<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 March 31, 1998
------------------------------
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 22.
There were 11,627,242 shares of Common Stock outstanding as of
May 14, 1998.
Page 1 of 23
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FIRST LIBERTY FINANCIAL CORP.
-----------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
FOR THE QUARTER ENDED MARCH 31, 1998
------------------------------------
Table of Contents
PART I - FINANCIAL INFORMATION
- ------------------------------
Item Page
- ---- ----
1. Financial Statements:
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Independent Accountants' Report 12
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
- ---------------------------
4. Submission of Matters to a Vote of Securities Holders 20
6. Exhibits and Reports on Form 8-K 20
Signatures 21
Index of Exhibits 22
2
<PAGE> 3
First Liberty Financial Corp. and Subsidiaries
- ----------------------------------------------
Consolidated Statements of Financial Condition
- ----------------------------------------------
(Unaudited)
- ----------
March 31, September 30,
--------- -------------
1998 1997
- ----------------------------------------------------------------------------
(dollars in thousands)
Assets:
- -------
Cash and due from banks $ 44,354 $ 31,197
Federal funds sold 901 20,237
Securities available-for-sale, at market value 303,666 255,902
Loans available-for-sale, net, at market value 67,458 29,560
Loans, net 846,162 864,044
Accrued interest receivable 8,349 8,534
Premises and equipment, net 24,248 24,789
Real estate, net 2,739 2,639
Intangible assets 8,541 9,098
Mortgage servicing rights 8,327 6,571
Advances to attorneys for loans originated 32,002 8,106
Other assets 8,254 8,460
---------- ----------
Total assets $1,355,001 $1,269,137
========== ==========
Liabilities and Stockholders' Equity:
- -------------------------------------
Deposits $ 979,317 $ 945,322
Notes payable and other borrowed money 239,689 194,637
Securities sold under agreements to repurchase 23,159 19,815
Checks payable on loans originated 3,097 1,709
Other liabilities 10,090 13,740
---------- ----------
Total liabilities 1,255,352 1,175,223
---------- ----------
Commitments and contingencies - -
Stockholders' equity:
Common stock ($1.00 par value, 25,000,000
shares authorized, 11,644,682 and 11,618,033
shares issued, respectively, and 11,622,342 and
11,595,693 shares outstanding, respectively) 11,645 7,753
Additional paid-in capital 34,683 38,505
Retained earnings 52,438 46,763
Net unrealized gain on securities available-
for-sale, net of taxes 1,152 1,162
Treasury stock at cost (22,340 shares) (269) (269)
---------- ----------
Total stockholders' equity 99,649 93,914
---------- ----------
Total liabilities and stockholders' equity $1,355,001 $1,269,137
========== ==========
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) Three Months Ended Six Months Ended
- ----------- ------------------ ----------------
March 31, March 31,
--------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------
(dollars in thousands, except per share data)
Interest Income:
- ----------------
Loans $20,775 $19,412 $41,657 $38,378
Securities 4,383 4,081 8,686 8,077
Federal funds sold and
repurchase agreements 70 137 227 522
------- ------- ------- -------
Total interest income 25,228 23,630 50,570 46,977
------- ------- ------- -------
Interest Expense:
- -----------------
Deposits 10,572 9,118 21,156 18,475
Short-term borrowings 2,709 1,751 4,772 3,745
Long-term borrowings 392 1,797 1,498 3,103
------- ------- ------- -------
Total interest expense 13,673 12,666 27,426 25,323
------- ------- ------- -------
Net interest income 11,555 10,964 23,144 21,654
Provision for estimated
losses on loans 1,272 616 2,670 1,210
------- ------- ------- -------
Net interest income after provision
for estimated losses on loans 10,283 10,348 20,474 20,444
------- ------- ------- -------
Non-interest Income:
- --------------------
Loan servicing fees 576 549 1,196 1,123
Gain on sale of investment securities - 89 - 118
Gain on sale of loans and
mortgage-backed securities 815 534 1,413 953
Gain on sale of servicing 91 389 797 722
Deposit account service charges 1,492 1,493 3,152 2,946
Other income 1,015 450 1,586 721
------- ------- ------- -------
Total non-interest income 3,989 3,504 8,144 6,583
------- ------- ------- -------
14,272 13,852 28,618 27,027
------- ------- ------- -------
Non-interest Expense:
- ---------------------
Compensation, taxes and benefits 4,826 4,854 9,536 9,044
Occupancy and equipment 1,013 887 1,940 1,753
Advertising 294 263 582 662
Professional fees 195 211 464 834
Data processing 389 234 684 466
Federal deposit insurance premiums 160 81 324 447
Amortization of intangible assets 278 278 557 557
Net cost of operation of
other real estate 15 20 44 79
Other expenses 1,352 1,399 2,641 2,642
------- ------- ------- -------
Total non-interest expense 8,522 8,227 16,772 16,484
------- ------- ------- -------
Income before income tax expense 5,750 5,625 11,846 10,543
Income tax expense 1,994 2,223 4,466 4,175
------- ------- ------- -------
Net income 3,756 3,402 7,380 6,368
Dividends on preferred stock - - - 113
------- ------- ------- -------
Net income applicable to common
stockholders $ 3,756 $ 3,402 $ 7,380 $6,255
======= ======= ======= =======
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
- ---------------------------------
(Unaudited) Three Months Ended Six Months Ended
- ----------- ------------------ ----------------
March 31, March 31,
--------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------
Earnings Per Common Share:
- --------------------------
Basic $ .32 $ .31 $ .64 $ .57
Diluted $ .32 $ .29 $ .62 $ .55
Dividends Per Common Share: $ .08 $ .07 $ .15 $ .13
- ---------------------------
Average Number of Shares Outstanding:
- -------------------------------------
Basic 11,622,342 11,091,994 11,612,973 10,880,596
Diluted 11,891,669 11,722,288 11,869,191 11,665,319
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)
- -----------
Six Months Ended
----------------
March 31,
--------------------------
1998 1997
- ----------------------------------------------------------------------------
(dollars in thousands)
Operating Activities:
- ---------------------
Cash flows from operating activities:
Net income $ 7,380 $ 6,368
Adjustments to reconcile net income
to cash provided by(used in) operations:
Depreciation 1,011 948
Amortization of loan fees, net 150 21
Provision for estimated losses
on loans and real estate 2,732 1,259
Amortization of intangibles 557 557
Dividends received on stock - (143)
Gain on sale of loans and securities (1,413) (1,071)
Loans available-for-sale:
Disbursements (60,339) (49,360)
Purchases (218,395) (73,695)
Sales 241,802 129,810
Repayments 317 88
Decrease in accrued interest receivable 185 402
Increase(decrease) in accrued interest payable (256) 108
Other, net (6,603) (4,809)
--------- ---------
Total adjustments (40,252) 4,115
--------- ---------
Net cash provided by(used in)
operating activities (32,872) 10,483
--------- ---------
Investing Activities:
- ---------------------
Cash flows from investing activities:
Net decrease in federal funds
sold and repurchase agreements 19,336 22,568
Investment securities available-for-sale:
Purchases (42,202) (39,927)
Sales - 6,322
Maturities 58,870 27,170
Mortgage-backed securities available-for-sale:
Purchases (101,317) (51,028)
Sales - 194
Repayments 50,054 27,113
Net decrease(increase)in loans 1,814 (54,453)
Purchases of premises and equipment (739) (1,833)
Proceeds from sales of real estate 1,860 282
Net increase in advances to attorneys
for loans originated (23,896) (9,097)
--------- ---------
Net cash used in investing activities (36,220) (72,689)
--------- ---------
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)
- -----------
Six Months Ended
----------------
March 31,
------------------------
1998 1997
- ------------------------------------------------------------------------------
(dollars in thousands)
Financing Activities:
- ---------------------
Cash flows from financing activities:
Net increase in deposits 34,021 21,426
Notes payable and other borrowed money:
Proceeds 155,500 233,000
Repayments (110,449) (233,000)
Net increase in securities sold
under agreements to repurchase and fed
funds sold 3,344 47,013
Net increase (decrease) in checks payable
on loans originated 1,388 (2,115)
Issuance of common stock 70 419
Redemption of preferred stock - (38)
Redemption of convertible subordinated debentures - (32)
Dividends paid on stock (1,625) (1,463)
--------- ---------
Net cash provided by financing activities 82,249 65,210
--------- ---------
Net increase in cash and due from banks 13,157 3,004
Cash and due from banks beginning of period 31,197 40,015
--------- ---------
Cash and due from banks end of period $ 44,354 $43,019
========= =========
Supplemental Disclosures of
- ---------------------------
Cash Flow Information:
----------------------
Cash paid during the year for:
Interest $ 27,682 $25,215
Income taxes 4,732 1,885
Noncash investing and financing activities:
Real estate foreclosed $ 2,722 $ 1,283
Financing of sales of foreclosed real estate 1,099 400
Dividends declared, unpaid on common stock 852 771
Mortgage loans securitized into mortgage-
backed securities 13,427 -
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 ("First Liberty" or "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, 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 and
six months ended March 31, 1998 are not necessarily indicative of
the results to be expected for the full year.
All references to numbers of shares, per share amounts, stock
option data and market prices have been restated to give
retroactive effect to the three-for-two stock split in the form of
a stock dividend which was effective April 27, 1998. At March 31, 1998
$3.9 million was transferred from additional paid-in capital to common
stock to reflect the stock split.
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
March 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 three and six months ended March 31, 1997 have been restated to
reflect the adoption of SFAS No. 128.
The following tables provide a reconciliation of the numerators and
denominators used in calculating basic and diluted earnings per
share for the three and six months ended March 31, 1998 and 1997.
8
<PAGE> 9
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
--------------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-Share
------ ------ --------- ------ ------ ---------
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,755,739 $3,402,421
Less preferred stock dividend - 388
---------- ----------
Basic Earnings Per Share:
- -------------------------
Net income applicable to
common stockholders $3,755,739 11,622,342 $0.32 $3,402,033 11,091,994 $0.31
========== ==========
Effect of Dilutive Securities:
- ------------------------------
Options 269,327 154,011
Convertible preferred stock - 476,283
---------- ----------
Diluted Earnings Per Share:
- ---------------------------
Net income applicable to common
stockholders plus assumed
conversions $3,755,739 11,891,669 $0.32 $3,402,421 11,722,288 $0.29
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
----------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
------ ------ --------- ------ ------ ---------
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $7,379,568 $6,368,158
Less preferred stock dividend - 113,151
---------- ----------
Basic Earnings Per Share:
- -------------------------
Net income applicable to
common stockholders $7,379,568 11,612,973 $0.64 $6,255,007 10,880,596 $0.57
========== ==========
Effect of Dilutive Securities:
- ------------------------------
Options 256,218 140,761
Convertible preferred stock - 643,962
---------- ----------
Diluted Earnings Per Share:
- ---------------------------
Net income applicable to common
stockholders plus assumed
conversions $7,379,568 11,869,191 $0.62 $6,368,158 11,665,319 $0.55
========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
3. Sale of Servicing
- ---------------------
During the three and six months ended March 31, 1998, Liberty
Mortgage Corporation ("Liberty Mortgage"), the Company's mortgage
banking subsidiary, sold bulk loan servicing rights with aggregate
principal balances of $9 million and $101 million, respectively,
compared to $48 million and $72 million, respectively, a year
earlier. This resulted in the recognition of a gain on the sale of
servicing of $91,000 and $797,000 for the three and six months
ended March 31, 1998 compared to $389,000 and $722,000,
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.
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 six month periods
ended March 31, 1998 and 1997 (dollars in thousands).
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 31,
---------------------------------------
1998 1997 1998 1997
---------------------------------------
Capitalized $2,241 $939 $3,466 $1,709
Sold - 294 1,118 294
Amortized 310 348 592 677
Recovered - 8 - -
Net Investment at March 31, 8,327 6,870
The estimated combined fair value of these assets exceeded the book
value at March 31, 1998 and 1997. When determining fair value the
Company considers the date of origination, the average note rate,
the average remaining term and estimated prepayment speed. The
fair value is calculated by estimating the present value of future
net servicing income.
5. Recently Issued Accounting Standards
- ----------------------------------------
In February 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", which revises employers' disclosures
about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans.
SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no
longer as useful as they were when FASB Statements No. 87,
"Employers' Accounting for Pensions", No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions", were issued. Management has not yet determined the
impact of SFAS No. 132 on the Company's future disclosures. SFAS
No. 132 is effective for fiscal years beginning after December 15,
1997.
10
<PAGE> 11
6. Acquisitions
- ----------------
On April 28, 1998, the Company announced an agreement to acquire
Peoples Banking Corporation ("PBC") in Blackshear, Georgia. PBC is
the holding company for Peoples Bank which has two offices, one each in
Blackshear and Waycross, Georgia. PBC has approximately $90 million in
assets and $80 million in deposits. This transaction is expected to close
in the fall of 1998, subject to regulatory approval.
On February 19, 1998, the Company announced an agreement to acquire
Southland Bank Corporation of Georgia ("SBC") in Douglas, Georgia.
SBC is the holding company for Coffee County Bank which has three
offices in Douglas, Georgia and Southland Bank which has two
offices, one each in Butler and Roberta, Georgia. SBC has
approximately $149 million in assets, $123 million in deposits and
$96 million in loans. This transaction is expected to close in the
third quarter of fiscal 1998, subject to regulatory approval.
These transactions, if approved, are expected to be accounted for
utilizing the pooling-of-interests method of accounting.
7. Subsequent Events
- ---------------------
Effective May 11, 1998 the Company's Board of Directors rescinded
the stock repurchase plan initially approved on October 29, 1997. No
shares were repurchased under the plan prior to its rescission.
11
<PAGE> 12
Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, Georgia 30309
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 March 31,
1998 and for the three-month and six-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
May 13, 1998
12
<PAGE> 13
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 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 March 31, 1998.
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 March 31, 1998 (dollars in
thousands):
Actual for Liberty Bank Regulatory Requirement
- -------------------------------------------------------------------
% of % of
Capital Adjusted Adjusted Excess
Standard Amount Assets Amount Assets Amount
- ----------------------------------------------------------------------------
Tangible $ 89,299 6.63% $20,218 1.50% $69,081
- ----------------------------------------------------------------------------
Core $ 90,481 6.71% $53,961 4.00% $36,520
- ----------------------------------------------------------------------------
Risk-based $100,509 10.51% $76,528 8.00% $23,981
- ----------------------------------------------------------------------------
13
<PAGE> 14
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 or purchase 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 $220 million, including $4.2 million to be
held in portfolio and $56 million on which the interest rate had
not been locked-in at March 31, 1998. Commitments to sell
residential mortgage loans and mortgage-backed securities for
mandatory delivery were approximately $146 million at March 31,
1998. Also at March 31, 1998, the Company bought $7.0 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 $140
million at March 31, 1998.
Results of Operations
- ---------------------
The Company's consolidated net income for the three and six months
ended March 31, 1998 was $3.8 million and $7.4 million,
respectively, compared to $3.4 million and $6.4 million for the
three and six months ended March 31, 1997, respectively. Included
in the Company's net income for the six months ended March 31, 1997
were nonrecurring expenses related 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 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.
14
<PAGE> 15
The following tables reflect the effective yields and costs of
funds for the three and six month periods ended March 31, 1998 and
1997 (dollars in thousands):
Average Balance Rate/Yield
--------------- ----------
Three Months Ended Three Months Ended
------------------ ------------------
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---------------------- --------------------
Interest-Earning Assets:
- ------------------------
Loans $ 872,211 $ 849,496 9.53% 9.14%
Securities 275,150 249,042 6.37% 6.55%
Federal funds sold and
repurchase agreements 5,662 10,714 4.94% 5.12%
---------- ---------- ----- -----
All interest-earning assets $1,153,023 $1,109,252 8.75% 8.52%
========== ========== ----- -----
Interest-Bearing Liabilities:
- -----------------------------
Deposits $ 962,066 $ 863,108 4.40% 4.23%
Borrowings 223,086 238,742 5.56% 5.94%
---------- ---------- ----- -----
All interest-bearing liabilities $1,185,152 $1,101,850 4.61% 4.60%
========== ========== ----- -----
Interest rate spread 4.14% 3.92%
- -------------------- ===== =====
Interest income as a percentage
- -------------------------------
of average earning assets 4.01% 3.95%
------------------------- ===== =====
Average Balance Rate/Yield
--------------- ----------
Six Months Ended Six Months Ended
---------------- ----------------
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---------------------- -------------------
Interest-Earning Assets:
- ------------------------
Loans $ 877,895 $ 831,572 9.49% 9.23%
Securities 270,878 246,675 6.41% 6.55%
Federal funds sold and
repurchase agreements 8,471 20,866 5.35% 5.01%
---------- ---------- ----- -----
All interest-earning assets $1,157,244 $1,099,113 8.74% 8.55%
========== ========== ----- -----
Interest-Bearing Liabilities:
- -----------------------------
Deposits $ 950,743 $ 866,249 4.45% 4.27%
Borrowings 221,644 226,332 5.66% 6.05%
---------- ---------- ----- -----
All interest-bearing liabilities $1,172,387 $1,092,581 4.68% 4.64%
========== ========== ----- -----
Interest rate spread 4.06% 3.91%
- -------------------- ===== =====
Interest income as a percentage
- -------------------------------
of average earning assets 4.00% 3.94%
------------------------- ===== =====
15
<PAGE> 16
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 six month period ended March 31, 1998 to
the six month period ended March 31, 1997 (dollars in thousands):
March 31, 1998 vs March 31,1997
-------------------------------------------
Due To
-------------------------------------------
Rate/
Rate Volume Volume Total
------- -------- -------- -------
Changes in Interest Income:
- ---------------------------
Loans $1,081 $2,138 $ 60 $3,279
Securities (167) 792 (16) 609
Federal funds sold and
repurchase agreements 36 (310) (21) (295)
------ ------ ------ ------
Total interest income 950 2,620 23 3,593
------ ------ ------ ------
Changes in Interest Expense:
- ----------------------------
Deposits 801 1,802 78 2,681
Borrowings (445) (142) 9 (578)
------ ------ ------ ------
Total interest expense 356 1,660 87 2,103
------ ------ ------ ------
Net interest income $ 594 $ 960 $ (64) $1,490
====== ====== ====== ======
Loans held for investment declined by $17 million to $859 million
at March 31, 1998 from $876 million at September 30, 1998
principally representing (i) $40 million in run-off of the Company's
indirect auto loan portfolio (a line of buisness which it exited in
November, 1997) and (ii) increased prepayments in real estate loans.
Changes in the allowance for estimated losses on loans for the
three and six months ended March 31, 1998 and 1997 are as follows
(dollars in thousands).
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 31,
---------------------------------------
1998 1997 1998 1997
---------------------------------------
Provision for estimated losses $1,272 $616 $ 2,670 $ 1,210
Charge-offs, net of recoveries 852 980 1,793 1,613
Allowance for loan losses March 31, 12,781 10,748
Allowance for loan losses as a
percentage of:
Non-performing loans 175.37% 186.50%
Loans held-for-investment 1.49 1.26
Management estimates the provision to be reflective of portfolio
risk and would anticipate the level of future loan loss provisions
to be concurrent with the recent trend of decline in net charge-
offs.
The table below summarizes non-performing assets at March 31, 1998
and March 31, 1997. Non-performing assets consist of non-accrual
loans, foreclosed real estate, other repossessed assets, and loans
with interest or principal past due 90 days or more which are still
accruing (dollars in thousands).
16
<PAGE> 17
March 31,
---------------------------
1998 1997
---------------------------
Non-accrual loans $ 7,288 $5,763
Foreclosed real estate 3,361 4,059
Other repossessed assets 489 296
------- -------
Total non-performing assets $11,138 $10,118
======= =======
Total non-performing assets as
a percentage of total assets .82% .81%
======= =======
Foreclosed real estate before allowance for estimated losses
increased $29,000 to $3.4 million at March 31, 1998 from $3.3
million at September 30, 1997 reflecting foreclosures of $2.7
million, gross sales of $2.9 million and capital expenditures of
$236,000.
Liberty Mortgage originated loans during the three and six months
ended March 31, 1998 totaling $191 million and $292 million,
respectively, compared to $67 million and $136 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 six month periods
ended March 31, 1998 and 1997 (dollars in thousands).
Three Months Ended Six Months Ended
------------------ -----------------
March 31, March 31,
----------------------------------------
1998 1997 1998 1997
----------------------------------------
Capitalized $2,241 $939 $3,466 $1,709
Sold - 294 1,118 294
Amortized 310 348 592 677
Recovered - 8 - -
Net Investment at March 31, 8,327 6,870
The estimated combined fair value of these assets exceeded the book
value at March 31, 1998 and 1997. When determining fair value the
Company considers the date of origination, the average note rate,
the average remaining term and estimated prepayment speed. The
fair value is calculated by estimating the present value of future
net servicing income.
During the three and six months ended March 31, 1998, Liberty
Mortgage sold bulk loan servicing rights with aggregate principal
balances of $9 million and $101 million, respectively, compared to
$48 million and $72 million, respectively, a year earlier. This
resulted in the recognition of a gain on the sale of servicing of
$91,000 and $797,000 for the three and six months ended March 31,
1997 compared to $389,000 and $722,000, 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.
Non-interest income net of gains on the sale of assets (and MGB
merger related items totaling $94,000 in fiscal 1997) increased
$1.1 million (or 21%) during the six months ended March 31, 1998 as
compared to the same period a year earlier and $591,000 or (24%)
for the quarter ended March 31, 1998 as compared to the quarter
ended March 31, 1997. The significant contributor in both
the three and six month comparisons was in other income resulting in float
revenue from increased official check volume at Liberty Mortgage.
17
<PAGE> 18
The six month comparison also included NewSouth operations for the whole
period as compared to four months in fiscal 1997.
Non-interest expense (net of MGB merger related expenses totaling
$423,000 in fiscal 1997) for the six months ended March 31, 1998
increased $711,000 (or 4%) over the same period a year ago, and
$295,000 (or 4%) for the quarter ended March 31, 1998 as compared
to the quarter ended March 31, 1997. One notable increase in the
six month comparison was in compensation and benefits, reflecting
six months operations of NewSouth in fiscal 1998 as compared to
four months operations in fiscal 1997. The significant variance in
the three month comparison was an increase in occupancy and
equipment resulting from several items, none of which were
significant.
Accounting for Income Taxes
- ---------------------------
The Company's effective income tax rate for the three and six
months ended March 31, 1998 was 34.7% and 37.7%, respectively
compared to 39.5% and 39.6%, respectively, a year earlier. 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
March 31, 1998 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.
Recently Issued Accounting Standards
- ------------------------------------
In February 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", which revises employers' disclosures
about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans.
SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no
longer as useful as they were when FASB Statements No. 87,
"Employers' Accounting for Pensions", No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions", were issued. Management has not yet determined the
impact of SFAS No. 132 on the Company's future disclosures. SFAS
No. 132 is effective for fiscal years beginning after December 15,
1997.
Acquisitions
- ------------
On April 28, 1998, the Company announced an agreement to acquire
Peoples Banking Corporation ("PBC") in Blackshear, Georgia. PBC is
the holding company for Peoples Bank which has which has two
offices, one each in Blackshear and Waycross, Georgia. PBC has
approximately $90 million in assets and $80 million in deposits.
This transaction is expected to close in the fall of 1998, subject
to regulatory approval. The transaction, if approved, is expected
to be accounted for utilizing the pooling-of-interests method of
accounting.
18
<PAGE> 19
On February 19, 1998, the Company announced an agreement to acquire
Southland Bank Corporation of Georgia ("SBC") in Douglas, Georgia.
SBC is the holding company for Coffee County Bank which has three
offices in Douglas, Georgia and Southland Bank which has two
offices, one each in Butler and Roberta, Georgia. SBC has
approximately $149 million in assets, $123 million in deposits and
$96 million in loans. This transaction is expected to close in the
third quarter of fiscal 1998, subject to regulatory approval. The
transaction, if approved, is expected to be accounted for utilizing
the pooling-of-interests method of accounting.
Subsequent Events
- -----------------
Effective May 11, 1998 the Company's Board of Directors rescinded
the stock repurchase plan initially approved on October 29, 1997.
No shares were repurchased under the plan prior to its rescission.
19
<PAGE> 20
PART II - Other information
- ---------------------------
Item 4. Submission of Matters to a Vote of Securities Holders
- --------------------------------------------------------------
The Registrant's 1998 Annual Meeting of Stockholders was held
on January 28, 1998. The following directors were elected for
terms expiring at the 2001 annual meeting and the votes for
each nominees were as follows:
For Withhold
--------- ---------
F. Don Bradford 6,470,484 45,931
Richard W. Carpenter 6,412,202 104,213
Harold W. Peavy, Jr. 6,469,784 46,631
Item 6. Exhibits and Reports Filed on Form 8-K
- -----------------------------------------------
(a) Exhibits
Exhibit 15 - Awareness Letter of Coopers & Lybrand L.L.P.
Exhibit 27 - Financial Data Schedule
(b) Reports Filed on Form 8-K
None
20
<PAGE> 21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
DATE: May 14, 1998 /s/ David L. Hall
----------------------- ----------------------------
David L. Hall
Executive Vice President and
Chief Financial Officer
(Duly authorized, principal
financial and principal accounting
officer)
21
<PAGE> 22
FIRST LIBERTY FINANCIAL CORP.
-----------------------------
Index of Exhibits
The following exhibits are filed as part of the Report.
Exhibit No. Description Page
- ----------- ------------------------------------------------ ----
15 Awareness Letter of Coopers & Lybrand L.L.P. 23
27 Financial Data Schedule -
22
<PAGE> 23
Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, Georgia 30309
May 13, 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 May 13, 1998 on our review of interim
financial information of First Liberty Financial Corp. and subsidiaries
(the "Company") for the three-month and six-month periods ended March 31, 1998,
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 MARCH 31, 1998, 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 44,354
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 901
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 303,666
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 926,401
<ALLOWANCE> 12,781
<TOTAL-ASSETS> 1,355,001
<DEPOSITS> 979,317
<SHORT-TERM> 235,660
<LIABILITIES-OTHER> 13,187
<LONG-TERM> 27,188
0
0
<COMMON> 11,645
<OTHER-SE> 88,004
<TOTAL-LIABILITIES-AND-EQUITY> 1,355,001
<INTEREST-LOAN> 41,657
<INTEREST-INVEST> 8,913
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 50,570
<INTEREST-DEPOSIT> 21,156
<INTEREST-EXPENSE> 27,426
<INTEREST-INCOME-NET> 23,144
<LOAN-LOSSES> 2,670
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,772
<INCOME-PRETAX> 11,846
<INCOME-PRE-EXTRAORDINARY> 11,846
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,380
<EPS-PRIMARY> .64<F1>
<EPS-DILUTED> .62<F1>
<YIELD-ACTUAL> 8.75
<LOANS-NON> 7,288
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,014
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,903
<CHARGE-OFFS> 2,536
<RECOVERIES> 744
<ALLOWANCE-CLOSE> 12,781
<ALLOWANCE-DOMESTIC> 10,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,631
<FN>
<F1> A THREE-FOR-TWO STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND OCCURRED,
EFFECTIVE APRIL 27, 1998. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN
RESTATED.
</FN>
</TABLE>
