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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, 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
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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 20.
There were 7,241,345 shares of Common Stock outstanding as of
February 12, 1997.
Page 1 of 23
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FIRST LIBERTY FINANCIAL CORP.
-----------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
FOR THE QUARTER ENDED DECEMBER 31, 1996
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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 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 18
6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index of Exhibits 20
2
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Financial Condition
- ----------------------------------------------
(Unaudited)
- -----------
December 31, September 30,
1996 1996
- -----------------------------------------------------------------------------
(dollars in thousands)
Assets:
- -------
Cash and due from banks $ 43,969 $ 40,015
Federal funds sold and repurchase agreements 8,302 33,137
Securities available-for-sale, at market value 243,183 232,858
Loans available-for-sale, net at market value 35,859 26,906
Loans, net 818,784 786,729
Accrued interest receivable 8,083 8,723
Premises and equipment, net 23,786 23,416
Real estate, net 3,021 3,060
Intangible assets 9,933 10,211
Mortgage servicing rights 6,565 6,132
Advances to attorneys for loans originated 4,833 1,729
Other assets 6,363 7,551
---------- ----------
Total assets $1,212,681 $1,180,467
========== ==========
Liabilities and Stockholders' Equity:
- -------------------------------------
Deposits $ 867,354 $ 858,784
Notes payable and other borrowed money 184,660 184,660
Subordinated debentures 12,166 12,155
Securities sold under agreements to repurchase
and federal funds purchased 44,573 16,644
Checks payable on loans originated 1,527 4,450
Other liabilities 13,068 17,317
---------- ----------
Total liabilities 1,123,348 1,094,010
---------- ----------
Commitments and contingencies - -
Stockholders' equity:
Series B, 6.00% Cumulative Convertible
Preferred stock ($25.00 stated value,
300,698 and 302,580 shares authorized, issued
and outstanding, respectively) 7,517 7,564
Common stock ($1.00 par value, 25,000,000
shares authorized, 7,163,971 and 7,144,216
shares issued, respectively, and 7,130,461 and
7,110,706 shares outstanding, respectively) 7,164 7,144
Additional paid-in capital 31,193 31,092
Retained earnings 43,134 40,994
Net unrealized gain(loss) on securities
available-for-sale, net of taxes 594 (68)
Treasury stock at cost (33,510 shares) (269) (269)
---------- ----------
Total stockholders' equity 89,333 86,457
---------- ----------
Total liabilities and stockholders' equity $1,212,681 $1,180,467
========== ==========
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,
---------------------------
1996 1995
- --------------------------------------------------------------------------
(dollars in thousands, except per share data)
Interest Income:
- ----------------
Loans $18,965 $16,698
Securities 3,996 3,511
Federal funds sold and
repurchase agreements 386 381
------- -------
Total interest income 23,347 20,590
------- -------
Interest Expense:
- -----------------
Deposits 9,357 9,390
Short-term borrowings 1,995 1,378
Long-term borrowings 1,305 627
------- -------
Total interest expense 12,657 11,395
------- -------
Net interest income 10,690 9,195
Provision for estimated losses on loans 593 627
------- -------
Net interest income after provision for
estimated losses on loans 10,097 8,568
------- -------
Noninterest Income:
- -------------------
Loan servicing fees 574 636
Gain(loss) on sale of investment securities 31 (7)
Gain on sale of loans and
mortgage-backed securities 416 382
Gain on sale of servicing 333 264
Deposit account service charges 1,453 1,196
Other income 272 271
------- -------
Total noninterest income 3,079 2,742
------- -------
13,176 11,310
------- -------
Noninterest Expense:
- --------------------
Compensation, taxes and benefits 4,191 3,945
Occupancy and equipment 866 921
Advertising 399 241
Professional fees 623 169
Data processing 232 244
Federal deposit insurance premiums 367 362
Amortization of intangible assets 278 278
Net cost of operation of other real estate 59 104
Other expenses 1,243 1,133
------- -------
Total noninterest expense 8,258 7,397
------- -------
Income before income tax expense 4,918 3,913
Income tax expense 1,952 1,302
------- -------
Net income 2,966 2,611
Dividends on preferred stock 113 113
------- -------
Net income applicable to common stockholders $ 2,853 $ 2,498
======= =======
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,
-------------------------
1996 1995
- ------------------------------------------------------------------------
Earnings Per Common Share:
- --------------------------
Primary $ .39 $ .35
Fully diluted $ .38 $ .34
Dividends Per Common Share: $ .10 $ .08
- ---------------------------
Average Number of Shares Outstanding:
- -------------------------------------
Primary 7,224,472 7,097,831
Fully diluted 7,763,136 7,699,010
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,
-------------------------
1996 1995
- ------------------------------------------------------------------------
(dollars in thousands)
Operating Activities:
- ---------------------
Cash flows from operating activities:
Net income $ 2,966 $ 2,611
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation 475 507
Amortization of loan fees, net (15) (65)
Provision for estimated losses
on loans and real estate 602 728
Amortization of intangibles 278 278
Dividends received on stock (71) (69)
Gain on sales of loans, mortgage-
backed and investment securities (447) (375)
Loans available-for-sale:
Disbursements (30,892) (29,323)
Purchases (36,126) (42,800)
Sales 58,460 58,910
Repayments 43 23
Decrease(increase) in accrued interest receivable 640 (206)
Increase in accrued interest payable 392 522
Other, net (4,631) (3,940)
--------- ---------
Total adjustments (11,292) (15,810)
--------- ---------
Net cash used in operating activities (8,326) (13,199)
--------- ---------
Investing Activities:
- ---------------------
Cash flows from investing activities:
Net decrease in federal funds sold
and repurchase agreements 24,835 22,047
Investment securities available-for-sale:
Purchases (20,975) (6,679)
Sales 6,182 4,456
Maturities 23,439 5,573
Mortgage-backed securities available-for-sale:
Purchases (34,429) (18,114)
Sales 194 -
Repayments 16,295 8,231
Net decrease (increase) in loans (32,258) 795
Purchases of premises and equipment (862) (326)
Proceeds from sales of real estate 21 1,482
Net increase in advances to
attorneys for loans originated (3,104) (5,089)
--------- ---------
Net cash provided by
(used in) investing activities (20,662) 12,376
--------- ---------
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,
-----------------------
1996 1995
- -------------------------------------------------------------------------
(dollars in thousands)
Financing Activities:
- ---------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 8,524 (307)
Notes payable and other borrowed money:
Proceeds 153,000 115,000
Repayments (153,000) (111,000)
Net increase in securities sold
under agreements to repurchase 27,929 6,033
Net increase (decrease) in checks payable
on loans originated (2,923) 1,499
Issuance of common stock 49 63
Dividends paid on stock (637) (577)
-------- --------
Net cash provided by financing activities 32,942 10,711
-------- --------
Net increase in cash and due from banks 3,954 9,888
Cash and due from banks beginning of period 40,015 27,103
-------- --------
Cash and due from banks end of period $ 43,969 $ 36,991
======== ========
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
----------------------
Cash paid during the year for:
Interest $ 12,265 $ 10,873
Income taxes 300 277
Noncash investing and financing activities:
Real estate foreclosed $ 448 $ 1,473
Financing of sales of foreclosed
real estate 386 174
Dividends declared but not paid
on preferred stock 113 113
Dividends declared but not paid
on common stock 713 516
The accompanying notes are an integral part of the consolidated financial
statements.
7
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
1. Summary of Significant Accounting Policies
- ----------------------------------------------
The accounting and reporting policies of First Liberty Financial Corp. and
Subsidiaries ("First Liberty" or "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, 1996. 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, 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. All financial information prior to the merger has
been retroactively restated to reflect (i) the Middle Georgia Bank ("MGB")
merger which closed November 15, 1996 and was accounted for utilizing the
pooling-of-interests method of accounting, and (ii) the three-for-two stock
split in the form of a stock dividend which was effective October 1, 1996.
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 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 with the
elimination of dividends declared.
8
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
3. Sale of Servicing
- ---------------------
During the three months ended December 31, 1996, Liberty Mortgage Corporation
("Liberty Mortgage"), the Company's mortgage banking subsidiary, sold bulk
loan servicing rights with aggregate principal balances of $24 million,
compared to $43 million, a year earlier. This resulted in recognizing a gain
on the sale of servicing of $333,000 for the three months ended December 31,
1996 compared to $264,000 for the same period a year ago. 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
recognized in the third quarter of fiscal 1996 when its recourse expired.
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, 1996 and 1995 (dollars in thousands).
Three Months Ended
December 31,
-------------------------
1996 1995
-------------------------
Capitalized $ 770 $ 742
Sold - 32
Amortized 329 94
Reserved 8 -
Net investment at December 31 6,565 2,692
The estimated combined fair value of these assets exceeded the book value at
December 31, 1996 and 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.
5. Acquisitions
- ----------------
On November 15, 1996 the Company acquired by merger MGB. On the merger date
MGB had total assets of approximately $129 million, total liabilities of $119
million and total stockholders' equity of $10 million. This business
combination was accounted for utilizing the pooling-of-interests method of
accounting, and accordingly, all financial information prior to the merger
has been retroactively restated.
9
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
The following table shows the effect of the above transaction on results of
operations for the periods prior to the merger (dollars in thousands).
Period Ended
October 1, 1996 Three Months Ended
Through November 15, 1996 December 31, 1995
------------------------- ------------------
Total Revenue:
- --------------
First Liberty $11,721 $20,725
MGB 1,277 2,607
------- -------
Combined $12,998 $23,332
======= =======
Net Income:
- -----------
First Liberty $ 1,438 $ 2,375
MGB 134 236
------- -------
Combined $ 1,572 $ 2,611
======= =======
6. Subsequent Events
- ---------------------
On January 29, 1997 the Company's Board of Directors voted to redeem its
Series B 6.0% cumulative preferred stock which have not been submitted for
conversion by March 7, 1997. It is anticipated that substantially all
preferred stock will be submitted for conversion and approximately 540,000
shares of the Company's common stock will be issued (1.79 shares of common
stock for each share of preferred stock). The redemption price for the
preferred stock is $27.00 per share plus accrued and unpaid dividends.
10
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Independent Accountants' Report
To 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 December 31, 1996 and for the
three-month period 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 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
February 13, 1997
11
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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
which owns and operates First Liberty Bank ("Liberty Bank") and its wholly
owned subsidiaries, Liberty Mortgage Corporation ("Liberty Mortgage") and
NewSouth Financial Services, Inc. ("NewSouth") 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, 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.
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The following table reflects Liberty Bank's compliance with its regulatory
capital requirements at December 31, 1996 (dollars in thousands):
- -------------------------------------------------------------------------
Actual for Liberty Bank Regulatory Requirement
- --------------------------------------------------------------
% of % of
Capital Adjusted Adjusted Excess
Requirement Amount Assets Amount Assets Amount
- -------------------------------------------------------------------------
Tangible $74,438 6.19% $18,038 1.50% $56,400
- -------------------------------------------------------------------------
Core $76,027 6.31% $36,123 3.00% $39,904
- -------------------------------------------------------------------------
Risk-based $98,316 11.44% $68,745 8.00% $29,571
- -------------------------------------------------------------------------
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 $80 million, including
$5.5 million to be held in portfolio and $41 million on which the interest
rate had not been locked-in at December 31, 1996. Commitments to sell
residential mortgage loans and mortgage-backed securities for mandatory
delivery were approximately $49 million at December 31, 1996. Also at
December 31, 1996, the Company bought $3.0 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 $123 million at December 31, 1996.
Results of Operations
- ---------------------
The Company's consolidated net income for the quarter ended December 31, 1996
was $3.0 million compared to $2.6 million for the quarter ended December 31,
1995. Included in the Company's net income for 1996 were nonrecurring
expenses relating to the Middle Georgia Bank ("MGB") merger which closed on
November 15, 1996 totaling approximately $312,000, net of taxes.
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
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interest income is affected by several factors, but is most affected by the
volume of and interest rates on interest-earning assets and interest-bearing
liabilities. The following tables reflect the effective yields and costs of
funds for the three month periods ended December 31, 1996 and 1995 (dollars
in thousands):
Average Balance Rate/Yield
Three Months Ended Three Months Ended
December 31, December 31,
1996 1995 1996 1995
---------------------- ---------------------
Interest-Earning Assets:
- ------------------------
Loans $ 815,229 $704,291 9.31% 9.48%
Securities 244,359 201,392 6.54% 6.97%
Federal funds sold and
repurchase agreements 30,797 23,176 5.01% 6.58%
---------- -------- ------ ------
All interest-earning assets $1,090,385 $928,859 8.57% 8.87%
========== ======== ------ ------
Interest-Bearing Liabilities:
- -----------------------------
Deposits $ 866,921 $821,637 4.32% 4.57%
Borrowings 217,601 106,375 6.07% 7.54%
---------- -------- ------ ------
All interest-bearing liabilities $1,084,522 $928,012 4.67% 4.91%
========== ======== ------ ------
Interest rate spread $ 5,863 $ 847 3.90% 3.96%
- -------------------- ========== ======== ====== ======
Interest income as a percentage
- -------------------------------
of average earning assets 3.92% 3.96%
------------------------- ====== ======
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, 1996 to the three month period ended
December 31, 1995 (dollars in thousands):
December 31, 1996 vs December 31, 1995
------------------------------------------
Due to
------------------------------------------
Rate/
Rate Volume Volume Total
-------- -------- -------- --------
Changes in Interest Income:
- ---------------------------
Loans $ (314) $ 2,630 $ (49) $ 2,267
Securities (218) 749 (46) 485
Federal funds sold and
repurchase agreements (90) 125 (30) 5
-------- -------- -------- --------
Total interest income (622) 3,504 (125) 2,757
-------- -------- -------- --------
Changes in Interest Expense:
- ----------------------------
Deposits (522) 518 (29) (33)
Borrowings (392) 2,096 (409) 1,295
-------- -------- -------- --------
Total interest expense (914) 2,614 (438) 1,262
-------- -------- -------- --------
Net interest income $ 292 $ 890 $ 313 $ 1,495
======== ======== ======== ========
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The Company's provision for estimated loan losses was $593,000 and $627,000
for quarters ended December 31, 1996 and 1995, respectively. Charge-offs,
net of recoveries, to the allowance for estimated loan losses were $481,000
during the three months ended December 31, 1996 compared to $383,000 for the
same period a year earlier. The allowance for estimated loan losses at
December 31, 1996 was $11.3 million or 183% of nonperforming loans compared
to $9.8 million or 224% of nonperforming loans at December 31, 1995.
The table below summarizes nonperforming assets at December 31, 1996 and 1995.
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,
----------------------------
1996 1995
----------------------------
Nonaccrual loans $ 6,149 $ 3,386
Loans past due 90 days and accruing 25 993
Foreclosed real estate 3,531 4,695
Other repossessed assets 291 265
------- -------
Total nonperforming assets $ 9,996 $ 9,339
======= =======
Total nonperforming assets as
a percentage of total assets .82% .90%
======= =======
Real estate owned before allowance for estimated losses declined to $3.5
million at December 31, 1996 from $3.7 million at September 30, 1996
reflecting foreclosures of $448,000 and gross sales of $598,000.
Liberty Mortgage originated loans during the three months ended December 31,
1996 totaling $69 million compared to $77 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, 1996 and 1995 (dollars in thousands).
Three Months Ended
December 31,
-----------------------------
1996 1995
-----------------------------
Capitalized $ 770 $ 742
Sold - 32
Amortized 329 94
Reserved 8 -
Net investment at December 31 6,565 2,692
The estimated combined fair value of these assets exceeded the book value at
December 31, 1996 and 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.
15
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During the three months ended December 31, 1996, Liberty Mortgage sold bulk
loan servicing rights with aggregate principal balances of $24 million,
compared to $43 million, a year earlier. This resulted in recognizing a gain
on the sale of servicing of $333,000 for the three months ended December 31,
1996 compared to $264,000 for the same period a year ago. 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
recognized in the third quarter of fiscal 1996 when its recourse expired.
Approximate nonrecurring expenses directly related to the MGB merger (see
"Acquisitions" - herein) which decreased noninterest income, and increased
noninterest expense for the current period are as follows (dollars in
thousands, except per share data).
Deposit account service charges $ (35)
Other income (59)
-----
Total noninterest income (94)
-----
Compensation, taxes and benefits 7
Occupancy and equipment 18
Advertising 3
Professional fees 346
Data processing 32
Other 17
-----
Total noninterest expense 423
-----
Total expense before income tax benefit 517
Income tax benefit (205)
-----
Net expense $(312)
=====
Impact on earnings per common share:
Primary $(.05)
Fully Diluted $(.04)
Noninterest income (net of gains on the sale of assets and MGB merger related
items) increased $290,000 or 14% for the quarter ended December 31, 1996 as
compared to the same quarter a year earlier. The increase was mainly in
deposit account service charges being $292,000 or 24% more than the same
period a year ago due to increased checking account activity.
Noninterest expense (net of other real estate operations and MGB merger related
expenses) for the three months ended December 31, 1996 increased $483,000 or 7%
over the same period a year ago. The significant variances were in advertising
and professional fees, both increasing $155,000 and $108,000, respectively, for
the quarter ended December 31, 1996 as compared to the quarter ended
December 31, 1995.
Accounting for Income Taxes
- ---------------------------
The Company's effective income tax rate for the quarters ended December 31,
1996 and 1995 was 39.7% and 33.3%, respectively, reflecting a 1% and 4%
increase in federal and state income taxes, respectively. The Company's
management has
16
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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,
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.
Acquisitions
- ------------
On November 15, 1996 the Company acquired by merger MGB. On the merger date
MGB had total assets of approximately $129 million, total liabilities of $119
million and total stockholders' equity of $10 million. This business
combination was accounted for utilizing the pooling-of-interests method of
accounting, and accordingly, all financial information prior to the merger
has been retroactively restated. See Note 5 to "First Liberty Financial
Corp. and Subsidiaries Notes to Consolidated Financial Statements" - herein.
Subsequent Events
- -----------------
On January 29, 1997 the Company's Board of Directors voted to redeem its Series
B 6.0% cumulative preferred stock which have not been submitted for conversion
by March 7, 1997. It is anticipated that substantially all preferred stock
will be submitted for conversion and approximately 540,000 shares of the
Company's common stock will be issued (1.79 shares of common stock for each
share of preferred stock). The redemption price for the preferred stock is
$27.00 per share plus accrued and unpaid dividends.
17
<PAGE> 18
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, 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
-------------------------------
On November 29, 1996, the Registrant filed a Current Report
on Form 8-K dated November 15, 1996 concerning the completion
of its acquisition of Middle Georgia Bank.
On January 23, 1997, the Registrant filed an Amendment to
Current Report on Form 8-K/A, Amendment No. 1, concerning the
financial statements and proforma financial information
relating to the Current Report on Form 8-K dated November 15,
1996.
18
<PAGE> 19
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
DATE: February 13, 1997 /s/ David L. Hall
--------------------------- ----------------------------
David L. Hall
Executive Vice President and
Chief Financial Officer
(Duly authorized, principal
financial and accounting
officer)
19
<PAGE> 20
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 21
15 Awareness Letter of Coopers & Lybrand 23
27 Financial Data Schedule
20
<PAGE> 21
Exhibit 11
----------
Statements of Computation of Earnings Per Share
-----------------------------------------------
Three Months Ended
December 31,
--------------------------
1996 1995
- ----------------------------------------------------------------------------
Primary Earnings Per Share:
- ---------------------------
Weighted average shares outstanding 7,115,862 6,985,699
Options outstanding 253,149 197,831
Average exercise price $ 10.54 $ 6.16
---------- ----------
Proceeds from the assumed exercise
of options outstanding $2,668,190 $1,218,639
Average market price per share $ 18.46 $ 14.22
---------- ----------
Assumed shares repurchased 144,539 85,699
---------- ----------
Common stock equivalents of options
outstanding 108,610 112,132
---------- ----------
Weighted average shares outstanding
(including common stock equivalents) 7,224,472 7,097,831
========== ==========
Net income $2,965,737 $2,610,703
Preferred stock dividend (112,763) (113,468)
---------- ----------
Net income applicable to
common stockholders $2,852,974 $2,497,235
========== ==========
Earnings per common share $ .39 $ .35
========== ==========
Fully Diluted Earnings Per Share:
- ---------------------------------
Weighted average shares outstanding 7,115,862 6,985,699
Options outstanding 253,149 197,831
Average exercise price $ 10.54 $ 6.16
---------- ----------
Proceeds from the assumed exercise
of options outstanding $2,668,190 $1,218,639
Average market price per share $ 18.46 $ 14.22
---------- ----------
Assumed shares repurchased 144,539 85,699
---------- ----------
Common stock equivalents of options
outstanding 108,610 112,132
Assumed conversion of outstanding
convertible debentures (1) - 60,858
Assumed conversion of outstanding
preferred stock (2) 538,664 540,321
---------- ----------
Weighted average shares outstanding
(including common stock equivalents) 7,763,136 7,699,010
========== ==========
21
<PAGE> 22
Exhibit 11
----------
Statements of Computation of Earnings Per Share
-----------------------------------------------
Three Months Ended
December 31,
--------------------------
1996 1995
- ----------------------------------------------------------------------------
Net income $2,965,737 $2,610,703
Interest expenses associated with
the convertible debentures (3) - 13,839
Income taxes (4) - (4,705)
---------- ----------
Net income adjusted $2,965,737 $2,619,837
========== ==========
Earnings per common share $ .38 $ .34
========== ==========
(1) Potential dilution relating to convertible debentures is calculated as
follows:
Average debentures outstanding - $ 662,744
Conversion price - $ 10.89
----------
Potentially dilutive shares - 60,858
==========
(2) Potential dilution relating to preferred stock is calculated as follows:
Average Series B Preferred stock outstanding $ 7,541,296 $ 7,564,500
Conversion price $ 14.00 $ 14.00
----------- -----------
Potentially dilutive shares 538,664 540,321
=========== ===========
(3) This amount includes interest expense and the amortization of issuance
costs associated with the convertible debentures.
(4) Income taxes were computed using the Company's marginal tax rate of 34%.
22
<PAGE> 23
Coopers & Lybrand
February 13, 1997
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, 1997 on our review of interim
financial information of First Liberty Financial Corp. and Subsidiaries for
the three-month period ended December 31, 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 form S-8 (File No. 33-24733). Pursuant to Rule
436(c) under the Securities Act of 1933, this report should not be considered
a part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 43,969
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,302
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 243,183
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<LOANS> 865,966
<ALLOWANCE> 11,323
<TOTAL-ASSETS> 1,212,681
<DEPOSITS> 867,354
<SHORT-TERM> 134,022
<LIABILITIES-OTHER> 14,595
<LONG-TERM> 107,377
7,517
0
<COMMON> 7,164
<OTHER-SE> 74,652
<TOTAL-LIABILITIES-AND-EQUITY> 1,212,681
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<INCOME-PRETAX> 4,918
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,966
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
<YIELD-ACTUAL> 8.57
<LOANS-NON> 6,149
<LOANS-PAST> 25
<LOANS-TROUBLED> 98
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<ALLOWANCE-OPEN> 10,901
<CHARGE-OFFS> 649
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