<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
----------------------------------
OR
- ---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14417
------------------------------------------
FIRST LIBERTY FINANCIAL CORP.
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1680650
- ----------------------------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
201 Second Street, Macon, Georgia 31297
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(912) 743-0911
- ----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Exhibit index appears on page 21.
There were 4,004,690 shares of Common Stock outstanding as of
August 13, 1996.
Page 1 of 24
<PAGE> 2
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
FOR THE QUARTER ENDED JUNE 30, 1996
-----------------------------------
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 11
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION
- ---------------------------
4. Submission of Matters to a Vote of Securities Holders 19
6. Exhibits and Reports on Form 8-K 19
Signatures 20
Index of Exhibits 21
2
<PAGE> 3
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Financial Condition
- ----------------------------------------------
(Unaudited)
- -----------
June 30, September 30,
-------- -------------
1996 1995
- ------------------------------------------------------------------------------
(dollars in thousands)
Assets:
- -------
Cash and due from banks $ 30,368 $ 24,610
Federal funds sold and repurchase agreements 5,001 22,652
Securities available-for-sale, at market value 164,541 167,613
Loans available-for-sale, net, at market value 42,005 22,282
Loans, net 686,245 625,641
Accrued interest receivable 6,902 6,406
Premises and equipment, net 22,047 22,194
Real estate, net 3,310 4,053
Intangible assets 10,489 11,315
Advances to attorneys for loans originated 9,473 3,220
Other assets 10,845 9,288
-------- --------
Total assets $991,226 $919,274
======== ========
Liabilities and Stockholders' Equity:
- -------------------------------------
Deposits $751,396 $719,226
Notes payable and other borrowed money 93,469 88,500
Subordinated debentures 12,639 12,501
Securities sold under agreements to repurchase 29,402 4,315
Checks payable on loans originated 10,075 7,119
Other liabilities 18,292 16,944
-------- --------
Total liabilities 915,273 848,605
-------- --------
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, 4,024,530 and 3,982,616 shares
issued, respectively, and 4,002,190 and
3,960,276 shares outstanding, respectively) 4,024 3,983
Additional paid-in capital 25,594 25,376
Retained earnings 39,129 33,584
Net unrealized gain (loss) on securities
available-for-sale, net of taxes (89) 431
Treasury stock at cost (22,340 shares) (269) (269)
-------- --------
Total stockholders' equity 75,953 70,669
-------- --------
Total liabilities and stockholders' equity $991,226 $919,274
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income
- ---------------------------------
(Unaudited)
- -----------
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
--------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest Income:
- ----------------
Loans $15,784 $13,119 $45,635 $36,295
Securities 3,078 2,793 9,193 8,047
Federal funds sold 123 110 540 337
Other interest income - - 36 -
------- ------- ------- -------
Total interest income 18,985 16,022 55,404 44,679
------- ------- ------- -------
Interest Expense:
- -----------------
Deposits 7,934 7,217 23,789 18,679
Short-term borrowings 1,628 535 4,451 2,754
Long-term borrowings 749 687 2,068 2,150
------- ------- ------- -------
Total interest expense 10,311 8,439 30,308 23,583
------- ------- ------- -------
Net interest income 8,674 7,583 25,096 21,096
Provision for estimated losses on loans 300 300 900 900
------- ------- ------- -------
Net interest income after provision
for estimated losses on loans 8,374 7,283 24,196 20,196
------- ------- ------- -------
Non-Interest Income:
- --------------------
Loan servicing fees 577 554 1,782 1,846
Gain on sale of investment securities - - 11 21
Gain on sale of loans and
mortgage-backed securities 410 39 1,232 35
Gain on sale of servicing 246 977 791 1,794
Deposit account service charges 1,160 843 3,294 2,425
Other income 33 45 241 256
------- ------- ------- -------
Total non-interest income 2,426 2,458 7,351 6,377
------- ------- ------- -------
10,800 9,741 31,547 26,573
------- ------- ------- -------
Non-Interest Expense:
- ---------------------
Compensation, taxes and benefits 3,586 3,403 10,709 9,167
Occupancy and equipment 833 764 2,578 2,118
Advertising 228 213 679 664
Professional fees 204 170 481 472
Data processing 179 178 601 507
Federal deposit insurance premiums 352 496 1,066 1,317
Amortization of intangible assets 278 240 835 489
Net cost of operation of other real estate 127 66 347 309
Other 877 1,032 2,682 2,571
------- ------- ------- -------
Total non-interest expense 6,664 6,562 19,978 17,614
------- ------- ------- -------
Income before income tax expense 4,136 3,179 11,569 8,959
Income tax expense 1,551 1,093 4,130 3,081
------- ------- ------- -------
Net income 2,585 2,086 7,439 5,878
Dividends on preferred stock 113 278 340 797
------- ------- ------- -------
Net income applicable to common
stockholders $ 2,472 $ 1,808 $ 7,099 $ 5,081
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Income, continued
- --------------------------------------------
(Unaudited)
- -----------
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
--------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per Common Share:
- --------------------------
Primary $ .61 $ .58 $ 1.76 $ 1.64
Fully diluted $ .58 $ .50 $ 1.68 $ 1.41
Dividends Per Common Share: $ .13 $ .10 $ .39 $ .30
- ---------------------------
Average Number of Shares Outstanding:
- -------------------------------------
Primary 4,057,844 3,092,903 4,038,311 3,082,905
Fully diluted 4,457,087 4,233,591 4,438,959 4,191,152
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows
- -------------------------------------
(Unaudited)
- -----------
Nine Months Ended
-----------------
June 30,
-----------------------
1996 1995
- ---------------------------------------------------------------------------
(dollars in thousands)
Operating Activities:
- ---------------------
Cash flows from operating activities:
Net income $ 7,439 $ 5,878
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation 1,435 1,284
Amortization of loan fees 58 (502)
Provision for estimated losses
on loans and real estate 1,263 1,390
Amortization of intangibles 835 489
Dividends received on stock (203) (185)
Gain on sale of loans and securities (1,243) (56)
Loans available-for-sale:
Disbursements (105,249) (22,344)
Purchases (190,016) (43,773)
Sales 276,352 62,183
Repayments 415 445
Increase in accrued interest receivable (496) (1,207)
Increase in accrued interest payable 251 397
Other, net (1,219) 7,032
-------- --------
Total adjustments (17,817) 5,153
-------- --------
Net cash provided by (used in)
operating activities (10,378) 11,031
-------- --------
Investing Activities:
- ---------------------
Cash flows from investing activities:
Net decrease in federal funds
sold and repurchase agreements 17,651 6,867
Investment securities available-for-sale:
Purchases (10) (8,261)
Sales 819 28,645
Maturities 4,000 2,000
Mortgage-backed securities available-for-sale:
Purchases (32,979) (52,176)
Sales 2,763 19,478
Repayments 27,887 15,626
Loan disbursements (333,620) (248,984)
Loan purchases (4,325) (30,465)
Loan sales - 7,214
Loan repayments 275,223 196,161
Purchases of premises and equipment (1,290) (1,128)
Proceeds from sales of real estate 2,841 1,375
Net increase in advances to
attorneys for loans originated (6,253) (3,842)
Net cash received in acquisitions - 88,141
-------- --------
Net cash provided by (used in)
investing activities (47,293) 20,651
-------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Cash Flows, continued
- ------------------------------------------------
(Unaudited)
- -----------
Nine Months Ended
-----------------
June 30,
---------------------
1996 1995
- ---------------------------------------------------------------------------
(dollars in thousands)
Financing Activities:
- ---------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 32,045 (32,697)
Notes payable and other borrowed money:
Proceeds 390,569 255,500
Repayments (385,600) (263,915)
Net increase in securities
sold under agreements to repurchase 25,087 17,374
Net increase in checks
payable on loans originated 2,956 1,188
Issuance of common stock 214 61
Dividends paid on stock (1,842) (1,120)
-------- --------
Net cash provided by (used in)
financing activities 63,429 (23,609)
-------- --------
Net increase in cash and due from banks 5,758 8,073
Cash and due from banks beginning of period 24,610 16,293
-------- --------
Cash and due from banks end of period $ 30,368 $ 24,366
======== ========
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
----------------------
Cash paid during the period for:
Interest $ 30,057 $ 22,852
Income taxes 4,137 1,805
Noncash investing and financing activities:
Real estate foreclosed $ 2,028 $ 1,205
Financing of sales of foreclosed real estate 245 3,359
Dividends declared, unpaid on preferred stock 114 279
Dividends declared, unpaid on common stock 520 301
Acquisitions:
Fair value of assets acquired - $(62,006)
Fair value of liabilities assumed - 150,147
--------
Net cash received - $ 88,141
========
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 8
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
1. Summary of Significant Accounting Policies
------------------------------------------
The accounting and reporting policies of First Liberty Financial Corp. and
Subsidiaries ("the Company") conform to generally accepted accounting
principles and to general practices within the savings and loan industry.
The interim consolidated financial statements included herein are unaudited
but reflect all adjustments which, in the opinion of management, are
necessary for 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 and nine months ended June 30, 1996 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 June 30 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.
3. Sale of Servicing
-----------------
During the three and nine months ended June 30, 1996, Liberty Mortgage
Corporation ("Liberty Mortgage"), the Company's mortgage banking subsidiary,
sold bulk loan servicing rights with aggregate principal balances of zero
and $67 million, respectively, compared to $89 million and $214 million,
respectively, a year earlier. This resulted in a gain on the sale of
servicing of zero and $791,000 for the three and nine months ended
June 30, 1996 compared to $977,000 and $1.8 million, respectively, for the
same periods a year ago. The servicing rights sold generally related to
loans originated for sale and sold within the last six months. The servicing
sales during both the nine
8
<PAGE> 9
months ended June 30, 1996 and 1995 included principal balances of $21
million and $47 million, respectively in servicing rights which Liberty
Mortgage had granted recourse to the seller. Accordingly, the deferred gain
related to such rights of $246,000 for the nine months ended June 30, 1996
was recognized in the third quarter when its recourse expired, and the
related gain of $552,000 for the nine months ended June 30, 1995 was deferred
and recognized in the fourth quarter of fiscal 1995.
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 and nine month periods ended June 30, 1996 and 1995 (dollars in
thousands).
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
-------------------------------------
1996 1995 1996 1995
-------------------------------------
Capitalized $1,633 $ 73 $3,592 $ 140
Sold - 312 45 692
Amortized 211 95 433 350
Charged off - 52 - 52
Net Investment at June 30, 5,190 1,961
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,
among other things, a mortgage banking enterprise to recognize as separate
assets MSRs regardless of whether the MSRs are purchased or originated. As a
result of the adoption of SFAS No. 122, the Company capitalized $515,000 and
$1.3 million and amortized $53,000 and $80,000 MSRs for the three and nine
months ended June 30, 1996, 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 first quarter
of fiscal 1997, 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.
9
<PAGE> 10
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.
10
<PAGE> 11
COOPERS & LYBRAND L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, Georgia 30309
Report of Independent Accountants
- ---------------------------------
The Board of Directors
First Liberty Financial Corp.
We have reviewed the accompanying consolidated financial statements of First
Liberty Financial Corp. and Subsidiaries as of June 30, 1996 and for the three-
month and nine-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.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
August 12, 1996
11
<PAGE> 12
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
Overview
- --------
First Liberty Financial Corp. is a unitary savings and loan holding company for
First Liberty Bank ("Liberty Bank"). The consolidated financial statements
include the accounts of First Liberty Financial Corp., Liberty Bank, a wholly-
owned subsidiary of First Liberty Financial Corp., and Liberty Mortgage
Corporation ("Liberty Mortgage"), a wholly-owned subsidiary of Liberty Bank
(collectively known as "the Company").
Liquidity
- ---------
The Company's primary sources of funds are deposits, loan repayments, sales and
maturities of securities, loan sales, repurchase agreements, advances from the
Federal Home Loan Bank of Atlanta and various other borrowings. Deposits
provide a source of funds that are highly dependent on market and other
conditions, while loan repayments are a relatively stable source of funds.
The liquidity of Liberty Bank's operation is measured by the ratio of cash and
short-term investments (as defined by federal regulations) to the sum of
withdrawable deposits and borrowings maturing within one year. Federal
regulations currently require institutions to maintain a liquidity ratio of at
least 5%. Liberty Bank was in compliance with its requirements at June 30,
1996.
Capital Resources
- -----------------
The Office of Thrift Supervision ("OTS") capital regulations include a core
capital requirement, a tangible capital requirement and a risk-based capital
requirement. Subject to certain exceptions, each of these capital standards
must be no less stringent than the capital standards applicable to national
banks, although the risk-based capital requirement for savings institutions
may deviate from the risk-based capital standards applicable to national
banks to reflect interest rate risk or other risks if the deviations in the
aggregate do not result in materially lower levels of capital being required of
savings institutions than would be required of national banks.
The following table reflects Liberty Bank's compliance with regulatory capital
requirements at June 30, 1996 (dollars in thousands):
Actual for Liberty Bank Regulatory Requirement
- -----------------------------------------------------------------
% of % of
Capital Adjusted Adjusted Excess
Standard Amount Assets Amount Assets Amount
- ------------------------------------------------------------------------
Tangible $59,818 6.10% $14,719 1.50% $45,099
- ------------------------------------------------------------------------
Core $61,569 6.26% $29,491 3.00% $32,078
- ------------------------------------------------------------------------
Risk-based $80,714 11.24% $57,451 8.00% $23,263
- ------------------------------------------------------------------------
12
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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 or
purchase residential mortgage loans of approximately $87 million, including
$2.6 million to be held in portfolio and $47 million on which the interest
rate had not been locked-in at June 30, 1996. Commitments to sell and purchase
residential mortgage loans and mortgage-backed securities for mandatory
delivery at June 30, 1996 were approximately $64 million and $4.5 million,
respectively. Also at June 30, 1996, the Company bought $4.0 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 $88 million at June 30, 1996.
Results of Operations
- ---------------------
The Company's consolidated net income for the three and nine months ended June
30, 1996 was $2.6 million and $7.4 million, respectively, compared to $2.1
million and $5.9 million for the three and nine months ended June 30, 1995,
respectively. The Company's net income is affected by the level of its non-
interest income, non-interest expense and the level of earnings of its mortgage
banking operations. However, the Company's net income is most significantly
affected by the difference between interest income on its loan and investment
portfolios and the interest expense of its deposits and borrowings ("net
interest income"). Net interest income is affected by several factors, but
is most affected by the volume of and interest rates on interest-earning
assets and interest-bearing liabilities. During the quarter ended June 30,
1996 Liberty Bank increased wholesale time deposits by approximately $32
million. Wholesale deposits are generated through brokers and national time
deposit networks. Periodically Liberty Bank will utilize these deposit
resources to supplement other funding. The following tables reflect the
effective yields and costs of funds for the three and nine month periods
ended June 30, 1996 and 1995. Average balances, yields and costs of funds
have been restated to reflect the conversion from using month-end to daily
balances in computing averages (dollars in thousands:)
13
<PAGE> 14
Average Balance Rate/Yield
--------------- ----------
Three Months Ended Three Months Ended
------------------ ------------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
------------------- -----------------
Interest-Earning Assets:
- ------------------------
Loans $714,676 $572,501 8.84% 9.17%
Securities 166,206 158,379 7.41% 7.05%
Federal funds sold and
repurchase agreements 10,060 6,078 4.90% 7.22%
-------- -------- ----- -----
All interest-earning assets $890,942 $736,958 8.52% 8.70%
======== ======== ----- -----
Interest-Bearing Liabilities:
- -----------------------------
Deposits $739,839 $678,489 4.29% 4.25%
Borrowings 149,062 56,559 6.38% 8.64%
-------- -------- ----- -----
All interest-bearing liabilities $888,901 $735,048 4.64% 4.59%
======== ======== ----- -----
Interest rate spread 3.88% 4.11%
- -------------------- ===== =====
Interest income as a percentage
- -------------------------------
of average earning assets 3.90% 4.12%
------------------------- ===== =====
Average Balance Rate/Yield
--------------- ----------
Nine Months Ended Nine Months Ended
----------------- -----------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
------------------ -----------------
Interest-Earning Assets:
- ------------------------
Loans $674,690 $541,193 9.02% 8.94%
Securities 169,001 161,715 7.25% 6.64%
Federal fund sold and
repurchase agreements 12,215 7,262 5.90% 6.19%
-------- -------- ----- -----
All interest-earning assets $855,906 $710,170 8.63% 8.39%
======== ======== ----- -----
Interest-Bearing Liabilities:
- -----------------------------
Deposits $724,621 $618,156 4.38% 4.03%
Borrowings 127,949 84,934 6.79% 7.70%
-------- -------- ----- -----
All interest-bearing liabilities $852,570 $703,090 4.74% 4.47%
======== ======== ----- -----
Interest rate spread 3.89% 3.92%
- -------------------- ===== =====
Interest income as a percentage
- -------------------------------
of average earning assets 3.90% 3.96%
------------------------- ===== =====
14
<PAGE> 15
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense for the nine month
period ended June 30, 1996 and the nine month period ended June 30, 1995
(dollars in thousands):
June 30, 1996 vs June 30, 1995
-------------------------------------------
Due To
-------------------------------------------
Rate/
Rate Volume Volume Total
-------- -------- -------- --------
Changes in Interest Income:
- ---------------------------
Loans $ 310 $ 8,953 $ 77 $ 9,340
Securities 749 363 34 1,146
Federal funds sold and
repurchase agreements (16) 230 (11) 203
------- ------- ------- -------
Total interest income 1,043 9,546 100 10,689
------- ------- ------- -------
Changes in Interest Expense:
- ----------------------------
Deposits 1,615 3,217 278 5,110
Borrowings (577) 2,484 (292) 1,615
------- ------- ------- -------
Total interest expense 1,038 5,701 (14) 6,725
------- ------- ------- -------
Net interest income $ 5 $ 3,845 $ 114 $ 3,964
======= ======= ======= =======
The Company's provision for estimated loan losses remained at $300,000 and
$900,000, respectively, during the three and nine months ended June 30, 1996
June 30, 1995. There were net charge-offs to the loan loss reserve of
$246,000 and $658,000 during the three and nine months ended June 30, 1996,
respectively, compared to net charge-offs of $348,000 and $127,000,
respectively, for the same periods a year earlier. Loan loss reserves at
June 30, 1996 were $8.1 million, or 275% of nonperforming loans, or 1.16% of
loans held for investment, compared to $6.9 million, or 176% of nonperforming
loans, or 1.17% of loans held for investment at June 30, 1995.
The table below summarizes nonperforming assets at June 30, 1996 and June 30,
1995. Nonperforming assets consist of nonaccrual loans, foreclosed real
estate, other repossessed assets, and loans past due 90 days or more which
are still accruing (dollars in thousands).
June 30,
----------------------------
1996 1995
----------------------------
Nonaccrual loans $2,928 $1,652
Loans past due 90 days or more
and still accruing - 2,273
Real estate acquired through foreclosure 3,572 4,889
Other repossessed assets 219 160
------ ------
Total nonperforming assets $6,719 $8,974
====== ======
Total nonperforming assets as
a percentage of total assets .68% 1.08%
====== ======
At June 30, 1996, the recorded investment in loans for which impairment has
been recognized in accordance with Statement of Financial Accounting Standards
("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan" totaled
$9.4 million, with a corresponding valuation allowance of $1.7 million.
15
<PAGE> 16
Real estate owned before the allowance for estimated losses decreased from $4.5
million at September 30, 1995 to $3.8 million at June 30, 1996 reflecting
foreclosures of $2.0 million, sales of $3.3 million and capital expenditures
totaling $656,000.
Liberty Mortgage originated loans during the three and nine months ended
June 30, 1996 totaling $114 million and $304 million, respectively, compared
to $37 million and $102 million for the same periods 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 and
nine month periods ended June 30, 1996 and 1995 (dollars in thousands).
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
---------------------------------------
1996 1995 1996 1995
---------------------------------------
Capitalized $1,633 $ 73 $3,592 $ 140
Sold - 312 45 692
Amortized 211 95 433 350
Charged off - 52 - 52
Net Investment at June 30, 5,190 1,961
Prior to October 1, 1995 Liberty Mortgage recorded mortgage servicing rights
relating only to loans purchased. Effective October 1, 1995 the Company
adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights". This
statement amends SFAS No. 65 "Accounting for Certain Mortgage Banking
Activities" and requires, among other things, a mortgage banking enterprise
to recognize as separate assets MSRs regardless of whether the MSRs are
purchased or originated. As a result of the adoption of SFAS No. 122, the
Company capitalized $515,000 and $1.3 million and amortized $53,000 and
$80,000 MSRs for the three and nine months ended June 30, 1996, respectively,
associated with loans originated.
During the three and nine months ended June 30, 1996, Liberty Mortgage sold
bulk loan servicing rights with aggregate principal balances of zero and $67
million, respectively, compared to $89 million and $214 million,
respectively, a year earlier. This resulted in a gain on the sale of
servicing of zero and $791,000 for the three and nine months ended June 30,
1996 compared to $977,000 and $1.8 million, respectively, for the same
periods a year ago. The servicing rights sold generally related to loans
originated for sale and sold within the last six months. The servicing sales
during both the nine months ended June 30, 1996 and 1995 included principal
balances of $21 million and $47 million, respectively in servicing rights
which Liberty Mortgage had granted recourse to the seller. Accordingly, the
deferred gain related to such rights of $246,000 for the nine months ended
June 30, 1996 was recognized in the third quarter of fiscal 1996 when its
recourse expired, and the related gain of $552,000 for the nine months ended
June 30, 1995 was deferred and recognized in the fourth quarter of fiscal 1995.
Non-interest income (net of gains on the sale of assets) increased $328,000 and
$790,000 during the three and nine months ended June 30, 1996 as compared to
the same periods a year earlier. Contributing to this variance was the
increase in deposit account service charges of $317,000 or 38% and $869,000
or 36% for the
16
<PAGE> 17
same periods mainly due to year-to-date average transaction accounts
increasing 26% from June 1995 to June 1996.
The net cost of operations of other real estate increased by $61,000 and
$38,000 for the three and nine months ended June 30, 1996, respectively, as
compared to the same periods a year ago. Contributing to this variance were
the following (dollars in thousands).
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
-------------------------------------
1996 1995 1996 1995
-------------------------------------
Provisions for estimated losses $173 $ 78 $363 $490
Net gains on sales - (2) (24) (174)
Net expense (income) from operations (46) (10) 8 (7)
---- ---- ---- ----
Net cost of operation of other
real estate $127 $ 66 $347 $309
==== ==== ==== ====
Non-interest expense (net of other real estate operations) remained at $6.5
million for the quarters ended June 30, 1996 and 1995, and increased $2.3
million or 13% for the nine months then ended. The acquisitions during the
first two quarters of fiscal 1995 were largely responsible for the increase
during the nine month period. Approximated expenses directly relating to
the acquisitions are as follows (dollars in thousands).
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, 1996 June 30, 1996
------------------ -----------------
Compensation, taxes and benefits $ 167 $1,741
Occupancy and equipment 28 429
Advertising 6 53
Professional fees 2 26
Data processing 6 82
Federal deposit insurance premiums 21 273
Amortization of intangible assets 38 532
Other 35 413
------ ------
Total $ 303 $3,549
====== ======
Excluding acquisition related expenses, non-interest expense declined 4% and
7%, respectively, for the three and nine months ended June 30, 1996 as
compared to the same periods in 1995. Significantly impacting this decrease
was federal deposit insurance premiums declining in total $144,000 and
$241,000, respectively for these periods due to lower assessment rates.
Accounting for Income Taxes
- ---------------------------
The Company's effective income tax rate for the nine months ended June 30, 1996
and 1995 was 36% and 34%, respectively. 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 June 30, 1996
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.
17
<PAGE> 18
The Company's income tax returns are periodically examined by various taxing
authorities. The Internal Revenue Service ("IRS") has examined the 1986
through 1989 federal income tax returns. The Company has reached a basic
agreement for final settlement with the IRS for the aforementioned
examination and expects the final approval of the settlement in the fourth
quarter of fiscal 1996. There will be no adverse impact on the consolidated
financial statements as a result of this settlement as it is currently
scheduled.
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 first quarter
of fiscal 1997, 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.
Recently Formed Subsidiaries
- ----------------------------
The Company formed a new subsidiary, New South Financial Services, Inc. ("New
South"), for the purpose of entering the consumer finance business. Operations
are scheduled to commence during the first quarter of fiscal 1997. New South
is not expected to have a material effect on 1997's net income.
18
<PAGE> 19
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 June 30, 1996.
Item 6. Exhibits and Reports Filed on Form 8-K
- ------- --------------------------------------
(a) Exhibits
Exhibit 11 - Statements of Computation of Earnings Per Share
Exhibit 15 - Awareness Letter of Coopers & Lybrand
Exhibit 27 - Financial Data Schedule
(b) Reports Filed on Form 8-K
None.
19
<PAGE> 20
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: August 13, 1996 /s/ David L. Hall
------------------------- ----------------------------
David L. Hall
Executive Vice President and
Chief Financial Officer
(Duly authorized principal
financial officer)
DATE: August 13, 1996 /s/ Laura B. Cross
------------------------- ----------------------------
Laura B. Cross
Vice President and Controller
(Duly authorized principal
accounting officer)
20
<PAGE> 21
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
Index of Exhibits
The following exhibits are filed as part of the Report.
Exhibit No. Description Page
- ----------- ----------- ----
11 Statements of Computation of Earnings Per Share 22
15 Awareness Letter of Coopers & Lybrand 24
27 Financial Data Schedule -
21
<PAGE> 22
Exhibit 11
----------
Statements of Computation of Earnings Per Share
-----------------------------------------------
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
-------------------------------------------------------
June 30, June 30,
-------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- ---------------------------
Average shares outstanding 3,997,837 3,008,965 3,980,480 3,008,555
----------- ----------- ----------- -----------
Average options outstanding 115,900 166,000 109,422 159,498
Average exercise price $ 10.46 $ 7.87 $ 10.17 $ 7.57
----------- ----------- ----------- -----------
Proceeds from the assumed exercise
of options outstanding $ 1,212,314 $ 1,306,420 $ 1,112,822 $ 1,207,400
Average market price per share $ 21.69 $ 15.92 $ 21.57 $ 14.18
----------- ----------- ----------- -----------
Assumed shares repurchased 55,893 82,062 51,591 85,148
----------- ----------- ----------- -----------
Common stock equivalents of options
outstanding 60,007 83,938 57,831 74,350
----------- ----------- ----------- -----------
Weighted average shares outstanding
(including common stock
equivalents) 4,057,844 3,092,903 4,038,311 3,082,905
=========== =========== =========== ===========
Net income $ 2,585,154 $ 2,086,648 $ 7,439,391 $ 5,878,564
Preferred stock dividend 113,468 278,613 340,405 797,402
----------- ----------- ----------- -----------
Net income applicable to
common stockholders $ 2,471,686 $ 1,808,035 $ 7,098,986 $ 5,081,162
=========== =========== =========== ===========
Earnings per common share $ .61 $ .58 $ 1.76 $ 1.64
=========== =========== =========== ===========
Fully Diluted Earnings Per Share:
- ---------------------------------
Average shares outstanding 3,997,837 3,008,965 3,980,480 3,008,555
----------- ----------- ----------- -----------
Average options outstanding 115,900 166,000 109,422 159,498
Average exercise price $ 10.46 $ 7.87 $ 10.17 $ 7.57
----------- ----------- ----------- -----------
Proceeds from the assumed exercise
of options outstanding $ 1,212,314 $ 1,306,420 $ 1,112,822 $ 1,207,400
Average market price per share $ 22.00 $ 16.50 $ 22.00 $ 16.50
----------- ----------- ----------- -----------
Assumed shares repurchased 55,105 79,177 50,583 73,176
----------- ----------- ----------- -----------
Common stock equivalents of options
outstanding 60,795 86,823 58,839 86,322
Assumed conversion of outstanding
convertible debentures (1) 38,241 40,661 39,426 40,661
Assumed conversion of outstanding
preferred stock (2) 360,214 1,097,142 360,214 1,055,614
----------- ----------- ----------- -----------
Weighted average shares outstanding
(including common stock
equivalents) 4,457,087 4,233,591 4,438,959 4,191,152
=========== =========== =========== ===========
</TABLE>
22
<PAGE> 23
Exhibit 11
----------
Statements of Computation of Earnings Per Share, Continued
----------------------------------------------------------
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
---------------------------------------------------
June 30, June 30,
---------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $2,585,154 $2,086,648 $7,439,391 $5,878,564
Interest expenses associated with
the convertible debentures (3) 13,055 13,839 40,216 41,517
Income taxes (4) (4,439) (4,705) (13,673) (14,116)
---------- ---------- ---------- ----------
Net income adjusted $2,593,770 $2,095,782 $7,465,934 $5,905,965
========== ========== ========== ==========
Earnings per common share $ .58 $ .50 $ 1.68 $ 1.41
========== ========== ========== ==========
(1) Potential dilution relating to convertible debentures is calculated as follows:
Average debentures outstanding 624,475 664,000 643,826 664,000
Conversion price $ 16.33 $ 16.33 $ 16.33 $ 16.33
---------- ---------- ---------- ----------
Potentially dilutive shares 38,241 40,661 39,426 40,661
========== ========== ========== ==========
(2) Potential dilution relating to preferred stock is calculated as follows:
Average Series A Preferred stock
outstanding - 11,500,000 - 11,500,000
Conversion price - $ 12.50 - $ 12.50
---------- ----------
Potentially dilutive shares - 920,000 - 920,000
========== ==========
Average Series B Preferred stock
outstanding 7,564,500 3,719,975 7,564,500 2,847,894
Conversion price $ 21.00 $ 21.00 $ 21.00 $ 21.00
---------- ---------- ---------- ----------
Potentially dilutive shares 360,214 177,142 360,214 135,614
========== ========== ========== ==========
</TABLE>
(3) This amount includes interest expense and the amortization of issuance
costs associated with the convertible debentures.
(4) Income taxes have been computed at the Company's marginal tax rate of
34%.
23
<PAGE> 24
COOPERS & LYBRAND L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, Georgia 30309
August 12, 1996
Securities and Exchange Commission
450 Fifth Street., N.W.
Washington, DC 20549
RE: First Liberty Financial Corp.
Registration on Form S-8
We are aware that our report dated August 12, 1996 on our review of interim
financial information of First Liberty Financial Corp. and Subsidiaries for
the three-month and nine-month periods ended June 30, 1996, 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 on
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 statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S JUNE 30, 1996, FORM 10-Q AND THRIFT FINANCIAL REPORT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,368
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,001
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,541
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 736,308
<ALLOWANCE> 8,058
<TOTAL-ASSETS> 991,226
<DEPOSITS> 751,396
<SHORT-TERM> 104,402
<LIABILITIES-OTHER> 28,367
<LONG-TERM> 31,108
7,564
0
<COMMON> 4,024
<OTHER-SE> 64,365
<TOTAL-LIABILITIES-AND-EQUITY> 75,953
<INTEREST-LOAN> 45,635
<INTEREST-INVEST> 9,733
<INTEREST-OTHER> 36
<INTEREST-TOTAL> 55,404
<INTEREST-DEPOSIT> 23,789
<INTEREST-EXPENSE> 30,308
<INTEREST-INCOME-NET> 25,096
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 19,978
<INCOME-PRETAX> 11,569
<INCOME-PRE-EXTRAORDINARY> 7,439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,439
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.68
<YIELD-ACTUAL> 8.63
<LOANS-NON> 2,928
<LOANS-PAST> 0
<LOANS-TROUBLED> 5,353
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,816
<CHARGE-OFFS> 1,793
<RECOVERIES> 1,135
<ALLOWANCE-CLOSE> 8,058
<ALLOWANCE-DOMESTIC> 6,735
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,323
</TABLE>
