<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 December 31, 1997
---------------------------------
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
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(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 19.
There were 7,748,487 shares of Common Stock outstanding as of
February 13, 1998.
Page 1 of 21
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FIRST LIBERTY FINANCIAL CORP.
-----------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
FOR THE QUARTER ENDED DECEMBER 31, 1997
---------------------------------------
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 17
6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index of Exhibits 19
2
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First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Financial Condition
- ----------------------------------------------
(Unaudited)
- -----------
December 31, September 30,
------------ -------------
1997 1997
- -------------------------------------------------------------------------------
(dollars in thousands)
Assets:
- -------
Cash and due from banks $ 37,844 $ 31,197
Federal funds sold and repurchase agreements 5,983 20,237
Securities available-for-sale, at market value 271,328 255,902
Loans available-for-sale, net at market value 36,646 29,560
Loans, net 854,540 864,044
Accrued interest receivable 7,980 8,534
Premises and equipment, net 24,408 24,789
Real estate, net 4,087 2,639
Intangible assets 8,819 9,098
Mortgage servicing rights 6,396 6,571
Advances to attorneys for loans originated 9,174 8,106
Other assets 8,193 8,460
---------- ----------
Total assets $1,275,398 $1,269,137
========== ==========
Liabilities and Stockholders' Equity:
- -------------------------------------
Deposits $ 938,635 $ 945,322
Notes payable and other borrowed money 193,688 194,637
Securities sold under agreements to repurchase
and federal funds purchased 32,357 19,815
Checks payable on loans originated 1,446 1,709
Other liabilities 12,469 13,740
---------- ----------
Total liabilities 1,178,595 1,175,223
---------- ----------
Commitments and contingencies - -
Stockholders' equity:
Common stock ($1.00 par value, 37,500,000
shares authorized, 7,781,997 and 7,763,972
shares issued, respectively, and 7,748,487 and
7,730,462 shares outstanding, respectively) 7,782 7,764
Additional paid-in capital 38,558 38,505
Retained earnings 49,523 46,752
Net unrealized gain on securities
available-for-sale, net of taxes 1,209 1,162
Treasury stock at cost (33,510 shares) (269) (269)
---------- ----------
Total stockholders' equity 96,803 93,914
---------- ----------
Total liabilities and stockholders' equity $1,275,398 $1,269,137
========== ==========
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,
----------------------
1997 1996
- -----------------------------------------------------------------------------
(dollars in thousands, except per share data)
Interest Income:
- ----------------
Loans $20,882 $18,965
Securities 4,302 3,996
Federal funds sold and repurchase agreements 157 386
------- -------
Total interest income 25,341 23,347
------- -------
Interest Expense:
- -----------------
Deposits 10,584 9,357
Short-term borrowings 2,063 1,995
Long-term borrowings 1,105 1,305
------- -------
Total interest expense 13,752 12,657
------- -------
Net interest income 11,589 10,690
Provision for estimated losses on loans 1,398 593
------- -------
Net interest income after provision for
estimated losses on loans 10,191 10,097
------- -------
Noninterest Income:
- -------------------
Loan servicing fees 619 574
Gain on sale of investment securities - 29
Gain on sale of loans and
mortgage-backed securities 599 418
Gain on sale of servicing 706 333
Deposit account service charges 1,660 1,453
Other income 570 272
------- -------
Total noninterest income 4,154 3,079
------- -------
14,345 13,176
------- -------
Noninterest Expense:
- --------------------
Compensation, taxes and benefits 4,710 4,191
Occupancy and equipment 927 866
Advertising 288 399
Professional fees 269 623
Data processing 295 232
Federal deposit insurance premiums 164 367
Amortization of intangible assets 278 278
Net cost of operation of other real estate 29 59
Other expenses 1,289 1,243
------- -------
Total noninterest expense 8,249 8,258
------- -------
Income before income tax expense 6,096 4,918
Income tax expense 2,472 1,952
------- -------
Net income 3,624 2,966
Dividends on preferred stock - 113
------- -------
Net income applicable to common stockholders $ 3,624 $ 2,853
======= =======
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)
- -----------
Three Months Ended
-------------------------
December 31,
-------------------------
1997 1996
- ------------------------------------------------------------------------------
Earnings Per Common Share:
- --------------------------
Basic $ .47 $ .40
Diluted $ .46 $ .38
Dividends Per Common Share: $ .11 $ .10
- ---------------------------
Average Number of Shares Outstanding:
- -------------------------------------
Basic 7,735,619 7,115,862
Diluted 7,908,540 7,763,136
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,
-------------------------
1997 1996
- -----------------------------------------------------------------------------
(dollars in thousands)
Operating Activities:
- ---------------------
Cash flows from operating activities:
Net income $ 3,624 $ 2,966
Adjustments to reconcile net income
to cash used in operations:
Depreciation 499 475
Amortization of loan fees (costs), net 57 (15)
Provision for estimated losses
on loans and real estate 1,398 602
Amortization of intangibles 278 278
Dividends received on stock - (71)
Gain on sales of loans, mortgage-
backed and investment securities (599) (447)
Loans available-for-sale:
Disbursements (28,749) (30,892)
Purchases (66,857) (36,126)
Sales 89,191 58,460
Repayments 43 43
Decrease in accrued interest receivable 554 640
Increase (decrease) in accrued interest payable (176) 392
Other, net (1,403) (4,631)
-------- --------
Total adjustments (5,764) (11,292)
-------- --------
Net cash used in operating activities (2,140) (8,326)
-------- --------
Investing Activities:
- ---------------------
Cash flows from investing activities:
Net decrease in federal funds sold
and repurchase agreements 14,254 24,835
Investment securities available-for-sale:
Purchases (36,448) (20,975)
Sales - 6,182
Maturities 45,542 23,439
Mortgage-backed securities available-for-sale:
Purchases (33,577) (34,429)
Sales - 194
Repayments 22,467 16,295
Net increase in loans (6,325) (32,258)
Purchases of premises and equipment (383) (862)
Proceeds from sales of real estate 375 21
Net increase in advances to
attorneys for loans originated (1,068) (3,104)
-------- --------
Net cash provided by
(used in) investing activities 4,837 (20,662)
-------- --------
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,
------------------------
1997 1996
- -------------------------------------------------------------------------------
(dollars in thousands)
Financing Activities:
- ---------------------
Cash flows from financing activities:
Net increase (decrease) in deposits (6,678) 8,524
Notes payable and other borrowed money:
Proceeds 50,500 153,000
Repayments (51,449) (153,000)
Net increase in securities sold
under agreements to repurchase 12,542 27,929
Net decrease in checks payable
on loans originated (263) (2,923)
Issuance of common stock 70 49
Dividends paid on stock (772) (637)
-------- --------
Net cash provided by financing activities 3,950 32,942
-------- --------
Net increase in cash and due from banks 6,647 3,954
Cash and due from banks beginning of period 31,197 40,015
-------- --------
Cash and due from banks end of period $ 37,844 $ 43,969
======== ========
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
----------------------
Cash paid during the year for:
Interest $ 13,928 $ 12,265
Income taxes - 300
Noncash investing and financing activities:
Real estate foreclosed $ 1,738 $ 448
Financing of sales of foreclosed
real estate 52 386
Dividends declared but not paid
on preferred stock - 113
Dividends declared but not paid
on common stock 852 713
Mortgage loans securitized into
mortgage-backed securities 13,427 -
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
------------------------------------------
(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 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, 1997. 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, 1997 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
- ----------------------
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share" which sets forth new rules
concerning the calculation and presentation of earnings per share information
in financial statements. SFAS No. 128 replaces primary earnings per share
with basic earnings per share which excludes dilution and is computed by
dividing net income by the weighted average number of common shares
outstanding for the period. SFAS No. 128 replaces fully diluted earnings per
share with diluted earnings per share which reflects the potential dilution
that would occur if securities or other contracts to issue common stock were
exercised. Diluted earnings per share assumes (i) the exercise of all stock
options below the market price at December 31 or the average market price for
the quarter and (ii) the conversion, if dilutive, of all convertible
preferred stock as of the beginning of the year with the elimination of
dividends declared. Additionally, the earnings per share calculations for
the quarter ended December 31, 1996 have been restated to reflect the
adoption of SFAS No. 128.
8
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
The following tables provide a reconciliation of the numerators and
denominators used in calculating basic and diluted earnings per share for the
quarters ended December 31, 1997 and 1996.
For the Quarter Ended December 31, 1997
---------------------------------------
Income Shares Per-Share
------ ------ ---------
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic Earnings Per Share:
Net income applicable
to common stockholders $3,623,829 7,735,619 $.47
====
Effect of Dilutive Securities:
Options 172,921
---------- ----------
Diluted Earnings Per Share:
Net income applicable to common stock-
holders plus assumed conversions $3,623,829 7,908,540 $.46
========== ========== ====
For the Quarter Ended December 31, 1996
---------------------------------------
Income Shares Per-Share
------ ------ ---------
(Numerator) (Denominator) Amount
----------- ------------- ------
Net income $2,965,737
Less preferred stock dividend 112,763
----------
Basic Earnings Per Share:
Net income applicable
to common stockholders 2,852,974 7,115,862 $.40
====
Effect of Dilutive Securities:
Options 108,610
Convertible preferred stock 112,763 538,664
---------- ----------
Diluted Earnings Per Share:
Net income applicable to common stock-
holders plus assumed conversions $2,965,737 7,763,136 $.38
========== ========== ====
3. Sale of Servicing
- ---------------------
During the three months ended December 31, 1997, Liberty Mortgage Corporation
("Liberty Mortgage"), the Company's mortgage banking subsidiary, sold bulk
loan servicing rights with aggregate principal balances of $92 million,
compared to $24 million, a year earlier. This resulted in recognizing a gain
on the sale of servicing of $706,000 for the three months ended December 31,
1997 compared to $333,000 for the same period a year ago.
9
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FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
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, 1997 and 1996 (dollars in thousands).
Three Months Ended
------------------
December 31,
--------------------------
1997 1996
--------------------------
Capitalized $1,225 $ 770
Sold 1,118 -
Amortized 282 329
Reserved - 8
Net investment at December 31 6,396 6,565
The estimated combined fair value of these assets exceeded the book value at
December 31, 1997 and 1996. 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.
10
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Report of Independent Accountants
- ---------------------------------
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, 1997 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 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
February 12, 1998
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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 4%. Liberty Bank was in compliance with its requirements at December 31,
1997.
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.
12
<PAGE> 13
The following table reflects Liberty Bank's compliance with its regulatory
capital requirements at December 31, 1997 (dollars in thousands):
Actual for Liberty Bank Regulatory Requirement
- ---------------------------------------------------------------
% of % of
Capital Adjusted Adjusted Excess
Requirement Amount Assets Amount Assets Amount
- --------------------------------------------------------------------------
Tangible $95,187 7.51% $19,006 1.50% $76,181
- --------------------------------------------------------------------------
Core $96,450 7.60% $38,050 3.00% $58,400
- --------------------------------------------------------------------------
Risk-based $107,171 11.61% $73,824 8.00% $33,347
- --------------------------------------------------------------------------
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 $108 million, including $12 million
to be held in portfolio and $36 million on which the interest rate had not been
locked-in at December 31, 1997. Commitments to sell residential mortgage loans
and mortgage-backed securities for mandatory delivery were approximately $62
million at December 31, 1997. Also at December 31, 1997, the Company bought
$2 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, 1997.
Results of Operations
- ---------------------
The Company's consolidated net income for the quarter ended December 31, 1997
was $3.6 million compared to $3.0 million for the quarter ended December 31,
1996. 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").
13
<PAGE> 14
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. The following tables reflect the effective yields and
costs of funds for the three month periods ended December 31, 1997 and 1996
(dollars in thousands):
Average Balance Rate/Yield
--------------- ----------
Three Months Ended Three Months Ended
------------------ ------------------
December 31, December 31,
------------ ------------
1997 1996 1997 1996
------------------------ -------------------
Interest-Earning Assets:
- ------------------------
Loans $ 884,645 $ 815,229 9.44% 9.31%
Securities 266,701 244,359 6.45% 6.54%
Federal funds sold and
repurchase agreements 11,219 30,797 5.58% 5.01%
---------- ---------- ----- -----
All interest-earning assets $1,162,565 $1,090,385 8.72% 8.57%
========== ========== ----- -----
Interest-Bearing Liabilities:
- -----------------------------
Deposits $ 939,666 $ 866,921 4.51% 4.32%
Borrowings 221,425 217,601 5.72% 6.07%
---------- ---------- ----- -----
All interest-bearing liabilities $1,161,091 $1,084,522 4.74% 4.67%
========== ========== ----- -----
Interest rate spread $ 1,474 $ 5,863 3.98% 3.90%
- -------------------- ========== ========== ===== =====
Interest income as a percentage
- -------------------------------
of average earning assets 3.99% 3.92%
------------------------- ===== =====
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, 1997 to the three month period ended December 31,
1996 (dollars in thousands):
December 31, 1997 vs December 31, 1996
--------------------------------------------
Due to
--------------------------------------------
Rate/
Rate Volume Volume Total
-------- -------- -------- --------
Changes in Interest Income:
- ---------------------------
Loans $ 278 $ 1,615 $ 24 $ 1,917
Securities (54) 365 (5) 306
Federal funds sold and
repurchase agreements 44 (245) (28) (229)
--------- -------- -------- --------
Total interest income 268 1,735 (9) 1,994
--------- -------- -------- --------
Changes in Interest Expense:
- ----------------------------
Deposits 408 785 34 1,227
Borrowings (186) 57 (3) (132)
--------- -------- -------- --------
Total interest expense 222 842 31 1,095
--------- -------- -------- --------
Net interest income $ 46 $ 893 $ (40) $ 899
========= ======= ======= ========
14
<PAGE> 15
The Company's provision for estimated loan losses was $1.4 million and $593,000
for the quarters ended December 31, 1997 and 1996, respectively. Charge-offs,
net of recoveries, to the allowance for estimated loan losses were $941,000
during the three months ended December 31, 1997 compared to $481,000 for the
same period a year earlier. The allowance for estimated loan losses at
December 31, 1997 was $12.4 million or 169% of nonperforming loans compared
to $11.3 million or 183% of nonperforming loans at December 31, 1996.
Management estimates the provision to be reflective of recurring portfolio
risk and would anticipate that the level of future loan loss provisions would
continue with the level of loan growth.
The table below summarizes nonperforming assets at December 31, 1997 and 1996.
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,
---------------------------------
1997 1996
---------------------------------
Nonaccrual loans $ 7,314 $ 6,149
Loans past due 90 days and accruing - 25
Foreclosed real estate 4,760 3,531
Other repossessed assets 716 291
------- -------
Total nonperforming assets $12,790 $ 9,996
======= =======
Total nonperforming assets as
a percentage of total assets 1.00% .82%
======= =======
Real estate owned before allowances for estimated losses increased to $4.7
million at December 31, 1997 from $3.3 million at September 30, 1997 reflecting
foreclosures of $1.7 million, gross sales of $424,000 and capital expenditures
of $114,000.
Liberty Mortgage originated loans during the three months ended December 31,
1997 totaling $101 million compared to $69 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 thevity in MSRs for the three month
periods ended December 31, 1997 and 1996 (dollars in thousands).
Three Months Ended
------------------
December 31,
----------------------------
1997 1996
----------------------------
Capitalized $1,225 $ 770
Sold 1,118 -
Amortized 282 329
Reserved - 8
Net investment at December 31 6,396 6,565
15
<PAGE> 16
The estimated combined fair value of these assets exceeded the book value at
December 31, 1997 and 1996. 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. To the extent the actual or
estimates of prepayments increase, a decline in fair value may require the
establishment of an impairment reserve.
During the three months ended December 31, 1997, Liberty Mortgage sold bulk
loan servicing rights with aggregate principal balances of $92 million,
compared to $24 million, a year earlier. This resulted in recognizing a gain
on the sale of servicing of $706,000 for the three months ended December 31,
1997 compared to $333,000 for the same period a year ago.
Noninterest income (net of gains on the sale of assets and MGB merger related
items in fiscal 1997) increased $456,000 or 19% for the quarter ended December
31, 1997 as compared to the same quarter a year earlier. The increase was
mainly in other income principally relating to a full quarter of operations
at NewSouth in fiscal 1998 as compared to one month in fiscal 1997.
Noninterest expense (net of other real estate operations and MGB merger related
expenses in fiscal 1997) for the three months ended December 31, 1997 increased
$444,000 or 6% over the same period a year ago. The significant variance was
in salaries, again relating to the full quarter of operations at NewSouth.
Accounting for Income Taxes
- ---------------------------
The Company's effective income tax rate for the quarters ended December 31,
1997 and 1996 was approximately 40% 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,
1997 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.
16
<PAGE> 17
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, 1997.
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.
17
<PAGE> 18
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, 1998 /s/ David L. Hall
---------------------------- ----------------------------
David L. Hall
Executive Vice President and
Chief Financial Officer
(Duly authorized, principal
financial and accounting
officer)
18
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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 20
15 Awareness Letter of Coopers & Lybrand 21
27 Financial Data Schedule
19
<PAGE> 20
Exhibit 11
----------
Statements of Computation of Earnings Per Share
-----------------------------------------------
Three Months Ended
------------------
December 31,
-----------------------------
1997 1996
- ------------------------------------------------------------------------------
Basic Earnings Per Share:
- -------------------------
Weighted average shares outstanding 7,735,619 7,115,862
========== ==========
Net income $3,623,829 $2,965,737
Preferred stock dividend - (112,763)
---------- ----------
Net income applicable to
common stockholders $3,623,829 $2,852,974
========== ==========
Earnings per common share $ .47 $ .40
========== ==========
Diluted Earnings Per Share:
- ---------------------------
Weighted average shares outstanding 7,735,619 7,115,862
Options outstanding 294,961 253,149
Average exercise price $ 13.24 $ 10.54
---------- ----------
Proceeds from the assumed exercise
of options outstanding $3,905,284 $2,668,190
Closing/average market price per share $ 32.00 $ 18.46
---------- ----------
Assumed shares repurchased 122,040 144,539
---------- ----------
Common stock equivalents of options
outstanding 172,921 108,610
Assumed conversion of outstanding
preferred stock (1) - 538,664
---------- ----------
Weighted average shares outstanding
(including common stock equivalents) 7,908,540 7,763,136
========== ==========
Net income $3,623,829 $2,965,737
========== ==========
Earnings per common share $ .46 $ .38
========== ==========
(1) Potential dilution relating to preferred stock is calculated as follows:
Average Series B Preferred stock outstanding - $ 7,541,296
Conversion price - $ 14.00
-----------
Potentially dilutive shares - 538,664
===========
20
<PAGE> 21
Exhibit 15
Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, Georgia 30309
February 12, 1998
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 12, 1998 on our review of interim
financial information of First Liberty Financial Corp. and subsidiaries (the
"Company") for the three-month period ended December 31, 1997, 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.
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1997, 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 37,844
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,983
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 271,328
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 903,546
<ALLOWANCE> 12,360
<TOTAL-ASSETS> 1,275,398
<DEPOSITS> 938,635
<SHORT-TERM> 198,857
<LIABILITIES-OTHER> 13,915
<LONG-TERM> 27,188
0
0
<COMMON> 7,782
<OTHER-SE> 89,021
<TOTAL-LIABILITIES-AND-EQUITY> 96,803
<INTEREST-LOAN> 20,882
<INTEREST-INVEST> 4,459
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 25,341
<INTEREST-DEPOSIT> 10,584
<INTEREST-EXPENSE> 13,752
<INTEREST-INCOME-NET> 11,589
<LOAN-LOSSES> 1,398
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,249
<INCOME-PRETAX> 6,096
<INCOME-PRE-EXTRAORDINARY> 6,096
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,624
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
<YIELD-ACTUAL> 8.72
<LOANS-NON> 7,314
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,903
<CHARGE-OFFS> 1,273
<RECOVERIES> 332
<ALLOWANCE-CLOSE> 12,360
<ALLOWANCE-DOMESTIC> 10,343
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,017
</TABLE>
