and 1994 (dollars in
thousands):
Average Balance Rate/Yield
Three Months Ended Three Months Ended
December 31, December 31,
1995 1994 1995 1994
------------------ -------------------
Interest-Earning Assets:
- ------------------------
Loans $650,973 $507,186 9.17% 8.68%
Securities 168,740 150,739 7.14% 6.38%
Federal funds sold and
repurchase agreements 16,014 5,831 7.54% 5.92%
-------- -------- ----- -----
All interest-earning assets $835,727 $663,756 8.73% 8.14%
======== ======== ----- -----
Interest-Bearing Liabilities:
- -----------------------------
Deposits $718,274 $569,130 4.47% 3.82%
Borrowings 110,461 88,246 7.25% 7.23%
-------- -------- ----- -----
All interest-bearing liabilities $828,735 $657,376 4.84% 4.28%
======== ======== ----- -----
Interest rate spread $ 6,992 $ 6,380 3.89% 3.86%
- -------------------- ======== ======== ----- -----
Interest income as a percentage
- -------------------------------
of average earning assets 3.93% 3.90%
------------------------- ===== =====
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense from the three month
period ended December 31, 1994 to the three month period ended December 31,
1995 (dollars in thousands):
December 31, 1995 vs December 31, 1994
-----------------------------------------
Due to
-----------------------------------------
Rate/
Rate Volume Volume Total
-------- -------- -------- --------
Changes in Interest Income:
- ---------------------------
Loans $ 622 $ 3,121 $ 176 $ 3,919
Securities 289 287 34 610
Federal funds sold and
repurchase agreements 24 151 41 216
--------- -------- -------- --------
Total interest income 935 3,559 251 4,745
--------- -------- -------- --------
Changes in Interest Expense:
- ----------------------------
Deposits 930 1,424 243 2,597
Borrowings 5 401 1 407
--------- -------- -------- --------
Total interest expense 935 1,825 244 3,004
--------- -------- -------- --------
Net interest income $ - $ 1,734 $ 7 $ 1,741
========= ======== ======== ========
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The Company's provision for estimated loan losses was $300,000 for both
quarters ended December 31, 1995 and 1994. Charge-offs, net of recoveries, to
the allowance for estimated loan losses were $145,000 during the three months
ended December 31, 1995 compared to $22,000 for the same period a year
earlier. The allowance for estimated loan losses at December 31, 1995 was
$8.0 million or 331% of nonperforming loans compared to $6.4 million or 142%
of nonperforming loans at December 31, 1994.
The table below summarizes nonperforming assets at December 31, 1995 and 1994.
Nonperforming assets consist of nonaccrual loans, real estate owned, other
repossessed assets, and loans with interest or principal past due 90 days or
more which are still accruing (dollars in thousands).
December 31,
----------------------------
1995 1994
----------------------------
Nonaccrual loans $ 2,410 $ 4,529
Foreclosed real estate 4,126 10,107
Other repossessed assets 238 118
------- -------
Total nonperforming assets $ 6,774 $14,754
======= =======
Total nonperforming assets as
a percentage of total assets .74% 1.87%
======= ========
Real estate owned remained relatively unchanged at $4.1 million at December 31,
1995 as compared to September 30, 1995. During the quarter ended December 31,
1995 there were foreclosures of $1.5 million, sales of foreclosed properties
of $1.8 million and capital expenditures of approximately $250,000.
Liberty Mortgage originated loans during the three months ended December 31,
1995 totaling $77 million compared to $37 million during the same period a
year earlier.
Liberty Mortgage invests in mortgage servicing rights ("MSRs") resulting from
loans originated or purchased through correspondent relationships. The
investment in MSRs has the effect of reducing the basis in the loans purchased
or originated, and increasing the gain (or reducing the loss) on sales of
loans. The following table outlines the activity in MSRs for the three month
periods ended December 31, 1995 and 1994 (dollars in thousands).
Three Months Ended
December 31,
---------------------------
1995 1994
---------------------------
Capitalized $ 742 $ 39
Sold 32 62
Amortized 94 127
Net investment at December 31 2,692 2,765
Prior to October 1, 1995 Liberty Mortgage recorded mortgage servicing rights
relating only to loans purchased. Effective October 1, 1995 the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 122
"Accounting for
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Mortgage Servicing Rights". This statement amends SFAS No. 65 "Accounting
for Certain Mortgage Banking Activities" and requires a mortgage banking
enterprise to recognize as seperate assets MSRs regardless of whether the
MSRs are purchased or originated. SFAS No. 122 also requires the allocation
of the total cost of the mortgage loans to the mortgage servicing rights and
the loan (without the mortgage servicing rights), based on their relative
fair values if it is practicable to estimate those fair values. Mortgage
servicing rights are then amortized in proportion to and over the period of
estimated net servicing income and should be evaluated for impairment based
on their fair value. The estimated combined fair value of these assets
exceeded the book value at December 31, 1995. When determining fair value
the Company considers the date of origination, the average note rate and the
average remaining term and estimated prepayment speeds. The fair value is
calculated by estimating the present value of future net servicing income. As
a result of the adoption of SFAS No. 122, the Company capitalized and
amortized MSRs for the three months ended December 31, 1995 of $437,000 and
$6,000, respectively, associated with loans originated.
During the three months ended December 31, 1995, Liberty Mortgage sold bulk
loan servicing rights with aggregate principal balances of $43 million,
compared to $40 million, a year earlier. This resulted in recognizing a gain
on the sale of servicing of $264,000 for the three months ended December 31,
1995 compared to $448,000 for the same period a year ago. The servicing rights
sold generally related to loans originated for sale and sold within the last
six months. The servicing sale during the quarter ended December 31, 1995
included principal balances of $21 million in which Liberty Mortgage granted
recourse to the buyer. Accordingly, the gain related to such rights of
$250,000 was deferred and will be recognized in the period that the recourse
expires.
Non-interest income (net of gains on the sale of assets) increased $200,000 or
14% for the quarter ended December 31, 1995 as compared to the same quarter a
year earlier. This change was principally the result of deposit account
service charges increasing $262,000 or 32%, due to average transaction account
balances increasing 38% from December 1994 to December 1995.
Non-interest expense (net of other real estate operations) for the three months
ended December 31, 1995 increased $1.4 million or 28% over the same period a
year ago. The acquisitions during fiscal 1995 were mainly responsible for the
increase. Approximated expenses directly relating to the acquisitions for the
current period are as follows (dollars in thousands).
Compensation, taxes and benefits $ 563
Occupancy and equipment 145
Advertising 12
Professional fees 21
Data processing 35
Federal deposit insurance premiums 85
Amortization of intangibles 177
Other 162
------
$1,200
======
17
<PAGE> 18
Federal deposit insurance premiums declined in total $18,000 for the quarter
ended December 31, 1995 as compared to the quarter ended December 31, 1994.
This reflects a savings of approximately $103,000 (after consideration of the
acquisitions) due to lower assessment rates.
The net cost of operations of other real estate declined by $188,000 for the
quarter ended December 31, 1995 as compared to the same period a year ago.
Contributing to this variance was the following (dollars in thousands).
Three Months Ended
December 31,
---------------------------
1995 1994
---------------------------
Provisions for estimated losses $ 5 $ 138
Net losses (gains) on sales (20) 7
Net expense (income) from operations 23 51
Accounting for Income Taxes
- ---------------------------
The Company's effective income tax rate, as well as the marginal income tax
rate, for both quarters ended December 31, 1995 and 1994 was 34%. The
Company's management has determined that it is more likely than not that its
deferred tax assets will be realized. This is based on the existence of
taxable income in the form of future reversals of existing taxable temporary
differences and taxable income in prior carryback years that is sufficient to
allow realization of the tax benefit of the Company's existing deductible
temporary differences. The Company is not aware of any material uncertainties
existing at December 31, 1995 that may affect the realization of the Company's
deferred tax assets. The Company evaluates the realizability of deferred tax
assets quarterly by assessing the need for a valuation allowance.
Acquisitions
- ------------
On January 19, 1996 the Company announced an agreement to acquire Middle
Georgia Bank in Byron, Georgia. Middle Georgia Bank has two offices,
approximately $110 million in assets, $100 million in deposits, and $63 million
in loans. This transaction is expected to close in the fourth quarter of
fiscal 1996, subject to regulatory approval. The transaction, if approved, is
expected to be accounted for as a pooling-of-interests.
On September 15, 1995 the Company acquired by merger Tifton Banks, Inc. of
Tifton Georgia, and its subsidiary, Tifton Bank & Trust Company ("Tifton
Bank"). Tifton Bank, on the date of acquisition, held the following
approximate balances: loans of $42 million, cash and investments of $21
million, premises and equipment of $1 million and deposits of $45 million.
Intangible assets resulting from the acquisition amounted to approximately
$2 million.
On March 24, 1995, the Company acquired three banking offices located in
Sylvania, Vidalia and Waycross, Georgia from a commercial bank. Total assets
acquired were approximately $3 million and total cash received and deposits
18
<PAGE> 19
assumed were approximately $95 million. Intangible assets resulting from the
acquisition were approximately $4 million.
On December 2, 1994, the Company acquired Central Banking Company 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.
The financial institutions acquired during fiscal 1995 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.
Adoption of SFAS No. 114 and 118
- --------------------------------
On October 1, 1995, the Company adopted SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," which amended SFAS
No. 114. Under the new standards, a loan is considered impaired, based upon
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. Uncollateralized
loans are measured for impairment based on the present value of expected
future cash flows discounted at the historical effective interest rate, while
all collateral-dependent loans are measured for impairment based on the fair
value of the collateral. The adoption of SFAS No. 114 resulted in no
additional provision for credit losses at October 1, 1995 or during the three
months ended December 31, 1995.
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $3.2 million, with a
corresponding valuation allowance of $1.2 million. For the period ended
December 31, 1995, the average recorded investment in impaired loans was
approximately $3.1 million. Interest income recognized by the Company on
impaired loans (during the portion of the year that they were impaired) was not
significant.
The Company uses several factors in determining if a loan is impaired under
SFAS No. 114. The internal asset classification procedures include a
thorough review of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrowers' financial data, and borrowers' operating factors such as cash flows,
operating income or loss, and other factors. Loans continue to be classified
as impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable.
19
<PAGE> 20
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Securities Holders
- ------- -----------------------------------------------------
There were no matters submitted to a vote of securities holders during
the quarter ended December 31, 1995.
Item 6. Exhibits and Reports Filed on Form 8-K
- ------- --------------------------------------
(a) Exhibits
--- --------
Exhibit 11 - Statements of Computation of Earnings Per Share
Exhibit 15 - Awareness Letter of Coopers & Lybrand L.L.P.
Exhibit 27 - Financial Data Schedule
(b) Reports Filed on Form 8-K
--- -------------------------
On January 23, 1996, the Registrant filed a Current Report on Form 8-K
which included a press release dated January 19, 1996 concerning its
letter of intent to acquire Middle Georgia Bank.
20
<PAGE> 21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
DATE: February 13, 1996 /s/ David L. Hall
------------------------- ----------------------------
David L. Hall
Executive Vice President and
Chief Financial Officer
(Duly authorized, principal
financial and accounting
officer)
21
<PAGE> 22
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
Index of Exhibits
The following exhibits are filed as part of the Report.
Exhibit Number Description Page
- -------------- ----------- ----
11 Statements of Computation of Earnings Per Share 23
15 Awareness Letter of Coopers & Lybrand L.L.P. 25
27 Financial Data Schedule
22
<PAGE> 23
Exhibit 11
----------
Statements of Computation of Earnings Per Share
-----------------------------------------------
Three Months Ended
December 31,
-------------------------
1995 1994
- ---------------------------------------------------------------------------
Primary Earnings Per Share:
- ---------------------------
Weighted average shares outstanding 3,963,290 3,008,350
Options outstanding 131,887 166,967
Average exercise price $ 9.24 $ 7.56
---------- ----------
Proceeds from the assumed exercise
of options outstanding $1,218,636 $1,262,271
Average market price per share $ 21.33 $ 13.25
---------- ----------
Assumed shares repurchased 57,132 95,266
---------- ----------
Common stock equivalents of options
outstanding 74,755 71,701
---------- ----------
Weighted average shares outstanding
(including common stock equivalents) 4,038,045 3,080,051
========== ==========
Net income $2,374,879 $1,764,781
Preferred stock dividend (113,468) (240,177)
---------- ----------
Net income applicable to
common stockholders $2,261,411 $1,524,604
========== ==========
Earnings per common share $ .56 $ .50
========== ==========
Fully Diluted Earnings Per Share:
- ---------------------------------
Weighted average shares outstanding 3,963,290 3,008,350
Options outstanding 131,887 166,967
Average exercise price $ 9.24 $ 7.56
---------- ----------
Proceeds from the assumed exercise
of options outstanding $1,218,636 $1,262,271
Average market price per share $ 21.33 $ 13.25
---------- ----------
Assumed shares repurchased 57,132 95,266
---------- ----------
Common stock equivalents of options
outstanding 74,755 71,701
Assumed conversion of outstanding
convertible debentures (1) 40,572 40,661
Assumed conversion of outstanding
preferred stock (2) 360,214 973,913
---------- ----------
Weighted average shares outstanding
(including common stock equivalents) 4,438,831 4,094,625
========== ==========
23
<PAGE> 24
Exhibit 11
----------
Statements of Computation of Earnings Per Share, continued
----------------------------------------------------------
Three Months Ended
December 31,
---------------------------
1995 1994
- ----------------------------------------------------------------------------
Net income $2,374,879 $1,764,781
Interest expenses associated with
the convertible debentures (3) 13,839 13,814
Income taxes (4) (4,705) (4,697)
---------- ----------
Net income adjusted $2,384,013 $1,773,898
========== ==========
Earnings per common share $ .54 $ .43
========== ==========
(1) Potential dilution relating to convertible debentures is calculated as
follows:
Average debentures outstanding $ 662,541 $ 664,000
Conversion price $ 16.33 $ 16.33
---------- ----------
Potentially dilutive shares 40,572 40,661
========== ==========
(2) Potential dilution relating to preferred stock is calculated as follows:
Average Series A Preferred stock outstanding - $11,500,000
Conversion price - $ 12.50
-----------
Potentially dilutive shares - 920,000
===========
Average Series B Preferred stock outstanding $ 7,564,500 $ 1,132,173
Conversion price $ 21.00 $ 21.00
----------- -----------
Potentially dilutive shares 360,214 53,913
=========== ===========
(3) This amount includes interest expense and the amortization of issuance
costs associated with the convertible debentures.
(4) Income taxes have been computed at the Company's marginal tax rate of 34%.
24
<PAGE> 25
Coopers & Lybrand
February 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: First Liberty Financial Corp.
Registration on Form S-8
We are aware that our report dated February 13, 1996 on our review of interim
fiancial information of First Liberty Financial Corp. and Subsidiaries for the
three-month period ended December 31, 1995 and included in the Company's
quarterly report on Form 10-Q for the quarter then ended is incorporated by
reference into the Company's registration statements Forms S-8 (File Nos.
33-24733 and 333-00385). Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration
statement prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
Coopers & Lybrand L.L.P.
25
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER>1,000
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1995 FORM 10-Q AND THRIFT FINANCIAL REPORT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 33,066
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,825
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 171,934
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 668,294
<ALLOWANCE> 7,971
<TOTAL-ASSETS> 927,108
<DEPOSITS> 716,655
<SHORT-TERM> 94,848
<LIABILITIES-OTHER> 21,980
<LONG-TERM> 20,556
0
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<COMMON> 3995
<OTHER-SE> 61,510
<TOTAL-LIABILITIES-AND-EQUITY> 927,108
<INTEREST-LOAN> 14,928
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<INTEREST-TOTAL> 18,259
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<INCOME-PRETAX> 3,613
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,375
<EPS-PRIMARY> .56
<EPS-DILUTED> .54
<YIELD-ACTUAL> 8.73
<LOANS-NON> 2,410
<LOANS-PAST> 0
<LOANS-TROUBLED> 9,917
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<CHARGE-OFFS> 489
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<ALLOWANCE-CLOSE> 7,971
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