<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
---------------
PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
APRIL 1, 1999
DATE OF REPORT (DATE OF EARLIEST EVENT RECORDED)
FIRST LIBERTY FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMISSION FILE NUMBER: 0-14417
---------------
GEORGIA 58-1680650
(State of Incorporation) (I.R.S. Employer Identification Number)
201 SECOND STREET
MACON, GA 31297
(Address of Principal Executive Offices)
(912) 743-0911
(Registrant's Telephone Number, Including Area Code)
================================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
On April 1, 1999, First Liberty Financial Corp. ("FLFC") completed the
acquisition by merger of Vidalia Bankshares, Inc. ("VBI"), in Vidalia, Georgia,
pursuant to the Agreement and Plan of Merger dated as of October 30, 1998, as
amended. Each VBI stockholder received 3.919 shares of FLFC common stock in
exchange for each share of VBI common stock, resulting in the issuance of
653,070 shares of FLFC common stock. The transaction was accounted for as a
pooling-of-interests. Accordingly, the accompanying supplemental consolidated
financial statements of FLFC as of September 30, 1998 and 1997 and for each of
the three years in the period ended September 30, 1998 included in this Current
Report on Form 8-K have been prepared as though the merger with VBI had been
completed on or before March 31, 1999. These supplemental financial statements
should be read in conjunction with the historical financial statements of FLFC
for such periods contained in Form 10-K for the year ended September 30, 1998.
Additionally, the supplemental consolidated financial statements of
FLFC as of March 31, 1999 and 1998 and for the three and six month periods then
ended included in this Current Report on Form 8-K have been prepared as though
the merger with VBI had been completed on or before March 31, 1999.
On April 28, 1999, it was announced that FLFC had agreed to be acquired
by BB&T Corporation ("BB&T") of Winston-Salem, North Carolina, pursuant to an
Agreement and Plan of Reorganization dated as of April 27, 1999 (the "Merger
Agreement"). The Merger Agreement has been approved by the boards of directors
of both companies.
At the effective time of the merger, FLFC will be merged with and into
BB&T and BB&T will be the surviving corporation. Each share of FLFC common
stock will be converted into the right to receive a portion of a share of BB&T
common stock that will depend on the average reported closing price of BB&T
common stock on the New York Stock Exchange Composite Transaction List for the
10 trading days ending on the tenth calendar day preceding the effective time of
the merger (the "Closing Value"). If the Closing Value is at least $38.22 but
not more than $39.12, each share of FLFC common stock will be converted into the
right to receive an amount of BB&T common stock with a value equal to $33.25
divided by the Closing Value; if the Closing Value is less than $38.22, each
share of FLFC common stock will be converted into the right to receive 0.87 of
a share of BB&T common stock; and if the Closing Value is more than $39.12,
each share of FLFC common stock will be converted into the right to receive 0.85
of a share of BB&T common stock. BB&T common stock is traded under the symbol
"BBT."
The obligations of BB&T and FLFC to carry out the merger are subject to
the satisfaction of certain conditions at or before the effective time, which
conditions include approval by the stockholders of FLFC and bank regulatory
authorities, as well as certain other conditions which are common to
transactions of this type, including the execution of employment agreements by
certain executive officers of FLFC. The Transaction is expected to close in the
fourth quarter of 1999. FLFC common stock will continue to be traded under the
Nasdaq symbol "FLFC" until the completion of the merger.
In connection with the Merger Agreement, FLFC also executed in favor of
BB&T a Stock Option Agreement dated as of April 27, 1999, allowing BB&T to
purchase up to 2,838,708 shares of FLFC common stock at a price of $25.00 per
share under certain circumstances.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C> <C>
11 Computation of Earnings Per Share. Filed herewith as Note 2 of the
"Notes to Consolidated Financial Statements."
99.1 Report of Independent Accountants Filed herewith.
99.2 FLFC's supplemental audited financial Filed herewith.
statements and notes thereto, including
the accounts of Vidalia Bankshares, Inc.
As of September 30, 1998 and 1997, and
for each of the three years in the period
ended September 30, 1998.
99.3 FLFC's supplemental five year selected financial Filed herewith.
data, including the accounts of Vidalia. As of
and for each of the five years in the period
ended September 30, 1998.
99.4 FLFC's supplemental unaudited financial Filed herewith.
statements and notes thereto, including
the accounts of Vidalia Bankshares, Inc.
As of March 31, 1999 and September 30, 1998,
and for both the three and six month periods
ended March 31, 1999 and 1998.
99.5 FLFC's supplemental six month selected financial Filed herewith.
Data, including the accounts of Vidalia. As of
and for the six month periods ended March 31,
1999 and 1998.
99.6 Merger Agreement between BB&T Corporation Filed herewith.
and First Liberty Financial Corp.
99.7 Stock Option Agreement between BB&T and FLFC Filed herewith.
99.8 Press Release announcing the merger between Filed herewith.
BB&T and FLFC
27.1 Restated Financial Data Schedule (for SEC use only)
27.2 Restated Financial Data Schedule (for SEC use only)
27.3 Restated Financial Data Schedule (for SEC use only)
27.4 Restated Financial Data Schedule (for SEC use only)
27.5 Restated Financial Data Schedule (for SEC use only)
</TABLE>
2
<PAGE> 3
SIGNATURE
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, HEREUNTO DULY AUTHORIZED.
FIRST LIBERTY FINANCIAL CORP. (Registrant)
Date: July 30, 1999 By: /s/ DAVID L. HALL
------------------------------------------
David L. Hall
Executive Vice President and Chief
Financial Officer
By: /s/ MICHAEL B. SMITH
------------------------------------------
Michael B. Smith
First Vice President and Controller
3
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
and Shareholders of First Liberty Financial Corp.
We have audited the supplemental consolidated statements of financial condition
of First Liberty Financial Corp. as of September 30, 1998 and 1997, and the
related supplemental consolidated statements of income and comprehensive
income, changes in stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The supplemental financial statements give retroactive effect to the merger of
First Liberty Financial Corp. and Vidalia Bankshares, Inc. on April 1, 1999,
which has been accounted for as a pooling of interests as described in notes 1
and 3 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of First Liberty
Financial Corp. after financial statements covering the date of consummation of
the business combination are issued.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Liberty
Financial Corp. at September 30, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination.
PricewaterhouseCoopers LLP
Atlanta, Georgia
July 14, 1999
4
<PAGE> 1
EXHIBIT 99.2
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
(DOLLARS AND SHARES
IN THOUSANDS)
ASSETS
<S> <C> <C>
Cash and due from banks........................................... $ 41,703 $ 42,233
Federal funds sold and repurchase agreements...................... 8,073 27,908
Securities available-for-sale..................................... 344,134 298,101
Loans available-for-sale, net..................................... 70,346 29,560
Loans, net........................................................ 986,301 999,103
Accrued interest receivable....................................... 11,717 11,025
Premises and equipment, net....................................... 29,826 28,631
Real estate, net.................................................. 2,239 2,854
Intangible assets................................................. 11,131 11,020
Mortgage servicing rights......................................... 13,822 6,571
Advances to attorneys for loans originated........................ 41,242 8,106
Other assets...................................................... 7,573 9,567
----------- -----------
Total assets............................................ $ 1,568,107 $ 1,474,679
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits............................. $ 152,236 $ 123,706
Interest-bearing demand deposits................................ 115,351 127,045
Savings......................................................... 162,878 155,405
Time............................................................ 722,376 713,444
----------- -----------
Total deposits.................................................... 1,152,841 1,119,600
Notes payable and other borrowed money............................ 244,345 197,844
Securities sold under agreements to repurchase.................... 26,791 26,099
Checks payable on loans originated................................ 3,091 1,709
Other liabilities................................................. 14,224 15,718
----------- -----------
Total liabilities....................................... 1,441,292 1,360,970
----------- -----------
Commitments and contingencies..................................... -- --
Stockholders' equity:
Common stock $1 par value, 25,000 shares authorized, 14,227
and 14,145 shares issued, respectively, and 14,205 and 14,123
shares outstanding, respectively ............................. 14,227 14,145
Additional paid-in capital...................................... 41,069 39,997
Retained earnings............................................... 70,164 59,794
Accumulated other comprehensive income.......................... 1,624 1,250
Unearned compensation -- restricted stock....................... -- (47)
Treasury stock at cost (22 and 137 shares, respectively)........ (269) (1,430)
----------- -----------
Total stockholders' equity.............................. 126,815 113,709
----------- -----------
Total liabilities and stockholders' equity.............. $ 1,568,107 $ 1,474,679
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 2
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Loans ...................................................... $ 97,676 $ 91,690 $80,069
Securities ................................................. 20,632 19,195 17,044
Federal funds sold and repurchase agreements ............... 759 1,497 1,249
-------- -------- -------
Total interest income .............................. 119,067 112,382 98,362
-------- -------- -------
Interest Expense:
Deposits ................................................... 49,158 45,559 42,759
Short-term borrowings ...................................... 11,203 7,100 6,359
Long-term borrowings ....................................... 2,519 7,038 2,904
-------- -------- -------
Total interest expense ............................. 62,880 59,697 52,022
-------- -------- -------
Net interest income .......................................... 56,187 52,685 46,340
Provision for estimated losses on loans .................... 6,037 7,860 3,543
-------- -------- -------
Net interest income after provision for estimated losses on
Loans....................................................... 50,150 44,825 42,797
-------- -------- -------
Noninterest Income:
Loan servicing fees ........................................ 1,621 2,310 2,445
Gain (loss) on sale of investment securities ............... 262 132 39
Gain on sale of loans and mortgage-backed securities........ 4,892 2,132 1,770
Gain on sale of servicing .................................. 797 1,397 790
Deposit account service charges ............................ 7,425 7,038 5,836
Other income ............................................... 4,247 2,812 2,058
-------- -------- -------
Total noninterest income ........................... 19,244 15,821 12,938
-------- -------- -------
69,394 60,646 55,735
-------- -------- -------
Noninterest Expense:
Compensation, taxes and benefits ........................... 24,211 21,862 18,853
Occupancy and equipment .................................... 5,201 4,514 4,590
Advertising ................................................ 1,256 1,542 1,032
Professional fees .......................................... 1,752 1,585 1,202
Data processing ............................................ 3,411 1,668 1,270
Federal deposit insurance premiums ......................... 674 774 5,026
Amortization of intangible assets .......................... 1,278 1,280 1,285
Net cost of operation of other real estate ................. 44 467 327
Other expenses ............................................. 6,655 7,109 5,508
-------- -------- -------
Total noninterest expense .......................... 44,482 40,801 39,093
-------- -------- -------
</TABLE>
6
<PAGE> 3
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME -
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Income before income tax expense ........................ $ 24,912 $ 19,845 $ 16,642
------------ ------------ ------------
Income Tax Expense (Benefit):
Current ............................................... 9,805 7,404 7,442
Deferred .............................................. (850) (1,289) (2,041)
------------ ------------ ------------
8,955 6,115 5,401
------------ ------------ ------------
Income before extraordinary loss ........................ 15,957 13,730 11,241
Extraordinary loss on extinguishment of debt (net of
related income tax benefit of $1,514) ................. -- 2,811 --
------------ ------------ ------------
Net income .............................................. 15,957 10,919 11,241
Dividends on preferred stock ............................ -- 113 454
------------ ------------ ------------
Net income applicable to common stockholders .......... 15,957 10,806 10,787
Other comprehensive loss, before tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) on securities arising
during the period ............................... 836 2,297 (1,175)
Less: reclassification adjustment for (gains) losses
included in net income ......................... (261) (132) 27
------------ ------------ ------------
Other comprehensive loss, before tax .................... 575 2,165 (1,148)
Income tax expense (benefit) related to items of other
comprehensive loss .................................... 201 757 (402)
------------ ------------ ------------
Other comprehensive loss, net of tax .................... 374 1,408 (746)
------------ ------------ ------------
Comprehensive income applicable to common
stockholders .......................................... $ 16,331 $ 12,214 $ 10,041
============ ============ ============
Earnings Per Common Share:
Income before extraordinary loss:
Basic .............................................. $ 1.14 $ 1.00 $ 0.83
Diluted ............................................ $ 1.12 $ 0.96 $ 0.82
Extraordinary loss on extinguishment of debt, net of
Related income tax:
Basic .............................................. $ -- 0.21 --
Diluted ............................................ $ -- 0.20 --
Net income:
Basic .............................................. $ 1.14 $ 0.79 $ 0.83
Diluted ............................................ $ 1.12 $ 0.76 $ 0.82
Dividends Per Common Share: ............................. $ .272 $ .238 $ .179
Average Number of Shares Outstanding:
Basic .............................................. 14,026,070 13,694,925 13,033,855
Diluted ............................................ 14,238,064 14,242,335 13,726,288
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 4
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED UNEARNED
STOCK STOCK CAPITAL EARNINGS COMPENSATION
--------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1995 ............................................ $ 7,564 $ 12,993 $ 31,529 $ 45,000 $(37)
Series B, 6.00% Cumulative Convertible Preferred Stock dividends declared,
$1.50 per share ........................................................... -- -- -- (454) --
Common stock dividends declared, $0.179 per share ......................... -- -- -- (2,452) --
Conversion of $602,000 in 8.25% Convertible Debentures into 82,891 shares of
Common Stock ........................................................... -- 83 508 (2) --
Common stock issued for exercise of stock options -- 111,600 shares ....... -- 112 183 (25) --
Common stock issued as unearned compensation .............................. -- 3 22 -- (25)
Amortization of unearned compensation ..................................... -- -- -- -- 18
Dividends paid for fractional shares in three-for-two stock split effective
October 1, 1996 ......................................................... -- -- -- (2) --
Net change in other comprehensive income, net of taxes..................... -- -- -- -- --
Adjustment for difference in year ends relating to Middle Georgia Bank
Pooling ................................................................. -- -- -- (235) --
Statutory capital reclassification relating to Vidalia Bankshares Inc. .... -- -- 395 (395) --
Net income ................................................................ -- -- -- 11,241 --
------- -------- -------- -------- ----
Balances at September 30, 1996 ............................................ 7,564 13,191 32,637 52,676 $(44)
Series B, 6.00% Cumulative Convertible Preferred stock dividends declared,
$0.75 per share ......................................................... -- -- -- (113) --
Common stock dividends declared, $0.238 per share ......................... -- -- -- (3,363) --
Conversion of 301,171 shares of Series B, 6.00% Cumulative Convertible
Preferred stock into 805,830 shares of Common stock, and 1,409 shares
redeemed for $27.00 per share ........................................... (7,564) 806 6,719 -- --
Conversion of $30,000 in 8.25% Convertible Debentures into 4,131 shares of
Common stock ............................................................ -- 4 26 -- --
Common stock issued for exercise of stock options -- 144,905 shares ....... -- 144 538 -- --
Common stock issued as unearned compensation .............................. -- 3 22 -- (25)
Amortization of unearned compensation ..................................... -- -- -- -- 22
Shares cancelled .......................................................... -- (3) (5) -- --
Nonqualified stock options exercised ...................................... -- -- 60 -- --
Net change in other comprehensive income, net of taxes .................... -- -- -- -- --
Acquisition of treasury stock ............................................. -- -- -- -- --
Adjustment for difference in year ends relating to Southland Bank
Corporation Pooling ..................................................... -- -- -- (325) --
Retirement of treasury shares ............................................. -- -- -- -- --
Net income ................................................................ -- -- -- 10,919 --
------- -------- -------- -------- ----
Balances at September 30, 1997 ............................................ -- 14,145 39,997 59,794 $(47)
Common stock dividends declared, $0.272 per share ......................... -- -- -- (3,758) --
Common stock issued for exercise of stock options -- 104,575 shares ....... -- 105 449 -- --
Common stock issued ....................................................... -- 115 (66) -- --
Shares cancelled .......................................................... -- (23) (11) 11 --
Dividends paid for fractional shares in three-for-two stock split effected
April 1998 .............................................................. -- -- -- (10) --
Cancellation of treasury stock resulting from SBC pooling ................. -- (115) -- (1,046) --
Amortization of unearned compensation ..................................... -- -- -- -- 47
Net change in other comprehensive income, net of taxes .................... -- -- -- -- --
Statutory capital reclassification relating to Vidalia Bankshares, Inc. ... -- -- 700 (700) --
Adjustment for difference in year ends relating to Vidalia Bankshares, Inc.
Pooling ................................................................. -- -- -- (84) --
Net income ................................................................ -- -- -- 15,957 --
------- -------- -------- -------- ----
Balances at September 30, 1998 ............................................ $ -- $ 14,227 $ 41,069 $ 70,164 $ --
======= ======== ======== ======== ====
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE TREASURY SHAREHOLDERS'
INCOME STOCK EQUITY
------- ------- ---------
<S> <C> <C> <C>
Balances at September 30, 1995 ............................................ $ 588 $ (521) $ 97,116
Series B, 6.00% Cumulative Convertible Preferred Stock dividends declared,
$1.50 per share ......................................................... -- -- (454)
Common stock dividends declared, $0.179 per share ......................... -- -- (2,452)
Conversion of $602,000 in 8.25% Convertible Debentures into 82,891 shares
of Common Stock ......................................................... -- -- 589
Common stock issued for exercise of stock options -- 111,600 shares ....... -- -- 270
Common stock issued as unearned compensation .............................. -- -- --
Amortization of unearned compensation ..................................... -- -- 18
Dividends paid for fractional shares in three-for-two stock split
effective October 1, 1996 ............................................... -- -- (2)
Net change in other comprehensive income, net of taxes .................... (746) -- (746)
Adjustment for difference in year ends relating to Middle Georgia Bank
Pooling ................................................................. -- -- (235)
Statutory capital reclassification relating to Vidalia Bankshares Inc. .... -- -- --
Net income ................................................................ -- -- 11,241
------- ------- ---------
Balances at September 30, 1996 ............................................ (158) (521) 105,345
Series B, 6.00% Cumulative Convertible Preferred stock dividends declared,
$0.75 per share ......................................................... -- -- (113)
Common stock dividends declared, $0.238 per share ......................... -- -- (3,363)
Conversion of 301,171 shares of Series B, 6.00% Cumulative Convertible
Preferred stock into 805,830 shares of Common stock, and 1,409 shares
redeemed for $27.00 per share ........................................... -- -- (39)
Conversion of $30,000 in 8.25% Convertible Debentures into 4,131 shares of
Common stock ............................................................ -- -- 30
Common stock issued for exercise of stock options -- 144,905 shares ....... -- -- 682
Common stock issued as unearned compensation .............................. -- -- --
Amortization of unearned compensation ..................................... -- -- 22
Shares cancelled .......................................................... -- -- (8)
Nonqualified stock options exercised ...................................... -- -- 60
Net change in other comprehensive income, net of taxes .................... 1,408 -- 1,408
Acquisition of treasury stock ............................................. -- (1,073) (1,073)
Adjustment for difference in year ends relating to Southland Bank
Corporation Pooling ..................................................... -- -- (325)
Retirement of treasury shares ............................................. -- 164 164
Net income ................................................................ -- -- 10,919
------- ------- ---------
Balances at September 30, 1997 ............................................ 1,250 (1,430) 113,709
Common stock dividends declared, $0.272 per share ......................... -- -- (3,758)
Common stock issued for exercise of stock options -- 104,575 shares ....... -- -- 554
Common stock issued ....................................................... -- -- 49
Shares cancelled .......................................................... -- -- (23)
Dividends paid for fractional shares in three-for-two stock split
effected April 1998 ..................................................... -- -- (10)
Cancellation of treasury stock resulting from SBC pooling ................. -- 1,161 --
Amortization of unearned compensation ..................................... -- -- 47
Net change in other comprehensive income, net of taxes .................... 374 -- 374
Statutory capital reclassification relating to Vidalia Bankshares, Inc. ... -- -- --
Adjustment for difference in year ends relating to Vidalia Bankshares, Inc.
Pooling ................................................................. -- -- (84)
Net income ................................................................ -- -- 15,957
------- ------- ---------
Balances at September 30, 1998 ............................................ $ 1,624 $ (269) $ 126,815
======= ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 5
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Cash flows from operating activities:
Net income ........................................................ $ 15,957 $ 10,919 $ 11,241
--------- --------- ---------
Loss on extinguishment of debt .................................... -- 4,324 --
--------- --------- ---------
Adjustments to reconcile net income to cash used in operations:
Depreciation .................................................... 2,531 2,268 2,386
Deferred income tax benefit ..................................... (850) (1,289) (2,041)
Amortization of loan fees, net .................................. 572 152 113
Provision for estimated losses on loans, real estate and
mortgage servicing Rights ...................................... 7,413 8,271 4,053
Amortization of intangibles ..................................... 1,278 1,280 1,285
Dividends received on stock ..................................... -- (241) (272)
Gain on sales of loans and securities ........................... (5,152) (2,238) (1,804)
Loans available-for-sale:
Disbursements ................................................. (744,086) (100,988) (140,618)
Purchases ..................................................... (4,206) (172,097) (228,087)
Sales ......................................................... 724,916 271,954 365,341
Repayments .................................................... 974 372 600
(Increase) decrease in accrued interest receivable .............. (693) 3 (1,279)
Increase (decrease) in accrued interest payable ................. 781 58 28
Other, net ...................................................... (12,597) (9,235) (4,419)
--------- --------- ---------
Total adjustments ............................................. (29,119) (1,730) (4,714)
--------- --------- ---------
Net cash (used in) provided by operating activities ............... (13,162) 13,513 6,527
--------- --------- ---------
Investing Activities:
Cash flows from investing activities:
Net decrease (increase) in fed funds sold and repurchase
agreements ...................................................... 19,835 16,933 (8,929)
Investment securities available-for-sale:
Purchases ....................................................... (195,483) (144,633) (112,932)
Sales ........................................................... 8,773 20,021 29,826
Maturities ...................................................... 31,056 44,973 19,121
Principal repayments ............................................ 123,884 56,494 37,652
Net increase in loans ............................................. (9,893) (99,383) (120,668)
Cash paid to acquire certain assets, including intangible assets... (9,395) -- --
Purchases of premises and equipment ............................... (3,790) (4,867) (2,387)
Proceeds from sales of real estate ................................ 2,535 1,146 4,023
Net (increase) decrease in advances to attorneys for loans
originated ...................................................... (33,136) (6,377) 1,491
Other net ......................................................... (1,444) 3,747 (30)
--------- --------- ---------
Net cash used in investing activities ............................. (67,058) (111,946) (152,833)
--------- --------- ---------
Financing Activities:
Cash flows from financing activities:
Net increase (decrease) in deposits ............................... 33,240 102,672 52,353
Notes payable & other borrowed money:
Proceeds ........................................................ 496,711 373,946 608,358
Repayments ...................................................... (450,152) (358,338) (513,521)
Net increase in securities sold under agreements to repurchase .... 692 3,171 12,329
Net increase (decrease) in checks payable on loans originated ..... 1,382 (2,741) (2,669)
Acquisition of treasury stock ..................................... -- (1,073) --
Redemption of subordinated debentures ............................. -- (16,707) --
Redemption of preferred stock ..................................... -- (38) --
Issuance of common stock .......................................... 568 838 270
Dividends paid on stock ........................................... (2,751) (3,342) (2,851)
--------- --------- ---------
Net cash provided by financing activities ............................. 79,690 98,388 154,269
--------- --------- ---------
Net (decrease) increase in cash and due from banks .................... (530) (45) 7,963
Cash and due from banks beginning of period ....................... 42,233 42,278 34,315
--------- --------- ---------
Cash and due from banks end of period ............................. $ 41,703 $ 42,233 $ 42,278
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest .......................................................... $ 57,280 $ 59,573 $ 51,342
Income taxes ...................................................... 4,745 7,247 6,855
Noncash Investing and Financing Activities:
Mortgage loans securitized into mortgage-backed securities ........ $ 13,427 $ -- $ --
Real estate foreclosed ............................................ 3,766 1,989 2,681
Financing of sales of foreclosed real estate ...................... 2,067 733 350
Dividends declared but not paid on preferred stock ................ -- -- 114
Dividends declared but not paid on common stock ................... 1,025 772 524
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 6
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
First Liberty Financial Corp. ("First Liberty") is a savings and loan
holding company which owns and operates First Liberty Bank ("Liberty Bank") and
First Community Bank of Vidalia ("First Community") and Liberty Bank's
wholly-owned subsidiaries, Liberty Mortgage Corporation ("Liberty Mortgage"),
NewSouth Financial Services, Inc. ("NewSouth") and OFC Capital Corporation ("OFC
Capital"). Liberty Bank operates as a system of community banks throughout
Georgia. Liberty Mortgage originates first mortgage loans throughout Georgia and
the southeastern states. NewSouth originates consumer finance products in
offices throughout Georgia. OFC Capital originates commercial leases on a
nationwide basis.
BASIS OF PRESENTATION
The supplemental financial statements give retroactive effect to the merger of
First Liberty Financial Corp. and Vidalia Bankshares, Inc. on April 1, 1999,
which has been accounted for as a pooling of interests as described in notes 1
and 3 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of First Liberty
Financial Corp. after financial statements covering the date of consummation of
the business combination are issued.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First
Liberty and its wholly-owned subsidiaries, Liberty Bank, Liberty Mortgage,
NewSouth, OFC Capital, and First Community (collectively known as "the
Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation. Prior period financial statements have been
restated to include the accounts of companies acquired in material transactions
accounted for as poolings of interests.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents are defined as those amounts included in the
statement of financial condition caption "Cash and Due From Banks."
DEBT AND EQUITY SECURITIES
Held-to-maturity securities are debt and equity securities that the
Company has the positive intent and ability to hold to maturity.
Held-to-maturity securities are reported at amortized cost, adjusted for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings.
Debt and equity securities that are not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale and represent those securities intended to be held for an
indefinite period of time, including securities that management intends to use
as part of its asset/liability strategy, or that may be sold in response to
interest rates, change in prepayment risk, the need to increase regulatory
capital or other similar factors. Available-for-sale securities are reported at
fair value, with unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity until realized. This amount is
reported net of income taxes. Federal Home Loan Bank of Atlanta stock is carried
at cost. As of September 30, 1998 and 1997, the Company's entire portfolio of
debt and equity securities was classified as available-for-sale.
Gains or losses on sales of securities are determined based upon the
specific identification method.
LOANS AVAILABLE-FOR-SALE
Loans available-for-sale are stated at the lower of cost or estimated
aggregate market value and gains and losses on sales of first mortgage loans are
recognized at the time of sale. Gains and losses are determined as the
difference between the net sales proceeds (including fees paid to the Company to
release servicing rights) and the book value of the loans or securities sold, as
adjusted by the estimated present value associated with excess or deficient
servicing fees. The present value of excess and deficient servicing fees is
amortized on the level-yield method over the estimated lives of the related
loans.
10
<PAGE> 7
LOANS
Loans are generally recorded at the contractual amounts owed by
borrowers, less unearned discounts, deferred origination fees, the undisbursed
portion of any loans in process, and the allowance for loan losses. Interest on
loans is credited to income as earned to the extent it is deemed collectible.
Discounts on loans purchased are accreted into interest income using the
level-yield method over the contractual lives of the loans, adjusted for actual
prepayments.
Loans which are delinquent 90 days (four payments) or over generally
are placed on non-accrual status unless the collectibility of principal and
accrued interest is assured beyond a reasonable doubt. In some cases, loans less
than 90 days (four payments) delinquent are placed on non-accrual where material
uncertainty exists as to their collectibility. When loans are placed on
non-accrual, all previously accrued interest is charged against interest income
and further accruals are discontinued, unless a part of the previously accrued
interest is considered collectible beyond a reasonable doubt. In such cases, the
amount of accrued interest considered collectible is not charged off.
ALLOWANCE FOR ESTIMATED LOAN LOSSES
The Company considers a loan to be impaired based on current
information and events if it is probable that the Company will be unable to
collect the scheduled payments of principal and interest when due according to
the contractual terms of the loan agreement.
The Company uses several factors in determining if a loan is impaired.
Quarterly asset classification procedures generally include a review of
significant loans and lending data, including loan payment status and borrowers'
financial data and operation factors, such as cash flows and operating income or
loss. The measurement of impaired loans is generally based on the present value
of expected future cash flows discounted at the historical effective interest
rate of the loan, except that collateral dependent loans are measured for
impairment at the fair value of the collateral.
The allowance for estimated loan losses is established and maintained
through a periodic review and evaluation of various factors which affect the
loans' collectibility and results in provisions for loan losses which are
charged to expense. Numerous factors are considered in the evaluation including:
(1) a review of certain borrowers' current financial status, credit standing,
and available collateral; (2) historical loan loss experience in relation to
outstanding loans; (3) the diversification and size of the loan portfolio; (4)
the results of the most recent regulatory examinations available to the Company;
(5) the overall loan portfolio quality; (6) management's judgement regarding
prevailing and anticipated economic conditions; and (7) other relevant factors.
MORTGAGE SERVICING RIGHTS
The Company recognizes originated and purchased mortgage servicing
rights ("MSRs") as assets by allocating total costs incurred between the loan
and the servicing rights retained based on their relative fair value.
Amortization of MSRs is based on the ratio of net servicing income received in
the current period to total net servicing income projected to be realized from
the MSRs. Projected net servicing income is in turn determined on the basis of
the estimated future balance of the underlying mortgage loan portfolio, which
declines over time from prepayments and scheduled loan amortization. The Company
estimates future prepayment rates based on current interest rate levels, other
economic conditions and market forecasts, as well as relevant characteristics of
the servicing portfolio, such as loan types, interest rate stratification and
recent prepayment experience.
The Company evaluates all MSRs for impairment based on the excess of
the carrying amount of the MSRs over their fair value. Fair values of servicing
rights are determined by estimating the present value of future net servicing
income considering the average interest rate and the average remaining lives of
the related loans being serviced. Periodically, the Company uses an independent
party to evaluate the present values of its portfolio of mortgage servicing.
This evaluation is principally determined using discounted cash flows of
disaggregated groups of mortgage servicing rights.
LOAN FEES AND ORIGINATION COSTS
Loan origination fees, commitment fees, and certain direct loan
origination costs are deferred and recognized over the lives of the related
loans as an adjustment of the loans' yields using the level-yield method.
Calculation of the level-yield is based upon weighted average contractual
payment terms which are adjusted for actual prepayments.
11
<PAGE> 8
FINANCIAL OPTIONS AND COMMITMENTS TRANSACTIONS
Fees paid to purchase rights to sell loans at future dates at specified
prices ("options") and commitment fees paid to secure markets to sell first
mortgage loans are deferred and amortized over the term of the commitment. Upon
determination that commitments will not be utilized, the related fees are
charged to expense.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into sales of securities under agreements to
repurchase identical or substantially similar securities in the future
("repurchase agreements"). Obligations under repurchase agreements are reflected
as liabilities and securities sold continue to be reflected as assets in the
financial statements. All repurchase agreements mature within one year. The
Company's policy for requiring collateral for repurchase agreements states that
borrowings will be limited by available collateral and that the Company will
only transact with Brokers/Dealers authorized by the borrowed funds policy
within established credit exposure guidelines.
PREMISES AND EQUIPMENT
Premises and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets (33 to 40 years for buildings and 3
to 10 years for equipment). Expenditures for maintenance and repairs are charged
against earnings as incurred. Costs of major additions and improvements are
capitalized. Upon disposition or retirement of property, the cost and the
related accumulated depreciation are removed from the accounts. Any resulting
gain or loss is reflected in current income.
REAL ESTATE
Real estate is carried at the lower of fair value less estimated
selling costs or cost. Any write-down from the cost to fair value required at
the time of foreclosure is charged to the allowance for estimated loan losses.
Subsequent write-downs and gains or losses recognized on the sale of real estate
are included in non-interest income or expense.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization and
are amortized over periods ranging from 5 to 25 years on the straight-line
basis. The recoverability of the intangible assets are reviewed periodically to
determine if adjustments to carrying value or amortization periods are
necessary. Accumulated amortization as of September 30, 1998 and 1997 was $7.5
million and $6.3 million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value. These fair values are provided for disclosure purposes
only, and do not impact carrying values of financial statement amounts.
Cash, Due From Banks and Federal Funds Sold and Repurchase Agreements.
The carrying amount reported in the balance sheet for cash, due from banks and
federal funds sold approximates those assets' fair values.
Investment Securities (Including Mortgage-backed Securities). Fair
values for investment securities are based on quoted market prices where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans Receivable. For variable-rate loans held-for-investment, fair
values are based on carrying values. The fair values for loans
available-for-sale are based on quoted market prices of similar loans sold
including the value of servicing rights. The fair values for all other loans are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality.
Mortgage Servicing Rights and Excess Servicing Fees. The fair value is
estimated by discounting estimated future cash flows from servicing fees using
discount rates that approximate current market rates.
Deposit Liabilities. The fair values disclosed for deposits (i.e.,
interest and non-interest checking, regular savings, and money market accounts)
are equal to the amount payable on demand at the reporting date. Fair values for
fixed-rate certificates are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated monthly maturities on time deposits.
12
<PAGE> 9
Short-term Borrowings. The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-term Borrowings. The fair values of the Company's long-term
borrowings (other than deposits) are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for similar
types of borrowing agreements.
Off-balance-sheet Instruments. Liberty Bank has commitments to extend
standby letters of credit and to purchase and sell loans and mortgage-backed
securities. These types of credit are made at market rates; therefore, there
would be no market risk associated with these credits which would create a
significant fair value liability.
Liberty Mortgage has commitments to originate loans for borrowers as
well as commitments to sell loans to investors. The fair value of commitments to
originate loans, on which a rate commitment has been made, is based on current
market value. On commitments to originate loans, where no rate commitments have
been made, fair value equals carrying amount. The fair value of mandatory
commitments to sell loans is based on current market values. The fair value of
optional commitments to sell loans is based on carrying value. The carrying
value of optional commitments to sell loans equals the net notional amount of
optional commitments to sell and of optional commitments to buy loans or
mortgage-backed securities.
STOCK-BASED COMPENSATION
Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation".
SFAS No. 123 establishes a fair value based method of accounting for stock-based
compensation. SFAS No. 123 allows for the continued use of the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company continues to account for stock-based
compensation under the provisions of Opinion No. 25.
ADVERTISING
Advertising costs are expensed as incurred.
INCOME TAXES
The Company follows the liability method of accounting for income
taxes. Deferred tax balances are regularly adjusted through the consolidated
statements of income to reflect current estimates of future taxes payable or
refundable. First Liberty files a consolidated income tax return; however,
income taxes are computed by each subsidiary on a separate basis, and taxes
currently payable are remitted to First Liberty.
13
<PAGE> 10
EARNINGS PER COMMON SHARE
In December 1997, the Company adopted 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 average market price for the period 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 1997 and 1996 have been restated to reflect the adoption of
SFAS No. 128.
SWAP AGREEMENT
The Company utilizes a swap agreement for interest rate risk management
purposes. Net interest income (expense) resulting from the differential between
exchanging fixed and floating-rate interest payments is recorded on a current
basis. If the swaps were to be terminated or sold, the gain or loss would be
deferred and amortized into interest income or expense over the remaining
maturity period of the borrowings that are being hedged. (See Note 17 for
additional information.)
RECLASSIFICATIONS AND RESTATEMENTS
Certain reclassifications have been made to the 1997 and 1996
consolidated financial statements to conform to the 1998 presentation.
All references to number 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 effective on April 27,
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The purpose of reporting comprehensive income is to present a
measure of all changes in equity that result from recognized transactions and
other economic events of the period other than investments by owners and
distributions to owners. The FASB believes that SFAS No. 130 should help
investors, creditors and others in assessing a company's activities and the
timing and magnitude of its future cash flows. For the Company, the primary
difference between net income and comprehensive income is the change in
unrealized gains and losses on securities available-for-sale.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosure about
Segments of an Enterprise and Related Information" which establishes new
standards for public companies to report information about operating segments in
annual financial statements and also requires that those companies report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for financial statements for the fiscal year beginning October 1,
1998.
14
<PAGE> 11
In February 1998, the FASB issued 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. SFAS No. 132 is effective for the fiscal year beginning October 1, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and then in July 1999, issued SFAS No. 137,
which delayed the effective date of SFAS No. 133 for one year. Thus, SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (October 1, 2000 for the Company). SFAS No. 133 requires all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Due to the present limited use of derivative instruments,
Management anticipates the adoption of SFAS No. 133 will not have a significant
impact on the Company's results of operations or its financial position.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". SFAS No. 134 is effective for
the first fiscal quarter beginning after December 15, 1998 (January 1, 1999 for
the Company). SFAS No. 134 amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities", to require that after the securitization of mortgage loans
held-for-sale, an entity that engages in mortgage banking activities classify
the resulting mortgage-backed securities or other retained interests based on
its ability and intent to sell or hold those investments.
15
<PAGE> 12
2. EARNINGS PER SHARE
The following tables provide a reconciliation of the numerators and
denominators used in calculating basic and diluted earnings per share for the
years ended September 30, 1998, 1997 and 1996 (dollars and shares in thousands).
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
1998 EARNINGS PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Basic:
Net income applicable to common stockholders........ $ 15,957 14,026 $ 1.14
======
Effect of Dilutive Securities:
Options.......................................... 212
-------- ------
Diluted:
Net income applicable to common stockholders plus
assumed conversions............................. $ 15,957 14,238 $ 1.12
======== ====== ======
<CAPTION>
INCOME SHARES PER-SHARE
1997 EARNINGS PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Income before extraordinary item...................... $ 13,730
Less preferred stock dividend......................... 113
--------
Basic:
Income applicable to common stockholders before
extraordinary item............................... 13,617 13,695 $ 1.00
======
Effect of Dilutive Securities:
Convertible preferred stock......................... 113 351
Options............................................. 196
-------- ------
Diluted:
Income applicable to common stockholders before
extraordinary item plus assumed conversions...... $ 13,730 14,242 $ .96
======== ====== ======
<CAPTION>
INCOME SHARES PER-SHARE
1996 EARNINGS PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Net income ........................................... $ 11,241
Less preferred stock dividend......................... 454
--------
Basic:
Net income applicable to common stockholders........ 10,787 13,034 $ .83
======
Effect of Dilutive Securities:
Convertible preferred stock......................... 454 541
Convertible debentures.............................. 30 59
Options............................................. 93
-------- ------
Diluted:
Net income applicable to common stockholders
plus assumed conversions........................... $ 11,271 13,727 $ .82
======== ======= ======
</TABLE>
3. ACQUISITIONS AND MERGERS
In August 1998, First Liberty acquired OFC Capital Corporation ("OFC
Capital"), a commercial leasing company. This acquisition did not have a
significant impact on the Company's results of operations or its financial
condition. Management anticipates a growing contribution by OFC Capital towards
the results of operations of the Company.
In June 1998, the Company acquired by merger Southland Bank Corporation
of Georgia ("SBC"). On the date of acquisition, SBC held the following
approximate balances: loans of $94 million, cash and investments of $44 million,
premises and equipment of $3 million and deposits of $123 million. This
acquisition has been accounted for utilizing the pooling-of-interests method of
accounting.
The following table reflects key line items on a historical basis for
FLFC and Vidalia Bankshares, Inc. and on a pro forma combined basis assuming the
merger was effective as of and for the periods presented.
16
<PAGE> 13
<TABLE>
<CAPTION>
HISTORICAL BASIS
----------------
VIDALIA FLFC
------- ----
FLFC BANKSHARES, INC. RESTATED
---- ---------------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF/FOR THE YEAR ENDED SEPTEMBER 30, 1998
- -------------------------------------------
<S> <C> <C> <C>
Net interest income..................................................... $ 53,633 $ 2,554 $ 56,187
Net income.............................................................. 15,457 500 15,957
Net earnings per share
Basic.............................................................. 1.16 3.00 1.14
Diluted............................................................ 1.14 3.00 1.12
Assets.................................................................. 1,503,268 64,839 1,568,107
Deposits................................................................ 1,093,423 59,418 1,152,841
Shareholders' equity.................................................... 122,204 4,695 126,815
AS OF/FOR THE YEAR ENDED SEPTEMBER 30, 1997
- -------------------------------------------
Net interest income..................................................... $ 50,464 $ 2,221 $ 52,685
Net income.............................................................. 10,287 632 10,919
Net earnings per share
Basic.............................................................. 0.78 3.84 0.79
Diluted............................................................ 0.75 3.84 0.76
Assets.................................................................. 1,418,095 56,584 1,474,679
Deposits................................................................ 1,068,487 51,113 1,119,600
Shareholders' equity.................................................... 109,514 4,195 113,709
</TABLE>
4. SECURITIES AVAILABLE-FOR-SALE
Investment and mortgage-backed securities available-for-sale are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
INVESTMENT SECURITIES:
U.S. government agencies......................... $ 35,386 $ 67,477
Investment grade corporate equity securities 98 353
FHLB of Atlanta stock............................ 12,342 10,492
State, county and municipal...................... 9,387 13,392
Certificates of deposit.......................... -- 900
Other............................................ 836 1,230
MORTGAGE-BACKED SECURITIES:
FNMA, FHLMC, and GNMA securities................. 225,595 186,646
Nonagency issuer securities...................... 60,490 17,611
--------- ---------
$ 344,134 $ 298,101
========= =========
</TABLE>
Mortgage-backed securities at September 30, 1998 and 1997 included $185
million and $132 million, respectively, of investments in collateralized
mortgage obligations.
At September 30, 1998 and 1997, all mortgage-backed securities were
available-for-sale. Adjustable rate pass-through securities are subject to
interest rate adjustments indexed to the one year or three year constant
maturity treasury, the one to six month London Inter-Bank Offered Rate
("LIBOR"), or the FHLB 11th District Cost of Funds Index.
At September 30, 1998, the Company had no open futures contracts or
option contracts as interest rate hedges related to investment or
mortgage-backed securities.
The amortized cost and estimated market value of all investments in
debt and equity securities are summarized as follows (dollars in thousands):
17
<PAGE> 14
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
AT SEPTEMBER 30, 1998 COST GAINS LOSSES VALUE
--------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government agencies............ $ 35,143 $ 255 $ (12) $ 35,386
Investment grade corporate equity
securities........................ 98 -- -- 98
FHLB of Atlanta stock............... 12,342 -- -- 12,342
State, county and municipal......... 9,379 31 (23) 9,387
Other............................... 887 -- (51) 836
Mortgage-backed securities 283,785 2,436 (136) 286,085
-------- ------- ----- --------
$341,634 $ 2,722 $(222) $344,134
======== ======= ===== ========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
AT SEPTEMBER 30, 1997 COST GAINS LOSSES VALUE
--------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government agencies............ $ 67,269 $ 250 $ (42) $ 67,477
Investment grade corporate equity
securities........................ 383 -- (30) 353
FHLB of Atlanta stock............... 10,492 -- -- 10,492
State, county and municipal......... 13,368 32 (8) 13,392
Certificates of deposit............. 891 9 -- 900
Other............................... 1,223 8 (1) 1,230
Mortgage-backed securities.......... 202,548 1,921 (212) 204,257
-------- ------- ----- --------
$296,174 $ 2,220 $(293) $298,101
======== ======= ===== ========
</TABLE>
The change to stockholders' equity for the net unrealized gain or loss
on debt and equity securities during fiscal 1998 was a net gain of $1.6 million
(net of related taxes of $872,000) and a net gain of $1.2 million (net of
related tax benefit of $672,000) during fiscal 1997.
The amortized cost and estimated market value of debt and equity
securities at September 30, 1998, by contractual maturity, are shown below.
Expected maturity will differ from contractual maturities because borrowers may
have the right to prepay obligations with or without call or prepayment
penalties (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less................................ $ 11,104 $ 7,121
Due after one year through five years.................. 32,894 37,084
Due after five years through ten years................. 1,411 1,404
Due after ten years.................................... -- --
-------- --------
45,409 45,609
FHLB of Atlanta stock.................................. 12,342 12,342
Mortgage-backed securities............................. 283,785 286,085
Other and equity securities............................ 98 98
-------- --------
$341,634 $344,134
======== ========
</TABLE>
Proceeds, gross realized gains and losses on the sale of debt and
equity securities for the three years ended September 30, 1998 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Proceeds.................................... $ 8,773 $20,021 $29,826
Gross realized gains........................ 268 165 209
Gross realized losses....................... 6 33 170
</TABLE>
18
<PAGE> 15
5. LOANS AVAILABLE-FOR-SALE AND MORTGAGE BANKING OPERATIONS
Loans originated for sale to the secondary market, principally
residential first mortgage loans, are typically sold within ninety days of
origination. Liberty Mortgage had open commitments to originate or purchase
residential mortgage loans of approximately $328 million, including $14 million
to be held in Liberty Bank's portfolio and $93 million on which the interest
rate had not been locked-in at September 30, 1998. Commitments to sell
residential mortgage loans and mortgage-backed securities for mandatory delivery
were approximately $190 million at September 30, 1998. Also, at September 30,
1998, the Company bought $8 million of optional commitments to sell residential
mortgage loans. The Company had no open futures contracts as interest rate
hedges related to loans available-for-sale or commitments to originate
residential mortgage loans at September 30, 1998.
The following summarizes the principal balance of whole loans and
participations which the Company was servicing for its portfolio and investors
(dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Loans serviced for investors....................... $ 1,159,701 $ 726,054 $ 788,624
Loans sub-serviced for others...................... -- 132,348 2,324
Loans serviced for Liberty Bank's portfolio........ 164,359 191,876 210,003
----------- ----------- -----------
Total loans serviced............................... $ 1,324,060 $ 1,050,278 $ 1,000,951
=========== =========== ===========
Number of loans serviced........................... 14,832 13,958 13,873
=========== =========== ===========
</TABLE>
In connection with loans serviced, there were no off-balance sheet
escrow accounts.
Changes in the amounts capitalized in connection with mortgage
servicing rights are as follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year................... $ 6,571 $ 6,132 $ 2,076
Capitalized................................ 11,015 3,480 4,812
Sold....................................... (1,118) (1,671) (46)
Amortization............................... (1,445) (1,370) (710)
Impairment................................. (1,201) -- --
-------- -------- --------
Balance, end of year......................... $ 13,822 $ 6,571 $ 6,132
======== ======== ========
</TABLE>
The following table summarizes the Company's financial data with
respect to its mortgage banking operations (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Total revenues.................................. $10,776 $ 7,071 $ 7,743
Total expenses.................................. 7,716 5,685 5,212
------- ------- -------
Income before income taxes...................... $ 3,060 $ 1,386 $ 2,531
======= ======= =======
Total assets.................................... $45,577 $17,268 $19,410
======= ======= =======
Depreciation expense............................ $ 102 $ 188 $ 215
======= ======= =======
Capital expenditures for office premises and
equipment.......................................$ 196 $ 175 $ 146
======= ======= =======
</TABLE>
6. LOANS
Loans are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Loans collateralized by real estate:
Residential first mortgage................ $ 121,538 $ 171,919
Commercial first mortgage................. 40,382 83,815
Consumer mortgage(1)...................... 151,495 102,653
Construction loans:
Residential real estate................... 110,119 103,331
Commercial real estate.................... 35,355 31,432
Commercial business......................... 372,666 296,639
Consumer -- indirect auto loans............. 99,036 171,990
Consumer -- other loans..................... 72,871 52,124
---------- ----------
1,003,462 $1,013,903
Allowance for estimated losses.............. (17,161) (14,800)
---------- ----------
$ 986,301 $ 999,103
========== ==========
</TABLE>
- ----------
(1) Loans collateralized by the equity in the borrower's residence.
19
<PAGE> 16
The above balances exclude undisbursed loan commitments representing
loans in process and unused lines of credit amounting to approximately $177
million and $132 million at September 30, 1998 and 1997, respectively.
Liberty Bank's loans to one borrower ("LTOB") limitation is 15% of
unimpaired capital and surplus (as defined by the Office of Comptroller of the
Currency) unless the loans are collateralized by readily marketable assets, in
which case the limitation is 25%. For loans in excess of this limitation,
Liberty Bank is restricted from extending additional credit and options to renew
such credits are limited. Liberty Bank's limitation at September 30, 1998 was
approximately $18.9 million based on the 15% limitation and $31.5 million based
on the 25% limitation. At September 30, 1998, Liberty Bank had no relationships
in excess of the LTOB limitation.
The Company's exposure to credit loss in the event of non-performance
by the borrower is represented by the outstanding principal balance of the
respective loans plus the amount of undisbursed committed funds, if any. The
Company evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if any, is based on management's credit
evaluation pursuant to the Company's lending and underwriting policy. Collateral
held varies but may include real estate and improvements, inventory, accounts
receivable and equipment or personal property.
The loan portfolio does not contain any material concentrations of
credit risk within any one industry. Most credits are located within Georgia,
the Company's primary market area.
At September 30, 1998 and 1997, the recorded investment in loans for
which impairment had been recognized in accordance with SFAS No. 114 totaled
$10.4 million and $7.0 million, respectively, with a corresponding valuation
allowance of $3.7 million and $2.4 million, respectively. For the periods ended
September 30, 1998 and 1997, the average recorded investment in impaired loans
was approximately $8.6 million and $7.2 million, respectively. Interest income
recognized by the Company on impaired loans, not placed on nonaccrual, (during
the portion of the year that they were impaired) was not significant.
The following table sets forth the interest income that would have been
recorded under the original terms and the actual interest income recorded for
nonaccrual loans for the year ended September 30, 1998 (dollars in thousands).
<TABLE>
<S> <C>
Interest income that would have been recorded under the original terms..... $ 1,122
=======
Interest income recorded................................................... $ 632
=======
</TABLE>
Changes in the allowance for estimated loan losses for the three years
ended September 30 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year......... $ 14,800 $ 11,943 $ 11,071
Provision for estimated losses....... 6,037 7,860 3,543
Adjustment for MGB pooling........... -- -- (43)
Acquisitions (1)..................... 666 -- --
Charge-offs.......................... (5,994) (6,413) (5,240)
Recoveries........................... 1,652 1,410 2,612
-------- -------- --------
Balance end of year.................. $ 17,161 $ 14,800 $ 11,943
======== ======== ========
</TABLE>
- ----------
(1) relates to certain assets acquired during 1998.
20
<PAGE> 17
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
Land........................................ $ 5,038 $ 4,737
Office buildings............................ 28,987 28,160
Furniture, fixtures and equipment........... 22,251 19,460
------- -------
56,276 52,357
Less accumulated depreciation............... 26,450 23,726
------- -------
$29,826 $28,631
======= =======
</TABLE>
Certain office facilities are occupied under operating lease
arrangements with future annual rentals as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,:
-------------------------
<S> <C>
1999...................................... $ 583
2000...................................... 577
2001...................................... 502
2002...................................... 314
2003...................................... 206
Thereafter................................ 525
-------
$ 2,707
=======
</TABLE>
Total rent expense was approximately $681,740, $567,740, and $483,960
for the years ended September 30, 1998, 1997 and 1996, respectively.
8. REAL ESTATE
Investments in real estate are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
------ ------
<S> <C> <C>
Acquired through foreclosure....... $2,896 $3,562
Allowance for estimated losses..... (657) (708)
------ ------
$2,239 $2,854
====== ======
</TABLE>
Sales of real estate owned (gross of gains and losses) during fiscal
1998 and 1997 were $4.6 million and $2.6 million, respectively, of which,
Liberty Bank provided financing for $2.1 million and $733,000 during the same
periods.
Changes in the allowance for estimated losses on real estate for the
years ended September 30 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Acquired through foreclosure:
Balance, beginning of year....... $ 708 $ 543 $ 481
Provision for estimated losses... 175 411 510
Charge-offs, net................. (226) (246) (448)
------ ------ ------
Balance, end of year............. $ 657 $ 708 $ 543
====== ====== ======
Acquired for development:
Balance, beginning of year....... $ -- $ 125 $ 142
Charge-offs, net................. -- (125) (17)
------ ------ ------
Balance, end of year............. $ -- $ -- $ 125
====== ====== ======
</TABLE>
9. DEPOSITS
The Company had brokered deposits totaling $34 million and $17 million
at September 30, 1998 and 1997, respectively. Banking regulations have
established guidelines in order for financial institutions to accept brokered
deposits. Without obtaining a waiver, only well capitalized financial
institutions, as defined, are allowed to accept brokered deposits.
At September 30, 1998 and 1997, the Company had $239 million and $206
million of time deposits of $100,000 or more.
21
<PAGE> 18
The maturities of the Company's time deposits are as follows (in
thousands):
<TABLE>
<S> <C>
1999.......... $588,603
2000.......... 99,681
2001.......... 19,312
2002.......... 14,780
2003.......... --
Thereafter.... --
--------
$722,376
========
</TABLE>
10. NOTES PAYABLE AND OTHER BORROWED MONEY
Notes payable and other borrowed money are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Line of Credit (interest rate of 6.625% and 6.66% at September
30, 1998 and 1997, respectively)............................... $ 500 $ 10,000
Advances from the FHLB of Atlanta:
Short term (interest rates ranging from 5.57% to 7.42% and
5.05% to 6.55% at September 30, 1998 and 1997,
respectively)............................................... 131,530 82,449
Long term (interest rates ranging from 4.99% to 7.65% and 5.51%
to 8.66% at September 30, 1998 and 1997, respectively) 112,315 104,906
Other........................................................... -- 489
-------- --------
$244,345 $197,844
======== ========
</TABLE>
Liberty Bank's unused borrowing capacity with the FHLB of Atlanta at
September 30, 1998 was approximately $52 million in advances and warehouse lines
of credit. Additionally, Liberty Bank has approximately $55 million in fed fund
lines with correspondent banks.
At September 30, 1998, contractual principal maturities of long-term
notes payable and other borrowed money are as follows (dollars in thousands):
<TABLE>
<S> <C>
1999.................... $ --
2000.................... 60,000
2001.................... 50,000
2002.................... --
2003.................... --
2004 and thereafter..... 2,315
--------
$112,315
========
</TABLE>
The following table sets forth the outstanding, maximum month-end and
average balances of short-term FHLB advances and other short-term borrowings and
the associated weighted average interest rates at the dates indicated (dollars
in thousands).
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Outstanding balance, end of period.................... $132,030 $ 92,449 $164,449
Maximum month end balance............................. 215,230 164,449 164,449
Average balance outstanding during the year........... 168,609 96,183 91,298
Weighted average interest rate, end of period......... 5.63% 6.40% 5.50%
Weighted average interest rate, during the period..... 5.71 5.62 5.81
</TABLE>
Advances from the FHLB of Atlanta are collateralized by residential
first mortgage loans and mortgage-backed and government agency securities with
unpaid principal balances aggregating approximately $272 million and $197
million at September 30, 1998 and 1997, respectively. At September 30, 1998,
Liberty Bank was required to collateralize its advances with acceptable
collateral with a lendable collateral value equal to 100% of advances
outstanding. The lendable collateral value of the residential first mortgage
loans and mortgage-backed securities pledged to the advances was 85% and 97% of
their fair market value, respectively.
22
<PAGE> 19
11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Liberty Bank enters into financing arrangements with approved brokers,
dealers and individuals whereby securities are sold under agreements to
repurchase identical or substantially identical securities at a future date
("repurchase agreements"). These arrangements are reflected as financing
transactions in that the securities sold are reported as assets in the
accompanying financial statements with the proceeds of sale reflected as
borrowings. These financing arrangements generally have maturities ranging from
30 to 180 days.
Generally, securities sold under agreements to repurchase are under the control
of the counterparty during the term of the agreement. Selected data concerning
repurchase agreements is presented below (dollars in thousands).
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Mortgage-backed securities sold under agreements
To repurchase at year end:
Book value.................................... $ 42,899 $ 22,103 $ 23,158
Market value.................................. $ 43,739 $ 22,301 $ 23,080
Maximum borrowings under repurchase agreements
For the year:
Identical securities....................... $ 26,988 $ 33,987 $ 32,507
Average borrowings under repurchase agreements
For the year:
Identical securities....................... $ 23,087 $ 28,296 $ 18,406
Weighted average interest rate at year end...... 5.24% 5.56% 4.89%
</TABLE>
12. INCOME TAXES
The Company files a consolidated federal income tax return. Prior to
the Small Business Job Protection Act of 1996, the Company was allowed to
determine its bad debt deductions for tax purposes under either the percentage
of taxable income method (limited to 8 percent of taxable income before such
deduction) or the experience method. For the year ended September 30, 1996,
Liberty Bank determined its bad debt reserve deduction based on the percentage
of taxable income method. For the years ended September 30, 1998 and 1997,
Liberty Bank determined its tax bad debt deduction based on the specific
charge-off method of accounting.
The provision for federal income taxes consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current....... $ 9,805 $ 7,404 $ 7,442
Deferred...... (850) (1,289) (2,041)
------- ------- -------
Total... $ 8,955 $ 6,115 $ 5,401
======= ======= =======
</TABLE>
Actual income taxes (including income tax (benefit) on extraordinary
items) differ from income taxes computed at the federal corporate statutory rate
of 35% as shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate..... 35.0% 35.0% 35.0%
Benefit of graduated tax brackets..... -- (.8) (.5)
State taxes, net of federal benefit... 1.4 1.4 .1
Amortization of intangible assets..... .9 1.9 1.5
Tax exempt interest................... (.5) (2.1) (2.1)
Resolution of tax contingencies....... -- (6.4) --
Other, net............................ (.8) 1.7 (1.5)
---- ---- ----
Effective federal income tax rate..... 36.0% 30.7% 32.5%
==== ==== ====
</TABLE>
The net deferred tax asset is included in other assets in 1998 and 1997
in the consolidated statements of financial condition. Gross deferred tax assets
and deferred tax liabilities as of September 30 are as follows (dollars in
thousands):
23
<PAGE> 20
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred Tax Assets:
Allowance for estimated loan losses.................. $ 5,241 $ 3,880
Deferred loan fees................................... 15 --
Real estate owned loss allowance..................... -- 5
Reserve for uncollected late fees.................... 167 118
Purchase accounting adjustments, net................. 104 137
Other reserves....................................... 255 212
Unrealized loss on securities available-for-sale..... -- 11
Core deposits........................................ 242 160
Benefits............................................. 438 254
Other................................................ 533 498
------- -------
Total deferred tax assets.................... $ 6,995 $ 5,275
------- -------
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred Tax Liabilities:
Section 481 mark-to-market adjustment................ $ -- $ 158
Depreciation......................................... 697 668
Loan swap............................................ -- 87
Loan discounts....................................... 415 390
FHLB stock........................................... 1,459 1,313
Loan origination fees................................ 436 381
Purchase accounting adjustments, net................. 294 399
Unrealized gain on securities available-for-sale..... 436 681
Deferred loan fees................................... 315 57
Benefits............................................. 161 119
Other, net........................................... 205 284
------- -------
Total deferred tax liabilities............... 4,418 4,537
------- -------
Total net deferred tax asset................. $ 2,577 $ 738
======= =======
</TABLE>
The Company's management has determined that it is more likely than not
that its net deferred tax asset 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 September 30, 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.
Earnings appropriated to bad debt reserves established for income tax
purposes cannot be used for any purpose other than to absorb bad debt losses
without recognition of taxable income. Dividends may be paid out of
unappropriated retained earnings without the imposition of any tax to the extent
that the amounts paid as dividends do not exceed earnings and profits as
calculated for federal income tax purposes.
Under SFAS No. 109, "Accounting for Income Taxes," a deferred tax
liability is not recognized with respect to thrift institutions for the bad debt
reserve for tax purposes that arose in tax years beginning before December 31,
1987 ("Base-Year Reserve"), unless it becomes apparent that this temporary
difference will reverse in the foreseeable future. Future reversal of the
Base-Year Reserve would occur if the Company ceases to be in the banking
business. At September 30, 1998, the Company's Base-Year Reserve for which no
deferred tax liability is recognized is approximately $12.0 million. The amount
of the unrecognized deferred tax liability related to this temporary difference
is $4.2 million.
The Company and other financial institutions in Georgia are subject to
the same taxes, state and local, as any other corporation in Georgia. The
Georgia corporate income tax rate is 6 percent and is based on federal taxable
income, with certain adjustments. The primary difference between taxable income
for state and federal income tax purposes is interest income on United States
government obligations, which is not taxable for state income tax purposes.
13. PREFERRED STOCK
In March 1997, the Company redeemed 1,409 shares of its Series B 6.00%
Cumulative Convertible Preferred ("Series B") stock for $38,043 plus accrued and
unpaid dividends. The remaining 301,171 shares of the Series B were converted
into 805,830 shares of the Company's common stock, at a conversion price of
$9.33 per share, or 2.69 shares of common stock.
The Series B stock had a liquidation preference of $25.00 per share.
Dividends on the Series B stock were cumulative at an annual rate of $1.50 per
share and were payable quarterly. Each share of the Series B stock was
convertible at the option of the holder into 2.69 shares of common stock, at a
conversion price of $9.33.
24
<PAGE> 21
Dividends declared during 1997 and 1996 were $113,000 and $454,000,
respectively. Dividends paid during 1997 and 1996 were $227,000 and $406,000,
respectively.
14. REGULATORY RESTRICTIONS
Liberty Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that could have a direct material effect on
the Company's financial statements. The regulations require Liberty Bank to meet
specific capital guidelines that involve quantitative measures of Liberty Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Liberty Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Liberty Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and core capital (as defined in the regulations) to
risk weighted assets (as defined), and of tangible capital (as defined) to
assets (as defined). As of September 30, 1998 Liberty Bank met all capital
adequacy requirements to which it is subject.
As of July 1, 1998, the date of the most recent notification from the
Federal Deposit Insurance Corporation ("FDIC"), Liberty Bank was categorized as
well capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed Liberty Bank's category.
The following table reflects Liberty Bank's compliance with its
regulatory capital requirements as of the dates indicated (dollars in
thousands)(not restated to reflect Vidalia merger accounted for as
pooling-of-interests.):
25
<PAGE> 22
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
----------------- ----------------- -------------------
SEPTEMBER 30, 1998 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------ --------- ----- -------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk weighted
Assets)...................... $ 125,185 11.56% $ 86,655 > 8.00% $ 108,319 > 10.00%
- -
Core Capital (to Adjusted
Tangible
Assets)...................... 111,660 7.47 59,787 > 4.00 74,734 > 5.00
- -
Tangible Capital (to Tangible
Assets)...................... 110,640 7.41 22,405 > 1.50 N/A
-
Tier 1 Capital (to Risk weighted
Assets)...................... 111,660 10.31 N/A 64,991 > 6.00
-
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk weighted
Assets)...................... $ 119,522 11.77% $ 81,210 > 8.00% $ 101,512 > 10.00%
- -
Core Capital (to Adjusted
Tangible
Assets)...................... 107,873 7.94 40,742 > 3.00 67,903 > 5.00
- -
Tangible Capital (to Tangible
Assets)...................... 104,832 7.74 20,325 > 1.50 N/A
-
Tier 1 Capital (to Risk weighted
Assets)...................... 107,873 10.63 N/A 60,907 > 6.00
-
</TABLE>
The following table reflects First Community Bank of Vidalia's
compliance with its regulatory capital requirements as of the dates indicated
(dollars in thousands.):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
---------------- ----------------- ------------------
DECEMBER 31, 1998 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------ -------- ----- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk weighted
Assets)...................... $ 5,127 10.99% $ 3,733 > 8.00% $ 4,666 > 10.00%
- -
Tier 1 Capital (to Risk weighted
Assets)...................... 4,541 9.73 1,868 > 4.00 2,800 > 6.00
- -
Tier 1 Capital (to Average
Assets)...................... 4,541 7.23 2,511 > 4.00 3,139 > 5.00
- -
<CAPTION>
DECEMBER 31, 1997
------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk weighted
Assets)...................... $ 4,740 11.47% $ 3,303 > 8.00% $ 4,129 > 10.00%
- -
Tier 1 Capital (to Risk weighted
Assets)...................... 4,329 10.48 1,652 > 4.00 2,477 > 6.00
- -
Tier 1 Capital (to Average
Assets)...................... 4,329 8.09 2,140 > 4.00 2,674 > 5.00
- -
</TABLE>
26
<PAGE> 23
As required by regulations, Liberty Bank, at the time of its conversion
to a stock institution, established a liquidation account and maintains the
account for the benefit of its depositors at that time who continue to have
funds on deposit. The initial balance of this liquidation account was equal to
the institution's net worth prior to conversion of $15,722,000. In the event of
a complete liquidation of the institution (and only in such event), each such
depositor who continues to be a depositor at the time of such liquidation shall
be entitled to receive a liquidation distribution from this account in the
amount of the then current adjusted balance for deposits held, before any
liquidation distribution may be made to shareholders. This account is reduced
annually in proportion to the reduction of eligible savings account balances
measured on each fiscal year end.
Liberty Bank is prohibited from declaring or paying cash dividends on
its common stock if the payment thereof would cause a reduction in its
regulatory capital below either the liquidation account or the capital
requirements set by the Office of Thrift Supervision ("OTS") or, without the
prior approval of the OTS, if the amount of dividends to be paid in any year
would exceed 50% of its net income for the fiscal year in which the dividend is
declared (except that permitted dividends may be deferred and paid in a
subsequent year). During fiscal 1998 and 1997 Liberty bank paid dividends to
First Liberty in the amounts of $10.0 million and $1.0 million, respectively.
The Federal Reserve Board requires depository institutions to maintain
noninterest-bearing reserves against their deposit transaction accounts,
non-personal time deposits (transferable or held by a person other than a
natural person) with an original maturity of less than one and one-half years
and certain money market deposit accounts. Federal Reserve regulations currently
require financial institutions to maintain average daily reserves equal to 3% on
all amounts from $4.7 million to $47.8 million of net transactions, plus 10% on
the remainder. Liberty Bank held no additional reserves at September 30, 1998
due to an adequate amount of qualifying assets.
15. EMPLOYEE BENEFIT PLANS
The First Liberty Financial Corp. Employee Savings and Stock Ownership
Plan (the "ESSOP") is both a qualified retirement plan and an employee stock
ownership plan. The Company may make discretionary contributions of the Company
common stock to the employee stock ownership plan portion of the ESSOP in an
amount not more than 10% of the total compensation of participants for the plan
year. Under the 401(k) portion of the ESSOP, the Company makes matching
contributions of the Company common stock in amounts determined annually by its
Board of Directors. Dividends earned on the Company common stock are retained in
the ESSOP.
Prior to January 1, 1998, the Company also maintained an Officer Profit
Sharing Plan (the "OPSP"), which was designed to reward the Company's officers
for their collective effort in maximizing the Company's "core earnings," (as
defined in the OPSP agreement). The OPSP provided for additional cash
compensation for OPSP participants if core earnings for the fiscal year equaled
or exceed a predetermined minimum. The OPSP was terminated at the end of the
first quarter of fiscal 1998. On January 1, 1998, the Company's officers and
employees began participating in a new Performance Excellence Plan ("PEP") under
which all participants are eligible to earn additional compensation based in
part upon the Company's core earnings per share and in part upon each
participant's individual performance.
The contributions to the ESSOP, the OPSP and the PEP included in the
accompanying financial statements are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
ESSOP........... $ 458 $395 $352
OPSP/PEP........ $1,217 $571 $867
</TABLE>
The Company also has a Nonqualified Deferred Compensation Plan (the
"NDCP") (formerly known as the Executive Deferred Compensation Plan),
established in 1995, in which directors and officers holding the title of First
Vice President or above may participate. The NDCP provides a means of enabling
participating officers to defer portions of their compensation in excess of the
amounts which they contribute to the ESSOP and participating directors to defer
the fees received for their services. The amount which a participant presently
may defer under the NDCP is twenty percent of total annual compensation.
16. STOCK OPTIONS
The Company granted options to purchase its common stock to certain
officers and key employees under an Incentive Stock Option Plan ("ISOP") which
was approved by the Company's stockholders in 1984. The options are exercisable
for a period of up to five years from the date of issuance under the Plan. The
ISOP expired in 1993, and all options granted under the ISOP have been
exercised.
27
<PAGE> 24
The First Liberty Financial Corp. 1992 Stock Incentive Plan (the "1992
Plan") was adopted by the Board of Directors of the Company in 1992 and approved
by the stockholders in 1993. The stock granted under the 1992 Plan is the $1.00
par value common stock. The Company has been authorized to issue up to 1,354,500
shares of common stock, in the aggregate, under the 1992 Plan, and unexercised
option shares of common stock allocable to expired or terminated options may
again be granted under that plan. As of September 30, 1998, there were 598,375
shares available for grant. The 1992 Plan is administered by the Compensation
and Benefits Committee of the Company's Board of Directors ("the Committee").
Incentive stock options and other stock options granted under the 1992
Plan must be at a price not less than the fair market value of the shares at the
date of grant. Options granted under the plan must be exercised within the
earlier of: (i) three months after the optionee ceases to be employed by the
Company for any reason other than death or disability; (ii) the expiration date
as determined by the Committee, listed in the option agreement; (iii)
immediately upon termination of employment for cause; (iv) one year after
termination of employment because of disability unless the optionee dies within
this one year period; or (v) one year after the death of an optionee who dies
(a) while employed by the Company, (b) within three months after termination of
employment, or (c) within one year after employment terminated due to
disability. The Committee may extend the above expiration dates for any
non-incentive stock options it grants.
The 1992 Plan will terminate on the later of (i) the complete exercise
or lapse of the last outstanding option, or (ii) on the last date upon which
options may be granted under the plan (which may not be later than ten years
after the date on which the plan is adopted), subject to its earlier termination
by the Board of Directors at any time.
Information with regard to options issued under the ISOP and under the
1992 Plan during each of the three fiscal years in the period ended September
30, 1998 follows:
<TABLE>
<CAPTION>
COMBINED
ISOP 1992 PLAN
----------------- -----------------
OPTION AVERAGE OPTION AVERAGE
SHARES PRICE SHARES PRICE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Options Outstanding at September 30, 1995... 189,000 $ 2.93 244,088 $ 5.88
Issued.................................... -- -- 232,294 9.66
Exercised................................. (111,600) 2.41 -- --
-------- ------ -------- ------
Options Outstanding at September 30, 1996... 77,400 3.67 476,382 7.72
Issued.................................... -- -- 196,807 10.35
Exercised................................. (77,400) 3.67 (45,000) 4.00
-------- ------ -------- ------
Options Outstanding at September 30, 1997... -- -- 628,189 8.81
Issued.................................... -- -- 121,250 24.76
Exercised................................. -- -- (169,889) 5.64
-------- ------ -------- ------
Options Outstanding at September 30, 1998... -- $ -- 579,550 $11.99
======== ====== ======== ======
</TABLE>
Under the 1992 Plan, the number of shares exercisable at September 30,
1998 and 1997 was 371,144 and 330,000, respectively. All options under the ISOP
were exercisable during 1997 and 1996.
In October 1995, the Board of Directors of First Liberty (the "Board")
approved an amendment to the 1992 Plan to provide that options granted on and
after that date will be exercisable over a period of ten years from date of
grant rather than five years from date of grant and to increase the number of
shares available for grant under that plan. This amendment was approved by First
Liberty's stockholders at the 1996 Annual Meeting of Stockholders (the "1996
Annual Meeting").
In November 1995, the Board adopted the First Liberty Financial Corp.
1995 Director Stock Option Plan (the "DSOP"), which was approved by First
Liberty's stockholders at the 1996 Annual Meeting. The DSOP is intended to
further the growth and development of First Liberty by encouraging its directors
who are not employees of First Liberty to obtain proprietary interest in First
Liberty by acquiring its stock. Up to 180,000 shares of common stock, in the
aggregate, may be granted to non-employee directors under the DSOP.
Information with regard to options issued under the DSOP during each of
the three fiscal years that the plan has been in effect in the period ended
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
DSOP
---------------
OPTION AVERAGE
SHARES PRICE
------ -------
<S> <C> <C>
Options outstanding at September 30, 1995 -- --
Issued................................... 69,750 $ 9.77
------ -------
Options outstanding at September 30, 1996 69,750 9.77
Issued................................... 18,000 13.52
------ -------
Options outstanding at September 30, 1997 87,750 10.55
Issued.................................... 2,250 23.63
------ -------
Options outstanding at September 30, 1998... 90,000 $ 10.86
====== =======
</TABLE>
28
<PAGE> 25
The Company has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost as
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1998, 1997, and 1996, consistent with the provisions of
SFAS No. 123, the Company's net income and earnings per share amounts would have
been reduced to the pro forma amounts indicated below (dollars in thousands,
except per share data),
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income -- as reported........... $ 15,957 $ 10,919 $ 11,241
Net income -- pro forma............. 14,623 9,620 10,004
Earnings per share -- as reported... 1.12 0.76 0.82
Earning per share -- pro forma...... 1.09 0.73 0.74
</TABLE>
The pro forma amounts reflected above are not representative of the
effects on reported net income in future years because, in general, the options
granted typically do not vest for several years and additional awards are
generally made each year.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield.............. 1.4% 1.4% 2.4%
Expected stock price volatility...... 35.2 35.4 36.5
Risk-free interest rate.............. 6.0 6.1 5.9
Expected life of options............. 8.7 years 8.5 years 7.4 years
</TABLE>
The weighted average fair value of options granted during 1998, 1997
and 1996 was $8.63, $4.91 and $3.31 per share, respectively.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Company has no
significant concentrations of credit risk with any individual counterparty to
originate loans. The Company's lending is concentrated in Georgia, its primary
market area. The contract or notional amounts of financial instruments with
off-balance sheet risk at September 30 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Commitments to originate loans:
Fixed rate.................... $334,134 $133,603
Adjustable rate............... 58,691 56,371
Standby letters of credit....... 906 1,803
Commitments to sell loans:
Mandatory..................... 190,118 59,888
Optional...................... 8,000 4,000
</TABLE>
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include real estate and
improvements, marketable securities, accounts receivable, inventory, equipment
and personal property.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.
29
<PAGE> 26
Mandatory and optional forward placement contracts (which are held for
purposes other than trading) are used by the Company to hedge its interest rate
exposure during the period from when the Company extends an interest rate lock
to a loan applicant until the time in which the loan is sold. Realized gains and
losses on the mandatory and optional forward contracts are recognized in gain
(loss) from sales of loans in the period settlement occurs. Unrealized gains and
losses on these contracts are included in the lower of cost or market valuation
adjustment to loans available-for-sale. The mandatory and optional forward
contracts above covered the market risk associated with the pipeline loans less
predicted fallout at September 30, 1998 and 1997 of $235.1 million, and $40.7
million, respectively.
The Company has not recorded specific liabilities for credit risk
associated with off-balance sheet financial instruments. Credit risk associated
with commitments to originate loans is mitigated through the purchase of
commitments to sell such loans generally within 90 days of origination. Credit
risk associated with standby letters of credit is considered in the assessment
of the allowance for estimated loan losses.
Liberty Bank's risk with respect to mortgage servicing losses results from
unrecoverable advances of delinquent principal, interest and tax payments made
on behalf of mortgagors. Liberty's mortgage servicing department controls the
risk of this portfolio on an ongoing basis. Liberty Bank has not suffered
significant losses from its mortgage servicing activities.
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were
as follows at September 30 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash, due from banks, fed funds sold
and repurchase agreements ........................ $ 49,776 $ 49,776 $ 70,141 $ 70,141
Securities available-for-sale ....................... 343,680 343,672 293,893 293,902
Securities held to maturity ......................... 454 471 4,199 4,203
Loans, net .......................................... 986,301 1,011,998 999,103 1,006,847
Loans available-for-sale, net ....................... 70,346 70,346 29,560 29,560
Mortgage servicing rights ........................... 13,822 14,174 6,571 8,053
Financial Liabilities:
Deposits ............................................ $1,152,841 $1,157,243 $1,119,600 $1,121,217
Notes payable and other borrowed
money ............................................ 244,345 244,895 197,844 197,876
Securities sold under agreements to
Repurchase ....................................... 26,791 26,791 26,099 26,099
Off-Balance-Sheet Financial Instruments:
Standby letters of credit ........................... $ 906 $ 906 $ 1,803 $ 1,803
Commitments to originate loans ...................... 392,825 394,307 135,476 135,695
Mandatory commitments to sell loans ................. 190,118 189,997 59,888 60,088
Optional commitments to sell loans .................. 8,000 8,000 4,000 3,996
Mortgage servicing rights ........................... -- 1,313 -- 5,661
</TABLE>
The fair value disclosures provided exclude certain financial instruments
and all nonfinancial instruments from its disclosure requirements. The
disclosures also do not include certain intangible assets, such as customer
relationships, deposit base intangible and goodwill. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
19. CONTINGENCIES
The Company is from time to time a defendant in legal actions from
normal business activities. Management does not anticipate that the ultimate
liability arising from litigation outstanding at September 30, 1998, will have a
materially adverse effect on the Company's financial position, results of
operations or liquidity.
30
<PAGE> 27
20. FINANCIAL INFORMATION OF FIRST LIBERTY FINANCIAL CORP. (PARENT ONLY)
First Liberty's statements of financial condition (parent only) as of
September 30, 1998 and 1997 and the related statements of income and cash flows
for each of the three years in the period ended September 30, 1998 are as
follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash........................................................... $ 893 $ 3,934
Other investments.............................................. 2 17
Investment in Liberty Bank..................................... 128,062 120,076
Other assets................................................... 223 2,324
--------- ---------
Total assets......................................... $ 129,180 $ 126,351
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable.............................................. $ 1,025 $ 772
Line of credit................................................. 500 10,445
Other liabilities.............................................. 840 1,425
--------- ---------
Total liabilities.................................... 2,365 12,642
--------- ---------
Stockholders' equity:
Common stock................................................. 14,227 14,145
Additional paid-in capital................................... 41,069 39,997
Retained earnings............................................ 70,164 59,794
Accumulated other comprehensive income....................... 1,624 1,250
Treasury stock at cost....................................... (269) (1,430)
Unearned compensation........................................ -- (47)
--------- ---------
Total stockholders' equity........................... 126,815 113,709
--------- ---------
Total liabilities and stockholders' equity........... $ 129,180 $ 126,351
========= =========
</TABLE>
- ----------
31
<PAGE> 28
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Interest income on other investments .............. $ 32 $ 176 $ 243
Cash dividends from Liberty Bank .................. 10,337 1,289 4,694
Gain on sale of securities ........................ -- 90 --
Other income ...................................... -- -- 1
-------- -------- --------
Total income .............................. 10,369 1,555 4,938
-------- -------- --------
Expense:
Interest expense on borrowings .................... 271 69 82
Directors fees .................................... -- 32 32
Loss on sale of real estate ....................... -- 23 --
Other expense ..................................... 448 434 391
-------- -------- --------
Total expense ............................. 719 558 505
-------- -------- --------
Income before income tax expense and equity in
undistributed net income of Liberty Bank .......... 9,650 997 4,433
Income tax benefit .................................. (263) (82) (82)
-------- -------- --------
Income before equity in undistributed net income of
Liberty Bank ...................................... 9,913 1,079 4,515
Equity in undistributed net income of Liberty Bank... 6,044 9,840 6,726
-------- -------- --------
Net income .......................................... 15,957 10,919 11,241
Dividends on preferred stock ........................ -- 113 454
-------- -------- --------
Net income applicable to common stockholders ........ $ 15,957 $ 10,806 $ 10,787
======== ======== ========
</TABLE>
- --------
32
<PAGE> 29
FIRST LIBERTY FINANCIAL CORP. (PARENT ONLY)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Cash flows from operating activities:
Net income ....................................... $ 15,957 $ 10,919 $ 11,240
-------- -------- --------
Equity in undistributed earnings of Liberty Bank (6,044) (9,840) (6,726)
Other, net ....................................... 416 (476) 920
-------- -------- --------
Total adjustments ........................... (5,628) (10,316) (5,806)
-------- -------- --------
Net cash provided by (used in) operating activities ... 10,329 603 5,434
-------- -------- --------
Investing Activities:
Cash flows from investing activities:
Net decrease in other investments ................ 15 6,809 1,200
Cash paid in acquisitions ........................ -- -- (3,555)
Sale of real estate .............................. -- 119 28
Other, net ....................................... 128 475 (303)
-------- -------- --------
Net cash provided by (used in) investing activities ... 143 7,403 (2,630)
-------- -------- --------
Financing Activities:
Cash flows from financing activities:
Proceeds from borrowings ......................... 1,500 10,000 --
Repayment of borrowings .......................... (11,445) (555) (200)
Capital infusion to Liberty Bank ................. (1,696) (10,000) --
Issuance of common stock ......................... 568 838 270
Redemption of preferred stock .................... -- (38) --
Dividends paid on stock .......................... (2,751) (3,343) (2,851)
Purchase of treasury stock ....................... -- (1,073) --
Other, net ....................................... 311 (146) --
-------- -------- --------
Net cash used in financing activities ................. (13,513) (4,317) (2,781)
-------- -------- --------
Net increase in cash .................................. (3,041) 3,689 23
Cash beginning of period .............................. 3,934 246 222
-------- -------- --------
Cash end of period .................................... $ 893 $ 3,935 $ 245
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Income taxes ........................................ $ 5,262 $ 7,247 $ 6,855
</TABLE>
33
<PAGE> 30
21. CONSOLIDATED CONDENSED QUARTERLY RESULTS OF INCOME (UNAUDITED)
The following summarizes the consolidated condensed quarterly results
of income (unaudited) for the years ended September 30 (dollars in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 QUARTERS 1ST 2ND 3RD 4TH(1)
------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income..................... $29,458 $29,401 $30,042 $30,166
Net interest income....................... 13,861 13,864 14,152 14,310
Provision for estimated losses on loans... 1,805 1,614 1,288 1,330
Net income applicable to common $ 4,119 $ 4,305 $ 2,779 $ 4,754
stockholders..............................
Earnings per common share:
Net income
Basic................................ $ .30 $ .30 $ .20 $ .34
Diluted.............................. $ .30 $ .30 $ .19 $ .33
Dividends per common share:............. $ .065 $ .065 $ .071 $ .071
</TABLE>
- ----------
(1) The fourth quarter of 1998 includes a provision of $1.2 million related to
an impairment in the value of mortgage servicing rights.
<TABLE>
<CAPTION>
1997 QUARTERS 1ST 2ND 3RD 4TH(1)
------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income ........................... $27,024 $27,513 $28,687 $29,158
Net interest income ............................. 12,792 13,150 13,386 13,357
Provision for estimated losses on loans ......... 1,120 900 2,394 3,446
Income before extraordinary item ................ 3,470 3,915 4,072 2,273
Extraordinary loss on extinguishment of debt, net
of related taxes .............................. -- -- -- 2,811
------- ------- ------- -------
Net income (loss) ............................... 3,470 3,915 4,072 (538)
Dividends on preferred stock .................... 113 -- -- --
------- ------- ------- -------
Net income (loss) applicable to common
stockholders .................................. $ 3,357 $ 3,915 $ 4,072 $ (538)
======= ======= ======= =======
Earnings per common share:
Income before extraordinary item
Basic ...................................... $ .25 $ .29 $ .29 $ .17
Diluted .................................... $ .24 $ .28 $ .28 $ .16
Extraordinary loss on extinguishment of debt,
net of related taxes ....................... -- -- -- $ .21
Basic ......................................
Diluted .................................... -- -- -- $ .20
Net income (loss)
Basic ...................................... $ .25 $ .29 $ .29 $ (.04)
Diluted .................................... $ .24 $ .28 $ .28 $ (.04)
Dividends per common share: ..................... $ .059 $ .059 $ .060 $ .060
</TABLE>
- ----------
(1) The fourth quarter of fiscal 1997 included the costs relating to
discontinued business lines in Liberty Mortgage's retail mortgage offices in
Atlanta and Liberty Bank's auto dealer indirect lending operations of $1.7
million (or $.13 per diluted share) after-tax. This included $1.3 million
after-tax in additional loan loss provisions and $408,000 after-tax in other
costs (including severance expenses) of discontinued business lines.
Additionally, the quarter included an extraordinary charge of $2.8 million
(or $.21 per diluted share) after-tax reflecting the loss on redemption of
$16.5 million principal balance of subordinated debt.
34
<PAGE> 1
EXHIBIT 99.3
SELECTED FINANCIAL DATA
(SUPPLEMENTAL) (*)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Interest income ...................... $ 119,067 $ 112,382 $ 98,362 $ 83,636 $ 66,111
Interest expense ..................... 62,880 59,697 52,022 43,326 32,946
---------- ---------- ---------- ----------- --------
Net interest income .................. 56,187 52,685 46,340 40,310 33,165
Provision for loan losses ............ 6,037 7,860 3,543 2,606 2,390
---------- ---------- ---------- ----------- --------
Net interest income after provision
for loan losses .................... 50,150 44,825 42,797 37,704 30,775
Noninterest income, excluding gains
and losses on asset sales .......... 13,293 12,160 10,339 8,888 9,473
Gain (loss) on sale of loans and
securities ......................... 5,154 2,264 1,809 (216) 314
Gain on sale of servicing rights ..... 797 1,397 790 2,353 3,367
Noninterest expense .................. 44,482 40,801 39,093 32,895 31,203
---------- ---------- ---------- ----------- --------
Income before income taxes and
extraordinary items ................ 24,912 19,845 16,642 15,834 12,726
Income taxes ......................... 8,955 6,115 5,401 4,445 3,785
---------- ---------- ---------- ----------- --------
Income before extraordinary items .... 15,957 13,730 11,241 11,389 8,941
Extraordinary item(1) ................ -- 2,811 -- -- --
---------- ---------- ---------- ----------- --------
Net income ........................... 15,957 10,919 11,241 11,389 8,941
Dividends on preferred stock ......... -- 113 454 864 891
---------- ---------- ---------- ----------- --------
Net income applicable to common
Stockholders ....................... $ 15,957 $ 10,806 $ 10,787 $ 10,525 $ 8,050
========== ========== ========== =========== ========
PER COMMON SHARE DATA:
Income before extraordinary
item(2) ............................ $ 1.12 $ .96 $ .82 $ .79 $ .65
Extraordinary item(2) ................ -- .20 -- -- --
---------- ---------- ---------- ----------- --------
Net income(2) ........................ $ 1.12 $ .76 $ .82 $ .79 $ .65
========== ========== ========== =========== ========
Book value ........................... $ 8.93 $ 8.12 $ 7.99 $ 7.47 $ 7.09
Tangible book value .................. 8.15 7.33 7.06 6.47 5.89
Dividends paid ....................... .272 .238 .179 .162 .131
Dividend payout ratio(4) ............. 24.29% 30.91% 21.83% 19.06% 18.19%
Average number of shares
Outstanding(2) ..................... 14,238 14,242 13,726 13,327 12,379
CORE INCOME DATA:(3)
Income before extraordinary item ..... $ 15,957 $ 13,731 $ 11,241 $ 11,389 $ 8,941
Merger related expenses .............. 1,868 312 -- -- --
Discontinued business lines .......... -- 1,708 -- --
SAIF assessment ...................... -- -- 2,341 -- --
---------- ---------- ---------- ----------- --------
Core income .......................... $ 17,825 $ 15,751 $ 13,582 $ 11,389 $ 8,941
========== ========== ========== =========== ========
CORE EARNINGS PER SHARE:(2)(3)
Income before extraordinary item ..... $ 1.12 $ .96 $ .82 $ .85 $ .72
Merger related expenses .............. .13 .02 -- -- --
Discontinued business lines .......... -- .12 -- -- --
SAIF assessment ...................... -- -- .17 -- --
---------- ---------- ---------- ----------- --------
Core income .......................... $ 1.25 $ 1.10 $ .99 $ .85 $ .72
========== ========== ========== =========== ========
Intangible amortization per share .... .09 .09 .09 .06 .03
Core return on average:
Assets ............................. 1.17% 1.11% 1.09% 1.06% .94%
Equity ............................. 14.80 14.08 13.19 12.98 11.59
BALANCE SHEET DATA:
Total assets ......................... $1,568,107 $1,474,679 $1,358,232 $ 1,192,124 $937,302
Earning assets ....................... 1,408,854 1,354,672 1,239,820 1,087,044 851,196
Loans(4) ............................. 986,301 999,103 900,163 786,467 638,112
Nonperforming assets (excluding
Troubled debt restructurings) ...... 11,755 10,590 11,422 11,555 18,835
Loans and securities
Available-for-sale(5) .............. 422,553 355,569 340,402 304,000 224,953
Deposits ............................. 1,152,841 1,119,600 1,011,628 959,388 779,369
Long-term borrowings ................. 112,315 104,906 36,144 23,832 31,380
Stockholders' equity ................. 126,815 113,709 105,345 97,116 79,518
PERFORMANCE RATIOS:
Return on average assets ............. 1.04% .77% .90% 1.06% .94%
Return on average equity ............. 13.25 9.76 10.92 12.98 11.59
Net interest margin(6) ............... 4.06 4.04 4.12 3.98 3.71
Efficiency(7) ........................ 55.80 58.47 65.08 62.76 64.99
Ratio of earnings to fixed
Charges(8):
Excluding interest on deposits ..... 2.82x 2.38% 2.61x 1.34x 1.34x
Including interest on deposits ..... 1.40x 1.33x 1.30x 1.18x 1.19x
ASSET QUALITY RATIOS:
Allowance for loan losses to
loans(4,9) ......................... 1.71% 1.46% 1.31% 1.38% 1.32%
Allowance for loan losses to
Nonperforming loans ................ 194.17 229.74 165.76 173.61 115.38
Nonperforming assets to loans and
Repossessed assets(4,9) ............ 1.17 1.04 1.25 1.45 2.91
Nonperforming assets to total
Assets ............................. .75 .72 .84 .97 2.01
Net charge-offs to average loans ..... .41 .51 .31 .14 .38
CAPITAL AND LIQUIDITY:
Tangible capital ratio(10) ........... 7.41% 7.24% 6.08% 5.98% 6.46%
Core capital ratio(10) ............... 7.47 7.34 6.21 6.17 6.73
Core capital to risk-based
Assets(10) ......................... 10.31 10.08 8.65 8.70 9.49
Risk-based capital ratio(10) ......... 11.56 11.21 11.35 11.80 12.99
Average equity to average assets 7.90 7.91 8.35 8.33 8.27
Loans to deposits(4) ................. 85.55 89.24 88.98 81.98 81.88
</TABLE>
- ----------
(1) Loss on extinguishment of debt, net of income tax benefits of $1.5 million.
(2) Diluted.
(3) Core income represents income exclusive of after tax expenses related to
poolings and charges associated with discontinued business lines recorded in
1997 and a one time SAIF assessment recorded in 1996.
(4) Excludes loans available-for-sale.
(5) Includes loans and securities available-for-sale, fed funds sold and
repurchase agreements.
(6) Net interest income divided by average interest-earning assets.
(7) Computed by dividing noninterest expense excluding provisions for real
estate losses and nonrecurring items by the sum of net interest income
before provisions for loan losses and noninterest income excluding
nonrecurring items. Excludes the SBC pooling expenses in 1998 and the MGB
pooling expenses and discontinued business lines charges in 1997 and the one
time SAIF assessment recorded in 1996.
(8) The ratio of earnings to fixed charges has been determined by dividing
(a) income before taxes and fixed charges by
(b) total fixed charges. Fixed charges consist of interest expense (both
excluding and including interest on deposits) and amortization of debt
expense. No portion of rental expense could be demonstrated to be
representative of the interest factor, and therefore none is included in
fixed charges.
(9) Loans before allowance for losses.
(10)Includes only capital held by Liberty Bank and has not been retroactively
restated for mergers.
(*) The accompanying supplemental selected financial data of FLFC have been
prepared as though the merger with Vidalia had been completed on or before
March 31, 1999
35
<PAGE> 1
EXHIBIT 99.4
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 September 30
1999 1998
----------- ------------
(dollars and shares in thousands)
<S> <C> <C>
Assets:
- ------
Cash and due from banks $ 45,158 $ 41,703
Federal funds sold 24,471 8,073
Securities available-for-sale 421,035 344,134
Loans available-for-sale, net 74,580 70,346
Loans, net 985,764 986,301
Accrued interest receivable 10,860 11,717
Premises and equipment, net 32,200 29,826
Real estate, net 1,901 2,239
Intangible assets 10,711 11,131
Mortgage servicing rights 22,722 13,822
Advances to attorneys for loans originated 23,577 41,242
Other assets 9,385 7,573
----------- -----------
Total assets $ 1,662,364 $ 1,568,107
=========== ===========
Liabilities and Stockholders' Equity:
- ------------------------------------
Deposits:
Demand $ 291,770 $ 267,596
Savings 165,286 162,869
Time 780,452 722,376
----------- -----------
Total deposits 1,237,508 1,152,841
Notes payable and other borrowed money 249,335 244,345
Securities sold under agreements to repurchase 24,292 26,791
Checks payable on loans originated 3,541 3,091
Other liabilities 14,471 14,224
----------- -----------
Total liabilities 1,529,147 1,441,292
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Common stock ($1.00 par value, 100,000 shares
authorized, 14,287 and 14,227 shares issued,
respectively, and 14,265 and 14,205 shares
outstanding, respectively) 14,287 14,227
Additional paid-in capital 41,288 41,069
Retained earnings 77,654 70,164
Accumulated other comprehensive income 257 1,624
Treasury stock at cost (22 shares) (269) (269)
----------- -----------
Total stockholders' equity 133,217 126,815
----------- -----------
Total liabilities and stockholders' equity $ 1,662,364 $ 1,568,107
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE> 2
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
March 31 March 31
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest Income:
- ---------------
Loans $ 23,504 $ 24,104 $ 47,839 $ 48,333
Securities 5,792 5,032 11,795 9,976
Federal funds sold 222 190 483 422
-------- -------- -------- --------
Total interest income 29,518 29,326 60,117 58,731
-------- -------- -------- --------
Interest Expense:
- ----------------
Deposits 12,402 12,287 24,911 24,529
Short-term borrowings 1,495 2,807 3,964 5,011
Long-term borrowings 1,507 400 2,943 1,522
-------- -------- -------- --------
Total interest expense 15,404 15,494 31,818 31,062
-------- -------- -------- --------
Net interest income 14,114 13,832 28,299 27,669
Provision for estimated losses on loans and leases 808 1,613 1,744 3,352
-------- -------- -------- --------
Net interest income after provision for
estimated losses on loans and leases 13,306 12,219 26,555 24,317
-------- -------- -------- --------
Noninterest Income:
- ------------------
Deposit account service charges 1,865 1,705 3,862 3,591
Mortgage banking income 3,785 971 6,062 2,895
Gain (loss) on sale of investment securities (51) 66 (51) 81
Other income 1,764 1,779 3,390 2,583
-------- -------- -------- --------
Total non-interest income 7,363 4,521 13,263 9,150
-------- -------- -------- --------
20,669 16,740 39,818 33,467
-------- -------- -------- --------
Noninterest Expense:
- -------------------
Compensation, taxes and benefits 7,053 5,688 13,812 11,343
Occupancy and equipment 1,488 1,236 2,837 2,390
Advertising 324 311 643 630
Professional fees 229 292 434 597
Data processing 756 512 1,410 939
Federal deposit insurance premiums 180 165 352 335
Amortization of intangible assets 320 319 639 640
Other expenses 2,179 1,626 3,916 3,238
-------- -------- -------- --------
Total non-interest expense 12,529 10,149 24,043 20,112
-------- -------- -------- --------
Income before income tax expense 8,140 6,591 15,775 13,355
Income tax expense 2,832 2,225 5,703 4,937
-------- -------- -------- --------
Net income 5,308 4,366 10,072 8,418
Other comprehensive loss, before tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) on
securities arising during the period (729) (42) (2,182) 52
Less: reclassification adjustment for
(gains) losses included in net income 51 (66) 51 (77)
-------- -------- -------- --------
Other comprehensive loss, before tax (678) (108) (2,131) (25)
Income tax benefit related to items of other
comprehensive loss 237 38 745 9
-------- -------- -------- --------
Other comprehensive loss, net of tax (441) (70) (1,386) (16)
-------- -------- -------- --------
Comprehensive income $ 4,867 $ 4,296 $ 8,686 $ 8,402
======== ======== ======== ========
</TABLE>
37
<PAGE> 3
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------------------
March 31 March 31
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings Per Common Share:
- -------------------------
Basic $ .37 $ .31 $ .71 $ .60
Diluted $ .37 $ .31 $ .70 $ .59
Dividends Per Common Share: $ .091 $ .065 $ .182 $ .130
- --------------------------
Average Number of Shares Outstanding:
- ------------------------------------
Basic 14,231 14,016 14,254 14,009
Diluted 14,513 14,285 14,490 14,265
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE> 4
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1999 1998
--------- ---------
(dollars in thousands)
<S> <C> <C>
Operating Activities:
- --------------------
Cash flows from operating activities:
Net income $ 9,936 $ 8,469
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation 1,521 1,221
Amortization of loan fees, net 553 150
Provision for estimated losses on loans, real estate and mortgage servicing rights 1,903 3,346
Amortization of intangibles 639 640
Gain on sale of loans and securities (5,387) (1,354)
Loans available-for-sale:
Disbursements (540,488) (60,339)
Purchases (14,551) (218,395)
Sales 557,948 241,802
Repayments 1,579 317
Decrease in accrued interest receivable 817 327
Decrease in accrued interest payable (483) 4
Other, net (2,016) (8,955)
--------- ---------
Total adjustments 2,035 (41,236)
--------- ---------
Net cash provided by (used in) operating activities 11,971 (32,767)
--------- ---------
Investing Activities:
- --------------------
Cash flows from investing activities:
Net (increase) decrease in federal funds sold (15,598) 13,906
Securities available-for-sale:
Purchases (207,409) (161,448)
Sales 23,044 11,622
Maturities and principal payments 104,523 114,341
Net (increase) decrease in loans (628) (4,557)
Acquisition of mortgage servicing rights (10,198) (3,466)
Purchases of premises and equipment (4,144) (1,039)
Proceeds from sales of real estate 419 1,929
Net (increase) decrease in advances to attorneys for loans originated 17,665 (23,896)
Other, net (2,588) 3,479
--------- ---------
Net cash used in investing activities (94,914) (49,129)
--------- ---------
Financing Activities:
- --------------------
Cash flows from financing activities:
Net increase in deposits 85,260 52,059
Proceeds from notes payable and other borrowed money 324,500 155,604
Repayments of notes payable and other borrowed money (319,510) (111,732)
Net decrease in securities sold under agreements to repurchase (2,499) (1,585)
Net increase in checks payable on loans originated 450 1,388
Issuance of common stock 279 399
Dividends paid on stock (2,082) (2,404)
--------- ---------
Net cash provided by financing activities 86,398 93,729
--------- ---------
Net increase in cash and due from banks 3,455 11,833
Cash and due from banks, beginning of period 41,703 42,233
--------- ---------
Cash and due from banks, end of period $ 45,158 $ 54,066
========= =========
Supplemental Disclosures of Cash Flow Information:
- --------------------------------------------------
Noncash investing and financing activities:
Real estate foreclosed $ 494 $ 2,722
Financing of sales of foreclosed real estate 381 1,099
Dividends declared but not paid on common stock 1,293 852
Mortgage loans securitized into mortgage-backed securities -- 13,427
</TABLE>
39
<PAGE> 5
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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, 1998. 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, 1999 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 that was effective April 27, 1998.
All financial information has been retroactively restated to reflect the
Southland Bank Corporation merger that closed in June 1998 and was accounted for
utilizing the pooling-of-interests method of accounting.
On October 1, 1998, the Company adopted SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which establishes new standards for
public companies to report information about operating segments in annual
financial statements and also requires that those companies report, in the
second year of application, selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Management has been reviewing First Liberty's information systems to
ensure adequate data is available to provide these required disclosures in the
financial statements for the fiscal year ending September 30, 1999.
On January 1, 1999, the Company adopted SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," to require that after the
securitization of mortgage loans held-for-sale, an entity that engages in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. The adoption of SFAS No. 134 did not have a material impact on the
Company's results of operations or its financial condition.
Basis of Presentation
The supplemental financial statements give retroactive effect to the merger of
First Liberty Financial Corp. and Vidalia Bankshares, Inc. on April 1, 1999,
which has been accounted for as a pooling of interests as described in notes 1
and 3 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of First Liberty
Financial Corp. after financial statements covering the date of consummation of
the business combination are issued.
40
<PAGE> 6
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year consolidated financial
statements' presentation.
3. Earnings Per Share
The following tables provide a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share ("EPS") for the three
and six months ended March 31, 1999 and 1998 (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1999 1998
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income applicable to common stockholders $ 5,308 14,231 $ 0.37 $ 4,366 14,016 $ 0.31
========== ======= ========== =======
Effect of Dilutive Securities:
Options 282 269
------ ------
Diluted:
Net income applicable to common
Stockholders plus assumed conversions $ 5,308 14,513 $ 0.37 $ 4,366 14,285 $ 0.31
========== ====== ======= ========== ====== =======
<CAPTION>
For the Six Months Ended
March 31, March 31,
1999 1998
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income applicable to common stockholders $ 10,072 14,254 $ 0.71 $ 8,418 14,009 $ 0.60
========== ======= ========== =======
Effect of Dilutive Securities:
Options 236 256
Diluted:
Net income applicable to common
Stockholders plus assumed conversions $ 10,072 14,490 $ 0.70 $ 8,418 14,265 $ 0.59
========== ====== ======= ========== ====== =======
</TABLE>
Options to purchase 174,689 and 129,760 shares of common stock at an average
price of $21.29 and $21.57 per share were outstanding during the three and six
months ended March 31, 1999, respectively, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares. The options, which expire at
various dates in 2008 and 2009, were still outstanding at March 31, 1999.
41
<PAGE> 7
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Mortgage Servicing Rights
Liberty Mortgage, the Company's mortgage banking subsidiary, recognizes mortgage
servicing rights (MSRs) as assets when loans (either originated or purchased
through correspondent relationships) are sold. The value of the MSRs is
determined by allocating total costs incurred between the loan and servicing
rights retained based on their relative fair values. Thus, the MSRs reduce the
basis in the loans originated or purchased and increase the gain (or reduce the
loss) on the sales of loans. The following table outlines the activity in MSRs
for the three and six month periods ended March 31 (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
March 31 March 31
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance beginning of period $ 17,833 $ 6,396 $ 13,822 $ 6,571
Capitalized 5,217 2,241 10,198 3,466
Sold -- -- -- (1,118)
Amortized (778) (310) (1,432) (592)
Recovery of reserve 450 -- 134 --
-------- -------- -------- --------
Balance end of period $ 22,722 $ 8,327 $ 22,722 $ 8,327
======== ======== ======== ========
</TABLE>
The estimated combined fair value of these assets exceeded the book value at
March 31, 1998. However a reserve of $0.75 million was required at March 31,
1999. When determining fair value the Company considers the date of origination,
the average note rate, 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 June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and then in
July 1999, issued SFAS No. 137, which delayed the effective date of the SFAS
No. 133 for one year. Thus, SFAS No. 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000 (October 1, 2000 for the
Company). SFAS No. 133 requires all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Due to the present
limited use of derivative instruments, Management anticipates the adoption of
SFAS No. 133 will not have a significant impact on the Company's results of
operations or its financial position.
42
<PAGE> 8
FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Subsequent Events
On April 28, 1999, the Company announced that it had agreed to be acquired by
BB&T Corporation of Winston-Salem, North Carolina. The transaction has been
approved by the directors of both companies. Based on BB&T's closing price of
$39 on April 26, 1999, First Liberty shareholders will receive .8525 BB&T shares
for each First Liberty share, worth $33.25. However, the final exchange ratio
will be determined based on the actual closing price during a specified period
prior to closing. The merger, which is subject to the approval of the First
Liberty shareholders and banking regulators, is expected to be completed in the
fourth quarter of calendar 1999.
7. Changes in Stockholders' Equity
The following table summarizes the changes in the components of stockholders'
equity for the period shown (in thousands).
<TABLE>
<CAPTION>
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Income Stock Equity
-------- ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 14,227 $ 41,069 $ 70,164 $ 1,624 $ (269) $ 126,815
Common stock dividends declared, $0.182
per share (2,582) (2,582)
Common stock issued for exercise of stock
options - 71,925 shares 72 431 503
Shares cancelled (12) (212) (224)
Net change in other comprehensive income (1,367) (1,367)
Net income 10,072 10,072
-------- -------- --------- ------- ------ ---------
Balance at March 31, 1999 $ 14,287 $ 41,288 $ 77,654 $ 257 $ (269) $ 133,217
======== ======== ========= ======= ======= =========
</TABLE>
43
<PAGE> 1
EXHIBIT 99.5
SELECTED FINANCIAL DATA
(SUPPLEMENTAL) (*)
<TABLE>
<CAPTION>
MARCH 31,
---------
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF INCOME DATA:
Interest income...................... $ 60,117 $ 58,731
Interest expense..................... 31,818 31,062
----------- -----------
Net interest income.................. 28,299 27,669
Provision for loan losses............ 1,744 3,352
----------- -----------
Net interest income after provision
for loan losses.................... 26,555 24,317
Noninterest income, excluding gains
and losses on asset sales.......... 7,201 6,255
Gain (loss) on sale of loans and
securities......................... 6,062 2,895
Gain on sale of servicing rights..... -- --
Noninterest expense.................. 24,043 20,112
----------- -----------
Income before income taxes and
extraordinary items................ 15,775 13,355
Income taxes......................... 5,703 4,937
----------- -----------
Income before extraordinary items.... 10,072 8,418
Extraordinary item................... -- --
----------- -----------
Net income........................... 10,072 8,418
Dividends on preferred stock......... -- --
----------- -----------
Net income applicable to common
Stockholders....................... $ 10,072 $ 8,418
=========== ===========
PER COMMON SHARE DATA:
Income before extraordinary
item(1)............................ $ .71 $ .60
Extraordinary item(1)................ -- --
----------- -----------
Net income(1)........................ $ .71 $ .60
=========== ===========
Book value........................... $ 9.34 $ 8.58
Tangible book value.................. 8.59 7.96
Dividends paid....................... .182 .130
Dividend payout ratio(2)............. 25.63% 21.67%
Average number of shares
Outstanding(1)..................... 14,490 14,265
CORE INCOME DATA:
Income before extraordinary item..... $ 10,072 $ 8,418
Merger related expenses.............. -- --
Discontinued business lines.......... -- --
SAIF assessment...................... -- --
----------- -----------
Core income.......................... $ 10,072 $ 8,418
=========== ===========
CORE EARNINGS PER SHARE:(1)
Income before extraordinary item..... $ .71 $ .60
Merger related expenses.............. -- --
Discontinued business lines.......... -- --
SAIF assessment...................... -- --
----------- -----------
Core income.......................... $ .71 $ .60
=========== ===========
Intangible amortization per share.... .04 .04
Core return on average:
Assets............................. 1.24% 1.14%
Equity............................. 15.50 14.40
BALANCE SHEET DATA:
Total assets......................... $ 1,662,364 $ 1,561,147
Earning assets....................... 1,505,850 1,407,669
Loans(2)............................. 985,764 982,331
Nonperforming assets (excluding
Troubled debt restructurings)...... 13,963 12,580
Loans and securities
Available-for-sale(3).............. 520,086 425,338
Deposits............................. 1,237,508 1,157,372
Long-term borrowings................. 112,305 29,472
Stockholders' equity................. 133,217 120,266
PERFORMANCE RATIOS:
Return on average assets............. 1.24% 1.14%
Return on average equity............. 15.50 14.40
Net interest margin(4)............... 3.88 4.13
Efficiency........................... 57.85 54.62
Ratio of earnings to fixed
Charges(5):
Excluding interest on deposits..... 3.28x 3.04x
Including interest on deposits..... 1.50x 1.43x
ASSET QUALITY RATIOS:
Allowance for loan losses to
loans(2,6)......................... 1.70% 1.60%
Allowance for loan losses to
Nonperforming loans................ 146.66% 186.82%
Nonperforming assets to loans and
Repossessed assets(2,6)............ 1.39% 1.26%
Nonperforming assets to total
Assets............................. .84% .81%
Net charge-offs to average loans..... .21% .18%
CAPITAL AND LIQUIDITY:
Tangible capital ratio(7)............ 7.70% 6.63%
Core capital ratio(7)................ 7.70 6.71
Core capital to risk-based
Assets(7).......................... 11.17 9.46
Risk-based capital ratio(7).......... 12.40 10.51
Average equity to average assets..... 7.97 7.95
Loans to deposits(2)................. 79.66 84.88
</TABLE>
- ----------
(1) Diluted.
(2) Excludes loans available-for-sale.
(3) Includes loans and securities available-for-sale, fed funds sold and
repurchase agreements.
(4) Net interest income divided by average interest-earning assets.
(5) The ratio of earnings to fixed charges has been determined by dividing a)
income before taxes and fixed charges by (b) total fixed charges. Fixed
charges consist of interest expense (both excluding and including interest
on deposits) and amortization of debt expense. No portion of rental
expense could be demonstrated to be representative of the interest factor,
and therefore none is included in fixed charges.
(6) Loans before allowance for losses.
(7) Includes only capital held by Liberty Bank and has not been retroactively
restated for mergers.
(*) The accompanying supplemental selected financial data of FLFC have been
prepared as though the merger with Vidalia had been completed on or before
March 31, 1999.
44
<PAGE> 1
EXHIBIT 99.6
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
FIRST LIBERTY FINANCIAL CORP.
AND
BB&T CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS .................................................... 1
ARTICLE II
THE MERGER ..................................................... 7
2.1 Merger .................................................. 7
2.2 Filing; Plan of Merger .................................. 8
2.3 Effective Time .......................................... 8
2.4 Closing ................................................. 8
2.5 Effect of Merger ........................................ 9
2.6 Further Assurances ...................................... 9
2.7 Merger Consideration .................................... 10
2.8 Conversion of Shares; Payment of Merger Consideration ... 10
2.9 Conversion of Stock Options ............................. 11
2.10 Merger of Subsidiaries .................................. 13
2.11 Anti-Dilution ........................................... 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST LIBERTY ................ 13
3.1 Capital Structure ....................................... 14
3.2 Organization, Standing and Authority .................... 14
3.3 Ownership of Subsidiaries ............................... 15
3.4 Organization, Standing and Authority of the Subsidiaries 15
3.5 Authorized and Effective Agreement ...................... 15
3.6 Securities Filings; Financial Statements; Statements True 16
3.7 Minute Books ............................................ 17
3.8 Adverse Change .......................................... 17
3.9 Absence of Undisclosed Liabilities ...................... 17
3.10 Properties .............................................. 17
3.11 Environmental Matters ................................... 18
3.12 Loans; Allowance for Loan Losses ........................ 19
3.13 Tax Matters ............................................. 19
3.14 Employees; Compensation; Benefit Plans .................. 20
3.15 Certain Contracts ....................................... 25
3.16 Legal Proceedings; Regulatory Approvals ................. 26
3.17 Compliance with Laws; Filings ........................... 26
3.18 Brokers and Finders ..................................... 27
3.19 Repurchase Agreements; Derivatives ...................... 27
3.20 Deposit Accounts ........................................ 27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.21 Related Party Transactions .............................. 28
3.22 Certain Information ..................................... 28
3.23 Tax and Regulatory Matters .............................. 28
3.24 State Takeover Laws; Shareholder Rights Plan ............ 28
3.25 Labor Relations ......................................... 29
3.26 No Right to Dissent ..................................... 29
3.27 Fairness Opinion ........................................ 29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BB&T ......................... 29
4.1 Capital Structure of BB&T ............................... 30
4.3 Authorized and Effective Agreement ...................... 30
4.4 Organization, Standing and Authority of BB&T Subsidiaries 31
4.5 Securities Documents; Statements True ................... 31
4.6 Certain Information ..................................... 31
4.7 Tax and Regulatory Matters .............................. 32
ARTICLE V
COVENANTS ...................................................... 32
5.1 First Liberty Shareholder Meeting ....................... 32
5.2 Registration Statement; Proxy Statement/Prospectus ...... 32
5.3 Plan of Merger; Reservation of Shares ................... 33
5.4 Additional Acts ......................................... 33
5.5 Best Efforts ............................................ 34
5.6 Certain Accounting Matters .............................. 34
5.7 Access to Information ................................... 35
5.8 Press Releases .......................................... 35
5.9 Forbearances of First Liberty ........................... 35
5.10 Employment Agreements ................................... 39
5.11 Affiliates .............................................. 39
5.12 Section 401(k) Plan; ESSOP; Other Employee Benefits ..... 39
5.13 Directors and Officers Protection ....................... 41
5.14 Forbearances of BB&T .................................... 42
5.15 Reports ................................................. 42
5.16 Exchange Listing ........................................ 42
5.17 Advisory Board for Georgia Area ......................... 43
5.18 Board of Directors of Branch Banking and Trust Company .. 43
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
CONDITIONS PRECEDENT ........................................... 43
6.1 Conditions Precedent - BB&T and First Liberty ........... 43
6.2 Conditions Precedent - First Liberty .................... 44
6.3 Conditions Precedent - BB&T ............................. 45
ARTICLE VII
TERMINATION, DEFAULT, WAIVER AND AMENDMENT ..................... 46
7.1 Termination ............................................. 46
7.2 Effect of Termination ................................... 47
7.3 Survival of Representations, Warranties and Covenants ... 48
7.4 Waiver .................................................. 48
7.5 Amendment or Supplement ................................. 49
ARTICLE VIII
MISCELLANEOUS .................................................. 49
8.1 Expenses ................................................ 49
8.2 Entire Agreement ........................................ 49
8.3 No Assignment ........................................... 49
8.4 Notices ................................................. 49
8.6 Captions ................................................ 51
8.7 Counterparts ............................................ 51
8.8 Governing Law ........................................... 51
</TABLE>
ANNEXES
Annex A Articles of Merger
Annexes B-1 through B-10 Employment Agreements with Officers
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), dated as of
April 27, 1999, is by and between FIRST LIBERTY FINANCIAL CORP. ("First
Liberty"), a Georgia corporation having its principal office at Macon, Georgia,
and BB&T CORPORATION ("BB&T"), a North Carolina corporation having its principal
office at Winston-Salem, North Carolina;
R E C I T A L S:
The parties desire that First Liberty shall be merged with and into
BB&T (said transaction being hereinafter referred to as the "Merger") pursuant
to a plan of merger (the "Plan of Merger") substantially in the form attached as
Annex A hereto, and the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby. As a condition and inducement to BB&T's
willingness to enter into the Agreement, First Liberty is concurrently granting
to BB&T an option to acquire, under certain circumstances, 2,838,708 shares of
the common stock, par value $1.00 per share, of First Liberty.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions
When used herein, the capitalized terms set forth below shall have the
following meanings:
"Affiliate" means, with respect to any Person, any Person, who directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with such Person and, without limiting the generality
of the foregoing, includes any executive officer or director of such Person and
any Affiliate of such executive officer or director.
"Articles of Merger" shall mean the Articles of Merger required to be
filed with the office of the Secretary of State of North Carolina, as provided
in Section 55-11-05 of the NCBCA, and with the office of the Secretary of State
of Georgia, as provided in Section 14-2-1105 of the GBCC.
1
<PAGE> 6
"Bank Holding Company Act" shall mean the Federal Bank Holding Company
Act of 1956, as amended.
"BB&T Common Stock" shall mean the shares of voting common stock, par
value $5.00 per share, of BB&T, with rights attached issued pursuant to Rights
Agreement dated December 17, 1996 between BB&T and Branch Banking and Trust
Company, as Rights Agent, relating to BB&T's Series B Junior Participating
Preferred Stock, $5.00 par value per share.
"BB&T Option Agreement" shall mean the Stock Option Agreement dated as
of even date herewith, as amended from time to time, under which BB&T has an
option to purchase shares of First Liberty Common Stock, which shall be executed
immediately following execution of this Agreement.
"BB&T Subsidiaries" shall mean Branch Banking and Trust Company, Branch
Banking and Trust Company of South Carolina and Branch Banking and Trust Company
of Virginia.
"Business Day" shall mean all days other than Saturdays, Sundays and
Federal Reserve holidays.
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act, as amended (42 U.S.C. 9601 et seq.).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"CRA" shall mean the Community Reinvestment Act of 1977, as amended.
"Disclosed" shall mean disclosed in the First Liberty Disclosure
Memorandum, referencing the Section number herein pursuant to which such
disclosure is being made.
"Environmental Claim" means any notice from any governmental authority
or third party alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup or remediation costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based upon, or resulting from a
violation of the Environmental Laws or the presence or release into the
environment of any Hazardous Substances.
"Environmental Laws" means all applicable federal, state and local laws
and regulations, as amended, relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface, or subsurface strata) and which are administered, interpreted, or
enforced by the United States Environmental Protection Agency and
2
<PAGE> 7
state and local agencies with jurisdiction over and including common law in
respect of, pollution or protection of the environment, including without
limitation CERCLA, the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq., and other laws and regulations relating to emissions,
discharges, releases, or threatened releases of any Hazardous Substances, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of any Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
"Financial Advisor" shall mean Sandler O'Neill & Partners, L.P.
"Financial Statements" shall mean (a) with respect to BB&T, (i) the
consolidated balance sheet (including related notes and schedules, if any) of
BB&T as of December 31, 1998, 1997, and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the three years ended December 31,
1998, 1997, and 1996, as filed by BB&T in Securities Documents and (ii) the
consolidated balance sheets of BB&T (including related notes and schedules, if
any) and the related consolidated statements of income, shareholders' equity and
cash flows (including related notes and schedules, if any) included in
Securities Documents filed by BB&T with respect to periods ended subsequent to
December 31, 1998, and (b) with respect to First Liberty, (i) the consolidated
statements of financial condition (including related notes and schedules, if
any) of First Liberty as of September 30, 1998, September 30, 1997 and September
30, 1996, and the related consolidated statements of income and retained
earnings, and cash flows (including related notes and schedules, if any) for
each of the three years ended September 30, 1998, September 30, 1997 and
September 30, 1996 as filed by First Liberty in Securities Documents and (ii)
the consolidated statements of financial condition of First Liberty (including
related notes and schedules, if any) and the related consolidated statements of
income and retained earnings, and cash flows (including related notes and
schedules, if any) included in Securities Documents filed by First Liberty with
respect to periods ended subsequent to September 30, 1998.
"First Liberty Common Stock" shall mean the shares of voting common
stock, par value $1.00 per share, of First Liberty, with rights attached
pursuant to Shareholder Rights Plan dated August 2, 1989.
3
<PAGE> 8
"First Liberty Disclosure Memorandum" shall mean the written
information in one or more documents, each of which is entitled "First Liberty
Disclosure Memorandum" and dated on or before the date of this Agreement and
delivered not later than seven days after the date of execution of this
Agreement by First Liberty to BB&T, and describing in reasonable detail the
matters contained therein. Each disclosure made therein shall be in existence on
the date of this Agreement and shall specifically reference each Section of this
Agreement under which such disclosure is made. Information disclosed with
respect to one Section shall not be deemed to be disclosed for purposes of any
other Section not specifically referenced.
"First Liberty ESSOP" shall mean the First Liberty Financial Corp.
Employee Savings and Stock Ownership Plan.
"First Liberty Subsidiaries" shall mean First Liberty Bank, Liberty
Mortgage Corporation, NewSouth Financial Services, Inc., OFC Capital Corporation
and any and all other Subsidiaries of First Liberty as of the date hereof and
any corporation, bank, savings association, or other organization acquired as a
Subsidiary of First Liberty after the date hereof and held as a Subsidiary by
First Liberty at the Effective Time.
"GAAP" shall mean generally accepted accounting principles applicable
to financial institutions and their holding companies, as in effect at the
relevant date.
"GBCC" shall mean the Georgia Business Corporation Code, as amended.
"Hazardous Substances" means any substance or material (i) identified
in CERCLA; (ii) determined to be toxic, a pollutant or a contaminant under any
applicable federal, state or local statutes, law, ordinance, rule or regulation,
including but not limited to petroleum products; (iii) asbestos; (iv) radon; (v)
poly-chlorinated biphiphenyls and (vi) such other materials, substances or waste
which are otherwise dangerous, hazardous, harmful to human health or the
environment.
"IRS" shall mean the Internal Revenue Service.
"Material Adverse Effect" on BB&T or First Liberty shall mean an event,
fact, change, or occurrence which, individually or together with any other
event, fact, change or occurrence, (i) has a material adverse effect on the
financial condition, results of operations, business or business prospects of
BB&T and the BB&T Subsidiaries taken as a whole, or First Liberty and the First
Liberty Subsidiaries taken as a whole, or (ii) materially impairs the ability of
BB&T or First Liberty to perform its obligations under this Agreement or to
consummate the Merger and the other transactions contemplated by this Agreement;
provided that "Material Adverse Effect" shall not be deemed to include the
impact of (a) actions and omissions of BB&T or First Liberty taken with the
prior written consent of the other in contemplation of the transactions
contemplated hereby and (b) the direct effects of compliance with this Agreement
on the
4
<PAGE> 9
operating performance of the parties, including expenses incurred by the parties
in consummating the transactions contemplated by this Agreement or relating to
any litigation arising as a result of the Merger.
"NCBCA" shall mean the North Carolina Business Corporation Act, as
amended.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OTS" shall mean the Office of Thrift Supervision.
"Performance Excellence Plan" shall mean the First Liberty Financial
Corp. Performance Excellence Plan.
"Proxy Statement/Prospectus" shall mean the proxy statement and
prospectus, together with any supplements thereto, to be sent to shareholders of
First Liberty to solicit their votes in connection with a proposal to approve
this Agreement and the Plan of Merger.
"Registration Statement" shall mean the registration statement of BB&T
as declared effective by the Commission under the Securities Act, including any
post-effective amendments or supplements thereto as filed with the Commission
under the Securities Act, with respect to the BB&T Common Stock to be issued in
connection with the transactions contemplated by this Agreement.
"Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock or other ownership interests (other than
rights pursuant to the Rights Agreement described under the definition of "BB&T
Common Stock"), and stock appreciation rights, performance units and similar
stock-based rights whether or not they obligate the issuer thereof to issue
stock or other securities or to pay cash.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, proxy statements,
registration statements and all similar documents filed, or required to be
filed, pursuant to the Securities Laws, including but not limited to periodic
and other reports filed pursuant to Section 13 of the Exchange Act.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939 as amended; and the rules and
regulations of the Commission promulgated thereunder.
5
<PAGE> 10
"Stock Option" shall mean, collectively, any option granted under the
Stock Option Plans, outstanding and unexercised on the date hereof to acquire
shares of First Liberty Common Stock, aggregating 771,314 shares.
"Stock Option Plans" shall mean the First Liberty Financial Corp. 1992
Stock Incentive Plan and the First Liberty Financial Corp. 1995 Director Stock
Option Plan.
"Subsidiaries" shall mean all those corporations, associations, or
other business entities of which the entity in question either owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (in determining
whether one entity owns or controls 50% or more of the outstanding equity
securities of another, equity securities owned or controlled in a fiduciary
capacity shall be deemed owned and controlled by the beneficial owner).
"TILA" shall mean the Truth in Lending Act, as amended.
1.2 Terms Defined Elsewhere
The capitalized terms set forth below are defined in the
following sections:
Agreement Introduction
BB&T Introduction
BB&T Option Plan Section 2.9(a)
Closing Section 2.4
Closing Date Section 2.4
Closing Value Section 2.7(c)
Constituent Corporations Section 2.1
Effective Time Section 2.3
Employer Entity Section 5.12(a)
Exchange Ratio Section 2.7(a)
Merger Recitals
Merger Consideration Section 2.7(a)
PBGC Section 3.14(b)(iv)
Plan Section 3.14(b)(i)
Plan of Merger Recitals
First Liberty Introduction
Surviving Corporation Section 2.1(a)
6
<PAGE> 11
ARTICLE II
THE MERGER
2.1 Merger
BB&T and First Liberty are constituent corporations (the "Constituent
Corporations") to the Merger as contemplated by the NCBCA and the GBCC. At the
Effective Time:
7
<PAGE> 12
(a) First Liberty shall be merged with and into BB&T in accordance with
the applicable provisions of the NCBCA and the GBCC, with BB&T being the
surviving corporate entity (hereinafter sometimes referred to as the "Surviving
Corporation").
(b) The separate existence of First Liberty shall cease and the Merger
shall in all respects have the effect provided in Section 2.5.
(c) The Articles of Incorporation of BB&T at the Effective Time shall
become the Articles of Incorporation of the Surviving Corporation.
(d) The Bylaws of BB&T at the Effective Time shall become the Bylaws of
the Surviving Corporation.
2.2 Filing; Plan of Merger
The Merger shall not become effective unless this Agreement and the
Plan of Merger are duly approved by shareholders holding at least a majority of
the shares of First Liberty Common Stock. Upon fulfillment or waiver of the
conditions specified in Article VI and provided that this Agreement has not been
terminated pursuant to Article VII, the Constituent Corporations will cause the
Articles of Merger to be executed and filed with the Secretary of State of North
Carolina and the Secretary of State of Georgia, as provided in Section 55-11-05
of the NCBCA and Section 14-2-1105 of the GBCC, respectively. The Plan of Merger
is incorporated herein by reference, and adoption of this Agreement by the
Boards of Directors of the Constituent Corporations and approval by the
shareholders of First Liberty shall constitute adoption and approval of the Plan
of Merger.
2.3 Effective Time
The Merger shall be effective at the day and hour specified in the
Articles of Merger as filed as provided in Section 2.2 (herein sometimes
referred to as the "Effective Time").
2.4 Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Womble Carlyle Sandridge & Rice,
PLLC, Winston-Salem, North Carolina, at 10:00 a.m. on a date after September 30,
1999 designated by BB&T which is within thirty days following the satisfaction
of the conditions to Closing set forth in Article VI (other than the delivery of
certificates, opinions and other instruments and documents to be delivered at
the Closing), or such later date as the parties may otherwise agree (the
"Closing Date").
8
<PAGE> 13
2.5 Effect of Merger
From and after the Effective Time, the separate existence of First
Liberty shall cease, and the Surviving Corporation shall thereupon and
thereafter, to the extent consistent with its Articles of Incorporation, possess
all of the rights, privileges, immunities and franchises, of a public as well as
a private nature, of each of the Constituent Corporations; and all property,
real, personal and mixed, and all debts due on whatever account, and all other
choses in action, and each and every other interest of or belonging to or due to
each of the Constituent Corporations shall be taken and deemed to be transferred
to and vested in the Surviving Corporation without further act or deed; and the
title to any real estate or any interest therein vested in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger. The Surviving Corporation shall thenceforth be responsible for all
the liabilities, obligations and penalties of each of the Constituent
Corporations; and any claim, existing action or proceeding, civil or criminal,
pending by or against either of the Constituent Corporations may be prosecuted
as if the Merger had not taken place, or the Surviving Corporation may be
substituted in its place; and any judgment rendered against either of the
Constituent Corporations may be enforced against the Surviving Corporation.
Neither the rights of creditors nor any liens upon the property of either of the
Constituent Corporations shall be impaired by reason of the Merger.
2.6 Further Assurances
If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any further deeds, assignments or assurances
in law or any other actions are necessary, desirable or proper to vest, perfect
or confirm of record or otherwise, in the Surviving Corporation, the title to
any property or rights of the Constituent Corporations acquired or to be
acquired by reason of, or as a result of, the Merger, the Constituent
Corporations agree that such Constituent Corporations and their proper officers
and directors shall and will execute and deliver all such proper deeds,
assignments and assurances in law and do all things necessary, desirable or
proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purpose of this Agreement,
and that the proper officers and directors of the Surviving Corporation are
fully authorized and directed in the name of the Constituent Corporations or
otherwise to take any and all such actions.
9
<PAGE> 14
2.7 Merger Consideration
(a) As used herein, the term "Merger Consideration" shall mean the
number of shares of BB&T Common Stock (to the nearest ten thousandth of a share)
to be exchanged for each share of First Liberty Common Stock issued and
outstanding as of the Effective Time and cash (without interest) to be payable
in exchange for any fractional share of BB&T Common Stock which would otherwise
be distributable to a First Liberty shareholder as provided in Section 2.7(b).
The number of shares of BB&T Common Stock to be issued for each issued and
outstanding share of First Liberty Common Stock (the "Exchange Ratio") shall
equal the quotient of $33.25 divided by the Closing Value (as defined in Section
2.7(b)), except that, in the event the Closing Value is less than $38.22, the
Exchange Ratio shall be 0.87 and, in the event the Closing Value is more than
$39.12, the Exchange Ratio shall be 0.85.
(b) The amount of cash payable with respect to any fractional share of
BB&T Common Stock shall be determined by multiplying the fractional part of such
share by the Closing Value. The "Closing Value" shall mean the average closing
price per share of BB&T Common Stock on the NYSE Composite Transaction List (as
reported by The Wall Street Journal - Eastern Edition) for the ten trading days
(determined by excluding days on which the NYSE is closed) ending on the tenth
calendar day preceding the Effective Time (the tenth day to be determined by
counting the first calendar day preceding the Effective Time as the first day).
2.8 Conversion of Shares; Payment of Merger Consideration
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of First Liberty or the holders of record of First Liberty
Common Stock, each share of First Liberty Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and shall
represent the right to receive, upon surrender of the certificate representing
such share of First Liberty Common Stock (as provided in subsection (d) below),
the Merger Consideration.
(b) Each share of the common stock of BB&T issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding.
(c) Until surrendered, each outstanding certificate which prior to the
Effective Time represented one or more shares of First Liberty Common Stock
shall be deemed upon the Effective Time for all purposes to represent only the
right to receive the Merger Consideration. No interest will be paid or accrued
on the Merger Consideration upon the surrender of the certificate or
certificates representing shares of First Liberty Common Stock. With respect to
any certificate for First Liberty Common Stock that has been lost or destroyed,
BB&T shall pay the Merger Consideration attributable to such certificate upon
receipt of a surety bond or other adequate indemnity as required in accordance
with BB&T's standard policy, and evidence reasonably satisfactory to BB&T of
ownership of the shares represented thereby. After the Effective Time, no
transfer of the shares of First Liberty Common Stock outstanding immediately
prior to the Effective Time shall be made on the stock transfer books of the
Surviving Corporation.
10
<PAGE> 15
(d) Promptly after the Effective Time, BB&T shall cause to be delivered
or mailed to each First Liberty shareholder a form of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any shares of First Liberty
Common Stock. Upon surrender of such certificates or other evidence of ownership
meeting the requirements of Section 2.8(c), together with such letter of
transmittal duly executed and completed in accordance with the instructions
thereto, and such other documents as may be reasonably requested, BB&T shall
promptly cause the transfer to the persons entitled thereto of the Merger
Consideration.
(e) The Surviving Corporation shall pay any dividends or other
distributions with a record date prior to the Effective Time which have been
declared or made by First Liberty in respect of shares of First Liberty Common
Stock in accordance with the terms of this Agreement and which remain unpaid at
the Effective Time, subject to compliance by First Liberty with Section 5.9(b).
To the extent permitted by law, former shareholders of record of First Liberty
shall be entitled to vote after the Effective Time at any meeting of BB&T
shareholders the number of whole shares of BB&T Common Stock into which their
respective shares of First Liberty Common Stock are converted, regardless of
whether such holders have exchanged their certificates representing First
Liberty Common Stock for certificates representing BB&T Common Stock in
accordance with the provisions of this Agreement. Whenever a dividend or other
distribution is declared by BB&T on the BB&T Common Stock, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares of BB&T Common Stock issuable pursuant to
this Agreement, but no dividend or other distribution payable to the holders of
record of BB&T Common Stock as of any time subsequent to the Effective Time
shall be delivered to the holder of any certificate representing First Liberty
Common Stock until such holder surrenders such certificate for exchange as
provided in this Section 2.8. Upon surrender of such certificate, both the BB&T
Common Stock certificate and any undelivered dividends and cash payments payable
hereunder (without interest) shall be delivered and paid with respect to the
shares of First Liberty Common Stock represented by such certificate.
2.9 Conversion of Stock Options
(a) At the Effective Time, each Stock Option then outstanding (and
which by its terms does not lapse on or before the Effective Time), whether or
not then exercisable, shall be converted into and become rights with respect to
BB&T Common Stock, and BB&T shall assume each Stock Option in accordance with
the terms of the Stock Option Plans, except that from and after the Effective
Time (i) BB&T and its Compensation Committee shall be substituted for First
Liberty and its Compensation and Benefits Committee administering the Stock
Option Plans, (ii) each Stock Option assumed by BB&T may be exercised solely for
shares
11
<PAGE> 16
of BB&T Common Stock, (iii) the number of shares of BB&T Common Stock subject to
each such Stock Option shall be the number of whole shares of BB&T (omitting any
fractional share) determined by multiplying the number of shares of First
Liberty Common Stock subject to such Stock Option immediately prior to the
Effective Time by the Exchange Ratio, and (iv) the per share exercise price
under each such Stock Option shall be adjusted by dividing the per share
exercise price under each such Stock Option by the Exchange Ratio and rounding
up to the nearest cent. Notwithstanding the foregoing, BB&T may at its election
substitute as of the Effective Time options under the BB&T Corporation 1995
Omnibus Stock Incentive Plan or any other duly adopted comparable plan (in
either case, the "BB&T Option Plan") for all or a part of the Stock Options,
subject to the following conditions: (A) the requirements of (iii) and (iv)
above shall be met; (B) such substitution shall not constitute a modification,
extension or renewal of any of the Stock Options which are incentive stock
options; and (C) the substituted options shall continue in effect on the same
terms and conditions as provided in the Stock Options and the Stock Option Plans
granting each Stock Option. Each grant of a converted or substitute option to
any individual who subsequent to the Merger will be a director or officer of
BB&T as construed under Rule 16b-3 shall, as a condition to such conversion or
substitution, be approved in accordance with the provisions of Rule 16b-3. Each
Stock Option which is an incentive stock option shall be adjusted as required by
Section 424 of the Code, and the Regulations promulgated thereunder, so as to
continue as an incentive stock option under Section 424(a) of the Code, and so
as not to constitute a modification, extension, or renewal of the option within
the meaning of Section 424(h) of the Code. BB&T and First Liberty agree to take
all necessary steps to effectuate the foregoing provisions of this Section 2.9.
As soon as practicable following the Effective Time, BB&T shall deliver to the
participants in the Stock Option Plans an appropriate notice setting forth such
participant's rights pursuant thereto. BB&T has reserved and shall continue to
reserve adequate shares of BB&T Common Stock for delivery upon exercise of any
converted or substitute options. As soon as practicable after the Effective
Time, if it has not already done so, and to the extent First Liberty shall have
a registration statement in effect or an obligation to file a registration
statement, BB&T shall file a registration statement on Form S-3 or Form S-8, as
the case may be (or any successor or other appropriate forms), with respect to
the shares of BB&T Common Stock subject to converted or substitute options and
shall use its reasonable efforts to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such converted or substitute
options remain outstanding. With respect to those individuals, if any, who
subsequent to the Merger may be subject to the reporting requirements under
Section 16(a) of the Exchange Act, BB&T shall administer the Stock Option Plans
assumed pursuant to this Section 2.9 (or the BB&T Option Plan, if applicable) in
a manner that complies with Rule 16b-3 promulgated under the Exchange Act to the
extent necessary to preserve for such individuals the benefits of Rule 16b-3 to
the extent such benefits were available to them prior to the Effective Time.
First Liberty hereby represents that the Stock Option Plans in their current
forms comply with Rule 16b-3 to the extent, if any, required as of the date
hereof.
12
<PAGE> 17
(b) As soon as practicable following the Effective Time, BB&T shall
deliver to the participants receiving converted options under the BB&T Option
Plan an appropriate notice setting forth such participant's rights pursuant
thereto.
2.10 Merger of Subsidiaries
In the event that BB&T shall request, First Liberty shall take such
actions, and shall cause the First Liberty Subsidiaries to take such actions, as
may be required in order to effect, at the Effective Time, the merger of one or
more of the First Liberty Subsidiaries with and into, in each case, one of the
BB&T Subsidiaries.
2.11 Anti-Dilution
In the event BB&T changes the number of shares of BB&T Common Stock
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend or other similar recapitalization, and the record date thereof
(in the case of a stock dividend) or the effective date thereof (in the case of
a stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST LIBERTY
Except as Disclosed, First Liberty represents and warrants to BB&T as
follows (the representations and warranties herein of First Liberty are made
subject to the applicable standard set forth in Section 6.3(a), and no such
representation or warranty shall be deemed to be inaccurate unless the
inaccuracy would permit BB&T to refuse to consummate the Merger under such
applicable standard):
13
<PAGE> 18
3.1 Capital Structure
The authorized capital stock of First Liberty consists of 100,000,000
shares of First Liberty Common Stock, par value $1.00 per share, and 5,000,000
shares of First Liberty preferred stock, no par value. As of the date hereof,
14,264,867 shares of First Liberty Common Stock are issued and outstanding and
no shares of First Liberty preferred stock are outstanding. No other classes of
capital stock of First Liberty, common or preferred, are authorized, issued or
outstanding. All outstanding shares of First Liberty Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. No shares of
capital stock have been reserved for any purpose, except for (i) shares of First
Liberty Common Stock reserved in connection with the Stock Option Plans and the
Performance Excellence Plan, and (ii) 2,838,708 shares of First Liberty Common
Stock reserved in connection with the BB&T Option Agreement. First Liberty has
granted options to acquire 771,314 shares of First Liberty Common Stock under
the Stock Option Plans, which options remain outstanding as of the date hereof,
and may issue additional options based on First Liberty's financial performance
for its fiscal year ending September 30, 1999 to purchase up to 116,850 shares
of First Liberty Common Stock under the Performance Excellence Plan and up to
116,000 shares of First Liberty Common Stock under the Stock Option Plans.
Except as set forth in this Section 3.1, there are no Rights authorized, issued
or outstanding with respect to, nor are there any agreements, understandings or
commitments relating to the right of any First Liberty shareholder to own, to
vote or to dispose of, the capital stock of First Liberty. Holders of First
Liberty Common Stock do not have preemptive rights.
3.2 Organization, Standing and Authority
First Liberty is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia, with full corporate power
and authority to carry on its business as now conducted and to own, lease and
operate its properties and assets. First Liberty is not required to be qualified
to do business in any other state of the United States or foreign jurisdiction.
14
<PAGE> 19
3.3 Ownership of Subsidiaries
Section 3.3 of the First Liberty Disclosure Memorandum lists all of the
First Liberty Subsidiaries and, with respect to each, its jurisdiction of
organization, jurisdictions in which it is qualified or otherwise licensed to
conduct business, the number of shares or ownership interests owned by First
Liberty (directly or indirectly), the percentage ownership interest so owned by
First Liberty and its business activities. The outstanding shares of capital
stock or other equity interests of the First Liberty Subsidiaries are validly
issued and outstanding, fully paid and nonassessable, and all such shares are
directly or indirectly owned by First Liberty free and clear of all liens,
claims and encumbrances or preemptive rights of any person. No Rights are
authorized, issued or outstanding with respect to the capital stock or other
equity interests of the First Liberty Subsidiaries, and there are no agreements,
understandings or commitments relating to the right of First Liberty to own, to
vote or to dispose of said interests. None of the shares of capital stock or
other equity interests of the First Liberty Subsidiaries have been issued in
violation of the preemptive rights of any person. Section 3.3 of the First
Liberty Disclosure Memorandum also lists all shares of capital stock or other
securities or ownership interests of any corporation, partnership, joint
venture, or other organization (other than the First Liberty Subsidiaries) owned
directly or indirectly by First Liberty.
3.4 Organization, Standing and Authority of the Subsidiaries
Each First Liberty Subsidiary which is a depository institution is a
federally chartered savings association with its deposits insured by the FDIC.
Each of the First Liberty Subsidiaries is validly existing and in good standing
under the laws of its jurisdiction of organization. Each of the First Liberty
Subsidiaries has full power and authority to carry on its business as now
conducted, and is duly qualified to do business in each jurisdiction Disclosed
with respect to it. No First Liberty Subsidiary is required to be qualified to
do business in any other state of the United States or foreign jurisdiction, or
is engaged in any type of activities that have not been Disclosed.
3.5 Authorized and Effective Agreement
(a) First Liberty has all requisite corporate power and authority to
enter into and (subject to receipt of all necessary governmental approvals and
the receipt of approval of the First Liberty shareholders of this Agreement and
the Plan of Merger) to perform all of its obligations under this Agreement, the
Articles of Merger and the BB&T Option Agreement. The execution and delivery of
this Agreement, the Articles of Merger and the BB&T Option Agreement, and
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action, except, in the case of
this Agreement and the Plan of Merger, the approval of the First Liberty
shareholders pursuant to and to the extent required by applicable law. This
Agreement, the Plan of Merger and the BB&T
15
<PAGE> 20
Option Agreement constitute legal, valid and binding obligations of First
Liberty, and each is enforceable against First Liberty in accordance with its
terms, in each such case subject to (i) bankruptcy, fraudulent transfer,
insolvency, moratorium, reorganization, conservatorship, receivership, or other
similar laws from time to time in effect relating to or affecting the
enforcement of the rights of creditors of FDIC-insured institutions or the
enforcement of creditors' rights generally; and (ii) general principles of
equity (whether applied in a court of law or in equity).
(b) Neither the execution and delivery of this Agreement, the Articles
of Merger or the BB&T Option Agreement, nor consummation of the transactions
contemplated hereby or thereby, nor compliance by First Liberty with any of the
provisions hereof or thereof, shall (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or bylaws of First Liberty or any
First Liberty Subsidiary, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon any property or asset of
First Liberty or any First Liberty Subsidiary pursuant to, any note, bond,
mortgage, indenture, license, permit, contract, agreement or other instrument or
obligation, or (iii) subject to receipt of all required governmental approvals,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to First Liberty or any First Liberty Subsidiary.
(c) Other than consents or approvals required from, or notices to,
regulatory authorities as provided in Section 5.4(b), no notice to, filing with,
or consent of, any public body or authority is necessary for the consummation by
First Liberty of the Merger and the other transactions contemplated in this
Agreement.
3.6 Securities Filings; Financial Statements; Statements True
(a) First Liberty has timely filed all Securities Documents required by
the Securities Laws to be filed since September 30, 1995. First Liberty has
Disclosed or made available to BB&T a true and complete copy of each Securities
Document filed by First Liberty with the Commission after September 30, 1995 and
prior to the date hereof, which are all of the Securities Documents that First
Liberty was required to file during such period. As of their respective dates of
filing, such Securities Documents complied with the Securities Laws as then in
effect, and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The Financial Statements of First Liberty fairly present or will
fairly present, as the case may be, the consolidated financial position of First
Liberty and the First Liberty Subsidiaries as of the dates indicated and the
consolidated statements of income and retained earnings, changes in
shareholders' equity and statements of cash flows for the periods then ended
16
<PAGE> 21
(subject, in the case of unaudited interim statements, to the absence of notes
and to normal year-end adjustments that are not material in amount or effect) in
conformity with GAAP applied on a consistent basis.
(c) No statement, certificate, instrument or other writing furnished or
to be furnished hereunder by First Liberty or any First Liberty Subsidiary to
BB&T contains or will contain any untrue statement of a material fact or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
3.7 Minute Books
The minute books of First Liberty and each of the First Liberty
Subsidiaries contain or will contain at Closing accurate records of all meetings
and other corporate actions of their respective shareholders and Boards of
Directors (including committees of the Board of Directors), and the signatures
contained therein are the true signatures of the persons whose signatures they
purport to be.
3.8 Adverse Change
Since September 30, 1998, First Liberty and the First Liberty
Subsidiaries have not incurred any liability, whether accrued, absolute or
contingent, except as disclosed in the most recent First Liberty Financial
Statements, or entered into any transactions with Affiliates, in each case other
than in the ordinary course of business consistent with past practices, nor has
there been any adverse change or any fact or event involving a prospective
adverse change in the business, financial condition, results of operations or
business prospects of First Liberty or any of the First Liberty Subsidiaries.
3.9 Absence of Undisclosed Liabilities
All liabilities (including contingent liabilities) of First Liberty and
the First Liberty Subsidiaries are disclosed in the most recent Financial
Statements of First Liberty or are normally recurring business obligations
incurred in the ordinary course of its business since the date of First
Liberty's most recent Financial Statements.
3.10 Properties
(a) First Liberty and the First Liberty Subsidiaries have good and
marketable title, free and clear of all liens, encumbrances, charges, defaults
or equitable interests, to all of the properties and assets, real and personal,
tangible and intangible, reflected on the consolidated balance sheet included in
the Financial Statements of First Liberty as of September 30, 1998 or acquired
after such date, except for (i) liens for current taxes not yet due and payable,
(ii) pledges to secure deposits and other liens incurred in the ordinary course
of banking business, (iii) such
17
<PAGE> 22
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent, or (iv) dispositions and encumbrances for
adequate consideration in the ordinary course of business.
(b) All leases and licenses pursuant to which First Liberty or any
First Liberty Subsidiary, as lessee or licensee, leases or licenses rights to
real or personal property are valid and enforceable in accordance with their
respective terms.
3.11 Environmental Matters
(a) First Liberty and the First Liberty Subsidiaries are and at all
times have been in compliance with all Environmental Laws. Neither First Liberty
nor any First Liberty Subsidiary has received any communication alleging that
First Liberty or the First Liberty Subsidiary is not in such compliance, and
there are no present circumstances that would prevent or interfere with the
continuation of such compliance.
(b) There are no pending Environmental Claims, neither First Liberty
nor any First Liberty Subsidiary has received notice of any pending
Environmental Claims, and there are no conditions or facts existing which might
reasonably be expected to result in legal, administrative, arbitral or other
proceedings asserting Environmental Claims or other claims, causes of action or
governmental investigations of any nature seeking to impose, or that could
result in the imposition of, any liability arising under any Environmental Laws
upon (i) First Liberty or any First Liberty Subsidiary, (ii) any person or
entity whose liability for any Environmental Claim First Liberty or any First
Liberty Subsidiary has or may have retained or assumed, either contractually or
by operation of law, (iii) any real or personal property owned or leased by
First Liberty or any First Liberty Subsidiary, or any real or personal property
which First Liberty or any First Liberty Subsidiary has or is judged to have
managed or supervised or participated in the management of, or (iv) any real or
personal property in which First Liberty or any First Liberty Subsidiary holds a
security interest securing a loan recorded on the books of First Liberty or any
First Liberty Subsidiary. Neither First Liberty nor any First Liberty Subsidiary
is subject to any agreement, order, judgment, decree or memorandum by or with
any court, governmental authority, regulatory agency or third party imposing any
liability under any Environmental Laws.
(c) First Liberty and the First Liberty Subsidiaries are in compliance
with all recommendations contained in any environmental audits, analyses and
surveys received by First Liberty relating to all real and personal property
owned or leased by First Liberty or any First Liberty Subsidiary and all real
and personal property of which First Liberty or any First Liberty Subsidiary has
or is judged to have managed or supervised or participated in the management of.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim, or other claim or action or governmental investigation that
could result in the imposition of any liability arising
18
<PAGE> 23
under any Environmental Laws, against First Liberty or any First Liberty
Subsidiary or against any person or entity whose liability for any Environmental
Claim First Liberty or any First Liberty Subsidiary has or may have retained or
assumed, either contractually or by operation of law.
3.12 Loans; Allowance for Loan Losses
(a) All of the loans on the books of First Liberty and the First
Liberty Subsidiaries are valid and properly documented and were made in the
ordinary course of business, and the security therefor, if any, is valid and
properly perfected. Neither the terms of such loans, nor any of the loan
documentation, nor the manner in which such loans have been administered and
serviced, nor First Liberty's procedures and practices of approving or rejecting
loan applications, violates any federal, state or local law, rule, regulation or
ordinance applicable thereto, including, without limitation, the TILA,
Regulations O and Z of the Federal Reserve Board, the CRA, the Equal Credit
Opportunity Act, as amended, and state laws, rules and regulations relating to
consumer protection, installment sales and usury.
(b) The allowances for loan losses reflected on the consolidated
balance sheets included in the Financial Statements of First Liberty are
adequate as of their respective dates under the requirements of GAAP and
applicable regulatory requirements and guidelines.
3.13 Tax Matters
(a) First Liberty and the First Liberty Subsidiaries and each of their
predecessors have timely filed (or requests for extensions have been timely
filed and any such extensions either are pending or have been granted and have
not expired) all federal, state and local (and, if applicable, foreign) tax
returns required by applicable law to be filed by them (including, without
limitation, estimated tax returns, income tax returns, information returns, and
withholding and employment tax returns) and have paid, or where payment is not
required to have been made, have set up an adequate reserve or accrual for the
payment of, all taxes required to be paid in respect of the periods covered by
such returns and, as of the Effective Time, will have paid, or where payment is
not required to have been made, will have set up an adequate reserve or accrual
for the payment of, all taxes for any subsequent periods ending on or prior to
the Effective Time. Neither First Liberty nor any First Liberty Subsidiary has
or will have any liability for any such taxes in excess of the amounts so paid
or reserves or accruals so established. First Liberty and the First Liberty
Subsidiaries have paid, or where payment is not required to have been made have
set up an adequate reserve or accrual for payment of, all taxes required to be
paid or accrued for the preceding or current fiscal year for which a return is
not yet due.
19
<PAGE> 24
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by First Liberty and the First Liberty Subsidiaries are complete
and accurate. Neither First Liberty nor any First Liberty Subsidiary is
delinquent in the payment of any tax, assessment or governmental charge. No
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed (tentatively or otherwise) against First Liberty or any
First Liberty Subsidiary which have not been settled and paid. There are
currently no agreements in effect with respect to First Liberty or any First
Liberty Subsidiary to extend the period of limitations for the assessment or
collection of any tax. No audit examination or deficiency or refund litigation
with respect to such returns is pending.
(c) Deferred taxes have been provided for in accordance with GAAP
consistently applied.
(d) Neither First Liberty nor any of the First Liberty Subsidiaries is
a party to any tax allocation or sharing agreement or has been a member of an
affiliated group filing a consolidated federal income tax return (other than a
group the common parent of which was First Liberty or a First Liberty
subsidiary) or has any liability for taxes of any person (other than First
Liberty and the First Liberty Subsidiaries) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor or by contract or otherwise.
(e) Each of First Liberty and the First Liberty Subsidiaries is in
compliance with, and its records contain all information and documents
(including properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and tax withholding requirements under federal,
state, and local tax laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406 of the Code.
(f) Neither First Liberty nor any of the First Liberty Subsidiaries has
made any payments, is obligated to make any payments, or is a party to any
contract that could obligate it to make any payments that would be disallowed as
a deduction under Section 280G or 162(m) of the Code.
3.14 Employees; Compensation; Benefit Plans
(a) Compensation. First Liberty has Disclosed a complete and correct
list of the name, age, position, rate of compensation and any incentive
compensation arrangements, bonuses or commissions or fringe or other benefits,
whether payable in cash or in kind, of each director, shareholder, independent
contractor, consultant and agent of First Liberty and of each First Liberty
Subsidiary and each other person (in each case other than as an employee) to
whom First Liberty or any First Liberty Subsidiary pays or provides, or has an
obligation, agreement (written or unwritten), policy or practice of paying or
providing, retirement, health, welfare or other benefits of any kind or
description whatsoever.
20
<PAGE> 25
(b) Employee Benefit Plans.
(i) First Liberty has Disclosed an accurate and complete
list of all Plans, as defined below, contributed to, maintained or
sponsored by First Liberty or any First Liberty Subsidiary, to which
First Liberty or any First Liberty Subsidiary is obligated to
contribute or has any liability or potential liability, whether direct
or indirect, including all Plans contributed to, maintained or
sponsored by each member of the controlled group of corporations,
within the meaning of Sections 414(b), 414(c), 414(m) and 414(o) of the
Code, of which First Liberty or any First Liberty Subsidiary is a
member. For purposes of this Agreement, the term "Plan" shall mean a
plan, arrangement, agreement or program described in the foregoing
provisions of this Section 3.14(b)(i) and which is: (A) a
profit-sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement, severance, welfare
or incentive plan, agreement or arrangement, whether or not funded and
whether or not terminated, (B) an employment agreement, (C) a personnel
policy or fringe benefit plan, policy, program or arrangement providing
for benefits or perquisites to current or former employees, officers,
directors or agents, whether or not funded, and whether or not
terminated, including, without limitation, benefits relating to
automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave, severance, medical, dental, hospitalization, life insurance and
other types of insurance, or (D) any other employee benefit plan as
defined in Section 3(3) of ERISA, whether or not funded and whether or
not terminated.
(ii) Neither First Liberty nor any First Liberty Subsidiary
contributes to, has an obligation to contribute to or otherwise has any
liability or potential liability with respect to (A) any multiemployer
plan as defined in Section 3(37) of ERISA, (B) any plan of the type
described in Sections 4063 and 4064 of ERISA or in Section 413 of the
Code (and regulations promulgated thereunder), or (C) any plan which
provides health, life insurance, accident or other "welfare-type"
benefits to current or future retirees or former employees or
directors, their spouses or dependents, other than in accordance with
Section 4980B of the Code or applicable state continuation coverage
law.
(iii) None of the Plans obligates First Liberty or any First
Liberty Subsidiary to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result of a "change in
control," as such term is used in Section 280G of the Code (and
regulations promulgated thereunder).
(iv) Each Plan, and all related trusts, insurance contracts
and funds, has been maintained, funded and administered in compliance
in all respects with its own terms and in compliance in all respects
with all applicable laws and regulations, including but not limited to
ERISA and the Code. No actions, suits, claims, complaints, charges,
proceedings, hearings, examinations, investigations, audits or demands
with respect to the Plans (other than routine claims for benefits) are
pending or threatened, and there are no facts which could give rise to
or be expected to give rise to any actions, suits, claims, complaints,
charges,
21
<PAGE> 26
proceedings, hearings, examinations, investigations, audits or demands.
No Plan that is subject to the funding requirements of Section 412 of
the Code or Section 302 of ERISA has incurred any "accumulated funding
deficiency" as such term is defined in such Sections of ERISA and the
Code, whether or not waived, and each Plan has always fully met the
funding standards required under Title I of ERISA and Section 412 of
the Code. No liability to the Pension Benefit Guaranty Corporation
("PBGC") (except for routine payment of premiums) has been or is
expected to be incurred with respect to any Plan that is subject to
Title IV of ERISA, no reportable event (as such term is defined in
Section 4043 of ERISA) has occurred with respect to any such Plan, and
the PBGC has not commenced or threatened the termination of any Plan.
None of the assets of First Liberty or any First Liberty Subsidiary is
the subject of any lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code, neither First Liberty nor any First Liberty
Subsidiary has been required to post any security pursuant to Section
307 of ERISA or Section 401(a)(29) of the Code, and there are no facts
which could be expected to give rise to such lien or such posting of
security. No event has occurred and no condition exists that would
subject First Liberty or any First Liberty Subsidiary to any tax under
Sections 4971, 4972, 4976, 4977 or 4979 of the Code or to a fine or
penalty under Section 502(c) of ERISA.
(v) Each Plan that is intended to be qualified under
Section 401(a) of the Code, and each trust (if any) forming a part
thereof, has received a favorable determination letter from the IRS as
to the qualification under the Code of such Plan and the tax exempt
status of such related trust, and nothing has occurred since the date
of such determination letter that could adversely affect the
qualification of such Plan or the tax exempt status of such related
trust.
(vi) No underfunded "defined benefit plan" (as such term is
defined in Section 3(35) of ERISA) has been, during the five years
preceding the Closing Date, transferred out of the controlled group of
corporations (within the meaning of Sections 414(b), (c), (m) and (o)
of the Code) of which First Liberty or any First Liberty Subsidiary is
a member or was a member during such five-year period.
(vii) As of September 30, 1998, the fair market value of the
assets of each Plan that is a tax qualified defined benefit plan
equaled or exceeded, and as of the Closing Date will equal or exceed,
the present value of all vested and nonvested liabilities thereunder
determined in accordance with reasonable actuarial methods, factors and
assumptions applicable to a defined benefit plan on an ongoing basis.
With respect to each Plan that is subject to the funding requirements
of Section 412 of the Code and Section 302 of ERISA, all required
contributions for all periods ending prior to or as of
22
<PAGE> 27
the Closing Date (including periods from the first day of the
then-current plan year to the Closing Date and including all quarterly
contributions required in accordance with Section 412(m) of the Code)
shall have been made. With respect to each other Plan, all required
payments, premiums, contributions, reimbursements or accruals for all
periods ending prior to or as of the Closing Date shall have been made.
No tax qualified Plan has any unfunded liabilities. The First Liberty
ESSOP has not incurred any debt to acquire shares of First Liberty
Common Stock, and there is no suspense account maintained under the
First Liberty ESSOP.
(viii) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under
Section 408 of ERISA or Section 4975 of the Code, whether by statutory,
class or individual exemption) has occurred with respect to any Plan
which would result in the imposition, directly or indirectly, of any
excise tax, penalty or other liability under Section 4975 of the Code
or Section 409 or 502(i) of ERISA. Neither First Liberty nor, to the
best knowledge of First Liberty, any First Liberty Subsidiary, any
trustee, administrator or other fiduciary of any Plan, or any agent of
any of the foregoing has engaged in any transaction or acted or failed
to act in a manner that could subject First Liberty or any First
Liberty Subsidiary to any liability for breach of fiduciary duty under
ERISA or any other applicable law.
(ix) With respect to each Plan, all reports and information
required to be filed with any government agency or distributed to Plan
participants and their beneficiaries have been duly and timely filed or
distributed.
(x) First Liberty and each First Liberty Subsidiary has
been and is presently in compliance with all of the requirements of
Section 4980B of the Code.
(xi) Neither First Liberty nor any First Liberty Subsidiary
has a liability as of September 30, 1998 under any Plan that, to the
extent disclosure is required under GAAP, is not reflected on the
consolidated balance sheet included in the Financial Statements of
First Liberty as of September 30, 1998 or otherwise Disclosed.
(xii) Neither the consideration nor implementation of the
transactions contemplated under this Agreement will increase (A) First
Liberty's or any First Liberty Subsidiary's obligation to make
contributions or any other payments to fund benefits accrued under the
Plans as of the date of this Agreement or (B) the benefits accrued or
payable with respect to any participant under the Plans (except to the
extent benefits may be deemed increased by accelerated vesting,
accelerated allocation of previously unallocated Plan assets or by the
conversion of all stock options in accordance with Section 2.9 hereof.
23
<PAGE> 28
(xiii) With respect to each Plan, First Liberty has Disclosed
or made available to BB&T, true, complete and correct copies of (A) all
documents pursuant to which the Plans are maintained, funded and
administered, including summary plan descriptions, (B) the three most
recent annual reports (Form 5500 series) filed with the IRS (with
attachments), (C) the three most recent actuarial reports, if any, (D)
the three most recent financial statements, (E) all governmental
filings for the last three years, including, without limitation, excise
tax returns and reportable events filings, and (F) all governmental
rulings, determinations, and opinions (and pending requests for
governmental rulings, determinations, and opinions) during the past
three years.
24
<PAGE> 29
(xiv) Each of the Plans as applied to First Liberty and any
First Liberty Subsidiary may be amended or terminated at any time by
action of First Liberty's Board of Directors, or such First Liberty's
Subsidiary's Board of Directors, as the case may be, or a committee of
such Board of Directors or duly authorized officer, in each case
subject to the terms of the Plan and compliance with applicable laws
and regulations (and limited, in the case of multiemployer plans, to
termination of the participation of First Liberty or a First Liberty
Subsidiary thereunder).
3.15 Certain Contracts
(a) Neither First Liberty nor any First Liberty Subsidiary is a party
to, is bound or affected by, or receives benefits under (i) any agreement,
arrangement or commitment, written or oral, the default of which would have a
Material Adverse Effect, whether or not made in the ordinary course of business
(other than loans or loan commitments made or certificates or deposits received
in the ordinary course of the banking business), or any agreement restricting
its business activities, including, without limitation, agreements or memoranda
of understanding with regulatory authorities, (ii) any agreement, indenture or
other instrument, written or oral, relating to the borrowing of money by First
Liberty or any First Liberty Subsidiary or the guarantee by First Liberty or any
First Liberty Subsidiary of any such obligation, which cannot be terminated
within less than 30 days after the Closing Date by First Liberty or any First
Liberty Subsidiary (without payment of any penalty or cost, except with respect
to Federal Home Loan Bank or Federal Reserve Bank advances), (iii) any
agreement, arrangement or commitment, written or oral, relating to the
employment of a consultant, independent contractor or agent, or the employment,
election or retention in office of any present or former director or officer,
which cannot be terminated within less than 30 days after the Closing Date by
First Liberty or any First Liberty Subsidiary (without payment of any penalty or
cost), or that provides benefits which are contingent, or the application of
which is altered, upon the occurrence of a transaction involving First Liberty
of the nature contemplated by this Agreement or the BB&T Option Agreement, or
(iv) any agreement or plan, written or oral, including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the BB&T Option Agreement or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or the BB&T Option Agreement. Each
matter Disclosed pursuant to this Section 3.15(a) is in full force and effect as
of the date hereof.
(b) Neither First Liberty nor any First Liberty Subsidiary is in
default under any agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default.
25
<PAGE> 30
3.16 Legal Proceedings; Regulatory Approvals
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of First Liberty,
threatened against First Liberty or any First Liberty Subsidiary or against any
asset, interest, plan or right of First Liberty or any First Liberty Subsidiary,
or, to the best knowledge of First Liberty, against any officer, director or
employee of any of them in their capacity as such. There are no actions, suits
or proceedings instituted, pending or, to the best knowledge of First Liberty,
threatened against any present or former director or officer of First Liberty or
any First Liberty Subsidiary that would reasonably be expected to give rise to a
claim against First Liberty or any First Liberty Subsidiary for indemnification.
There are no actual or, to the best knowledge of First Liberty, threatened
actions, suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or in the BB&T Option Agreement. To the best
knowledge of First Liberty, no fact or condition relating to First Liberty or
any First Liberty Subsidiary exists (including, without limitation,
noncompliance with the CRA) that would prevent First Liberty or BB&T from
obtaining all of the federal and state regulatory approvals contemplated herein.
3.17 Compliance with Laws; Filings
Each of First Liberty and each First Liberty Subsidiary is in
compliance with all statutes and regulations (including, but not limited to, the
CRA, the TILA and regulations promulgated thereunder, and other consumer banking
laws), and has obtained and maintained all permits, licenses and registrations
applicable to the conduct of its business, and neither First Liberty nor any
First Liberty Subsidiary has received notification that has not lapsed, been
withdrawn or abandoned by any agency or department of federal, state or local
government (i) asserting a violation or possible violation of any such statute
or regulation, (ii) threatening to revoke any permit, license, registration, or
other government authorization, or (iii) restricting or in any way limiting its
operations. Neither First Liberty nor any First Liberty Subsidiary is subject to
any regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment, and none of them has received any
communication requesting that it enter into any of the foregoing. Since
September 30, 1996, First Liberty and each of the First Liberty Subsidiaries has
filed all reports, registrations, notices and statements, and any amendments
thereto, that it was required to file with federal and state regulatory
authorities, including, without limitation, the OTS, Commission, FDIC, Federal
Reserve Board and applicable state regulators. Each such report, registration,
notice and statement, and each amendment thereto, complied with applicable legal
requirements.
26
<PAGE> 31
3.18 Brokers and Finders
Neither First Liberty nor any First Liberty Subsidiary, nor any of
their respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, in the Plan
of Merger or in the BB&T Option Agreement, except for an obligation to the
Financial Advisor, the nature and extent of which has been Disclosed, for
investment banking services, and except for fees to accountants and lawyers.
3.19 Repurchase Agreements; Derivatives
(a) With respect to all agreements currently outstanding pursuant to
which First Liberty or any First Liberty Subsidiary has purchased securities
subject to an agreement to resell, First Liberty or the First Liberty Subsidiary
has a valid, perfected first lien or security interest in the securities or
other collateral securing such agreement, and the value of such collateral
equals or exceeds the amount of the debt secured thereby, except to the extent
required by the Federal Home Bank of Atlanta. With respect to all agreements
currently outstanding pursuant to which First Liberty or any First Liberty
Subsidiary has sold securities subject to an agreement to repurchase, neither
First Liberty nor the First Liberty Subsidiary has pledged collateral in excess
of the amount of the debt secured thereby. Neither First Liberty nor any First
Liberty Subsidiary has pledged collateral in excess of the amount required under
any interest rate swap or other similar agreement currently outstanding.
(b) Neither First Liberty nor any First Liberty Subsidiary is a party
to or has agreed to enter into an exchange-traded or over-the-counter swap,
forward, future, option, cap, floor, or collar financial contract, or any other
interest rate or foreign currency protection contract not included on its
balance sheets in the Financial Statements, which is a financial derivative
contract (including various combinations thereof), except for options and
forwards entered into in the ordinary course of its mortgage lending business,
liquidity management and interest rate risk management, in each case consistent
with past practice and current policy.
3.20 Deposit Accounts
The deposit accounts of the First Liberty Subsidiaries that are
depository institutions are insured by the FDIC to the maximum extent permitted
by federal law, and the First Liberty Subsidiaries have paid all premiums and
assessments and filed all reports required to have been paid or filed under all
rules and regulations applicable to the FDIC.
27
<PAGE> 32
3.21 Related Party Transactions
First Liberty has Disclosed all existing transactions, investments and
loans, including loan guarantees existing as of the date hereof, to which First
Liberty or any First Liberty Subsidiary is a party with any director, executive
officer or 5% shareholder of First Liberty or any person, corporation, or
enterprise controlling, controlled by or under common control with any of the
foregoing. All such transactions, investments and loans are on terms no less
favorable to First Liberty than could be obtained from unrelated parties.
3.22 Certain Information
When the Proxy Statement/Prospectus is mailed, and at the time of the
meeting of shareholders of First Liberty to vote on the Plan of Merger, the
Proxy Statement/Prospectus and all amendments or supplements thereto, with
respect to all information set forth therein provided by First Liberty, (i)
shall comply with the applicable provisions of the Securities Laws, and (ii)
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
3.23 Tax and Regulatory Matters
Neither First Liberty nor any First Liberty Subsidiary has taken or
agreed to take any action which would or could reasonably be expected to (i)
cause the Merger not to be accounted for as a pooling-of-interests or not to
constitute a reorganization under Section 368 of the Code or (ii) impede or
delay receipt of any consents of regulatory authorities referred to in Section
5.4(b) or result in failure of the condition in Section 6.3(b).
3.24 State Takeover Laws; Shareholder Rights Plan
First Liberty and each First Liberty Subsidiary have taken all
necessary action to exempt the transactions contemplated by this Agreement from
any applicable moratorium, fair price, business combination, control share or
other anti-takeover laws, and no such laws shall be activated or applied as a
result of such transactions. Such transactions shall not trigger or create any
rights in First Liberty shareholders to receive distribution of any shares of
capital stock of First Liberty or any other rights pursuant to the First Liberty
Shareholder Rights Plan dated August 2, 1989, as amended or extended, or
otherwise affect the capital structure or capitalization of First Liberty.
28
<PAGE> 33
3.25 Labor Relations
Neither First Liberty nor any First Liberty Subsidiary is the subject
of any claim or allegation that it has committed an unfair labor practice
(within the meaning of the National Labor Relations Act or comparable state law)
or seeking to compel it to bargain with any labor organization as to wages or
conditions of employment, nor is First Liberty or any First Liberty Subsidiary
party to any collective bargaining agreement. There is no strike or other labor
dispute involving First Liberty or any First Liberty Subsidiary, pending or
threatened, or to the best knowledge of First Liberty, is there any activity
involving any employees of First Liberty or any First Liberty Subsidiary seeking
to certify a collective bargaining unit or engaging in any other organization
activity.
3.26 No Right to Dissent
Nothing in the Articles of Incorporation or the Bylaws of First Liberty
or any First Liberty Subsidiary provides or would provide to any person,
including without limitation the First Liberty shareholders, upon execution of
this Agreement, the Plan of Merger or the BB&T Option Agreement and consummation
of the transactions contemplated hereby and thereby, rights of dissent and
appraisal of any kind.
3.27 Fairness Opinion
First Liberty has received from the Financial Advisor an opinion that,
as of the date hereof, the Merger Consideration is fair to the shareholders of
First Liberty from a financial point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BB&T
BB&T represents and warrants to First Liberty as follows (the
representations and warranties herein of BB&T are made subject to the applicable
standard set forth in Section 6.2(a), and no such representation or warranty
shall be deemed to be inaccurate unless the inaccuracy would permit First
Liberty to refuse to consummate the Merger under such applicable standard):
29
<PAGE> 34
4.1 Capital Structure of BB&T
The authorized capital stock of BB&T consists of (i) 5,000,000 shares
of preferred stock, par value $5.00 per share, of which 2,000,000 shares have
been designated as Series B Junior Participating Preferred Stock and the
remainder are undesignated, and none of which shares are issued and outstanding,
and (ii) 500,000,000 shares of BB&T Common Stock of which 290,210,766 shares
were issued and outstanding on December 31, 1998. All outstanding shares of BB&T
Common Stock have been duly authorized and are validly issued, fully paid and
nonassessable. The shares of BB&T Common Stock reserved as provided in Section
5.3 are free of any Rights and have not been reserved for any other purpose, and
such shares are available for issuance as provided pursuant to the Plan of
Merger. Holders of BB&T Common Stock do not have preemptive rights.
4.2 Organization, Standing and Authority of BB&T
BB&T is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina, with full corporate
power and authority to carry on its business as now conducted and to own, lease
and operate its assets, and is duly qualified to do business in the states of
the United States where its ownership or leasing of property or the conduct of
its business requires such qualification. BB&T is registered as a bank holding
company under the Bank Holding Company Act.
4.3 Authorized and Effective Agreement
(a) BB&T has all requisite corporate power and authority to enter into
and (subject to receipt of all necessary government approvals) perform all of
its obligations under this Agreement. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of BB&T. This Agreement and the Plan of Merger attached hereto
constitute legal, valid and binding obligations of BB&T, and each is enforceable
against BB&T in accordance with its terms, in each case subject to (i)
bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws in effect from time to time relating to or
affecting the enforcement of the rights of creditors; and (ii) general
principles of equity.
(b) Neither the execution and delivery of this Agreement or the
Articles of Merger, nor consummation of the transactions contemplated hereby,
nor compliance by BB&T with any of the provisions hereof or thereof shall (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or bylaws of BB&T or any BB&T Subsidiary, (ii) constitute or
result in a breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon any property or asset of BB&T or any BB&T Subsidiary
30
<PAGE> 35
pursuant to, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to BB&T or any BB&T Subsidiary.
(c) Other than consents or approvals required from, or notices to,
regulatory authorities as provided in Section 5.4(b), no notice to, filing with,
or consent of, any public body or authority is necessary for the consummation by
BB&T of the Merger and the other transactions contemplated in this Agreement.
4.4 Organization, Standing and Authority of BB&T Subsidiaries
Each of the BB&T Subsidiaries is duly organized, validly existing and
in good standing under applicable laws. BB&T owns, directly or indirectly, all
of the issued and outstanding shares of capital stock of each of the BB&T
Subsidiaries. Each of the BB&T Subsidiaries (i) has full power and authority to
carry on its business as now conducted and (ii) is duly qualified to do business
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
qualification.
4.5 Securities Documents; Statements True
BB&T has timely filed all Securities Documents required by the
Securities Laws to be filed since December 31, 1996. As of their respective
dates of filing, such Securities Documents complied with the Securities Laws as
then in effect, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. No statement, certificate, instrument or other writing
furnished or to be furnished hereunder by BB&T or any other BB&T Subsidiary to
First Liberty contains or will contain any untrue statement of material fact or
will omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.6 Certain Information
When the Proxy Statement/Prospectus is mailed, and at all times
subsequent to such mailing up to and including the time of the meeting of
shareholders of First Liberty to vote on the Merger, the Proxy
Statement/Prospectus and all amendments or supplements thereto, with respect to
all information set forth therein relating to BB&T, (i) shall comply with the
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
31
<PAGE> 36
4.7 Tax and Regulatory Matters
Neither BB&T nor any BB&T Subsidiary has taken or agreed to take any
action which would or could reasonably be expected to (i) cause the Merger not
to be accounted for as a pooling-of-interests or not to constitute a
reorganization under Section 368 of the Code, or (ii) materially impede or delay
receipt of any consents of regulatory authorities referred to in Section 5.4(b)
or result in failure of the condition in Section 6.3(b).
ARTICLE V
COVENANTS
5.1 First Liberty Shareholder Meeting
First Liberty shall submit this Agreement and the Plan of Merger to its
shareholders for approval at a meeting to be held as soon as practicable, and by
approving execution of this Agreement, the Board of Directors of First Liberty
agrees that it shall, at the time the Proxy Statement/Prospectus is mailed to
the shareholders of First Liberty, recommend that First Liberty's shareholders
vote for such approval; provided, that the Board of Directors of First Liberty
may withdraw or refuse to make such recommendation only if the Board of
Directors shall determine in good faith that such recommendation should not be
made in light of its fiduciary duty to First Liberty shareholders after
consideration of (i) written advice of legal counsel that, in the opinion of
such counsel, such recommendation or the failure to withdraw or modify such
recommendation would more likely than not constitute a breach of the fiduciary
duty of the Board of Directors to the shareholders of First Liberty, and (ii)
either (A) the written withdrawal by the Financial Advisor of its opinion
referred to in Section 3.27 or (B) the delivery to the Board of Directors of
written advice from the Financial Advisor that the Merger Consideration is
either not fair or inadequate to the First Liberty shareholders from a financial
point of view.
5.2 Registration Statement; Proxy Statement/Prospectus
As promptly as practicable after the date hereof, BB&T shall prepare
and file the Registration Statement with the Commission. First Liberty will
furnish to BB&T the information required to be included in the Registration
Statement with respect to its business and affairs before it is filed with the
Commission and again before any amendments are filed, and shall have the right
to review and consult with BB&T on the form of, and any characterizations of
such information included in, the Registration Statement prior to the filing
with the Commission. Such Registration Statement, at the time it becomes
effective and on the Effective Time, shall in all material respects conform to
the requirements of the Securities Act and the applicable rules and regulations
of the Commission. The Registration Statement shall include the form of Proxy
Statement/Prospectus. BB&T and First Liberty shall use their reasonable best
efforts to cause the Proxy Statement/Prospectus to be approved by the Commission
for mailing to the First Liberty shareholders, and such Proxy
Statement/Prospectus shall, on the date of mailing,
32
<PAGE> 37
conform in all material respects to the requirements of the Securities Laws and
the applicable rules and regulations of the Commission thereunder. First Liberty
shall cause the Proxy Statement/Prospectus to be mailed to shareholders in
accordance with all applicable notice requirements under the Securities Laws and
the GBCC.
5.3 Plan of Merger; Reservation of Shares
At the Effective Time, the Merger shall be effected in accordance with
the Plan of Merger. In connection therewith, BB&T undertakes and agrees (i) to
adopt the Plan of Merger, if not adopted as of the date hereof, and (ii) to pay
or cause to be paid when due the Merger Consideration. BB&T has reserved for
issuance such number of shares of BB&T Common Stock as shall be necessary to pay
the Merger Consideration and agrees not to take any action that would cause the
aggregate number of authorized shares of BB&T Common Stock available for
issuance hereunder not to be sufficient to effect the Merger. If at any time the
aggregate number of shares of BB&T Common Stock reserved for issuance hereunder
is not sufficient to effect the Merger, BB&T shall take all appropriate action
as may be required to increase the number of shares of BB&T Common Stock
reserved for such purpose.
5.4 Additional Acts
(a) First Liberty agrees to take such actions requested by BB&T as may
be reasonably necessary to modify the structure of, or to substitute parties to
(so long as such substitute is BB&T or a BB&T Subsidiary) the transactions
contemplated hereby, provided that such modifications do not change the Merger
Consideration or abrogate the covenants and other agreements contained in this
Agreement, including, without limitation, the covenant not to take any action
that would substantially delay or impair the prospects of completing the Merger
pursuant to this Agreement and the Plan of Merger.
(b) As promptly as practicable after the date hereof, BB&T and First
Liberty shall submit notice or applications for prior approval of the
transactions contemplated herein to the Federal Reserve Board, the OTS and any
other federal, state or local government agency, department or body to which
notice is required or from which approval is required for consummation of the
Merger and the other transactions contemplated hereby. First Liberty and BB&T
each represents and warrants to the other that all information included (or
submitted for inclusion) concerning it, its respective Subsidiaries, and any of
its respective directors, officers and shareholders, shall be true, correct and
complete in all material respects as of the date presented.
(c) BB&T agrees that its Board of Directors or authorized Board
committee shall approve prior to the Effective Time each grant of a converted
option (as described in Section 2.9(a)) to any individual who, subsequent to
consummation of the Merger, will be a director or officer of BB&T under Rule
16b-3 of the Exchange Act.
33
<PAGE> 38
5.5 Best Efforts
Each of BB&T and First Liberty shall use, and shall cause each of their
respective Subsidiaries to use, its best efforts in good faith to (i) furnish
such information as may be required in connection with and otherwise cooperate
in the preparation and filing of the documents referred to in Sections 5.2 and
5.4 or elsewhere herein, and (ii) take or cause to be taken all action necessary
or desirable on its part to fulfill the conditions in Article VI, including,
without limitation, executing and delivering, or causing to be executed and
delivered, such representations, certificates and other instruments or documents
as may be reasonably requested by BB&T's legal counsel for such counsel to issue
the opinion contemplated by Section 6.1(e), and to consummate the transactions
herein contemplated at the earliest possible date. Neither BB&T nor First
Liberty shall take, or cause, or to the best of its ability permit to be taken,
any action that would substantially delay or impair the prospects of completing
the Merger pursuant to this Agreement and the Plan of Merger.
5.6 Certain Accounting Matters
First Liberty shall cooperate with BB&T concerning accounting and
financial matters necessary or appropriate to facilitate the Merger (taking into
account BB&T's policies, practices and procedures), including, without
limitation, issues arising in connection with record keeping, loan
classification, valuation adjustments, levels of loan loss reserves and other
accounting practices; provided, that any action taken pursuant to this Section
5.6 shall be in accordance with GAAP and all regulations applicable to First
Liberty and shall not be deemed to constitute or result in the breach of any
representation or warranty of First Liberty contained in this Agreement.
34
<PAGE> 39
5.7 Access to Information
First Liberty and BB&T will each keep the other advised of all material
developments relevant to its business and the businesses of its Subsidiaries,
and to consummation of the Merger, and each shall provide to the other, upon
request, reasonable details of any such development. Upon reasonable notice,
First Liberty shall afford to representatives of BB&T access, during normal
business hours during the period prior to the Effective Time, to all of the
properties, books, contracts, commitments and records of First Liberty and the
First Liberty Subsidiaries and, during such period, shall make available all
information concerning their businesses as may be reasonably requested. No
investigation pursuant to this Section 5.7 shall affect or be deemed to modify
any representation or warranty made by, or the conditions to the obligations
hereunder of, either party hereto. Each party hereto shall, and shall cause each
of its directors, officers, attorneys and advisors to, maintain the
confidentiality of all information obtained hereunder which is not otherwise
publicly disclosed by the other party, said undertakings with respect to
confidentiality to survive any termination of this Agreement pursuant to Section
7.1. In the event of the termination of this Agreement, each party shall return
to the other party upon request all confidential information previously
furnished in connection with the transactions contemplated by this Agreement.
5.8 Press Releases
BB&T and First Liberty shall mutually agree as to the form and
substance of any press release related to this Agreement and the Plan of Merger
or the transactions contemplated hereby and thereby, and consult with each other
as to the form and substance of other public disclosures related thereto;
provided, that nothing contained herein shall prohibit either party, following
notification to the other party, from making any disclosure which in the opinion
of its counsel is required by law.
5.9 Forbearances of First Liberty
Except with the prior written consent of BB&T, between the date hereof
and the Effective Time, First Liberty shall not, and shall cause each of the
First Liberty Subsidiaries not to:
(a) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore
conducted, or establish or acquire any new Subsidiary or engage in any
new type of activity or expand any existing activities;
(b) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock, other than regularly
scheduled quarterly dividends of $.095 per share of First Liberty
Common Stock payable on record dates and in amounts consistent with
past practices; provided that any dividend declared or payable on the
shares of First Liberty Common Stock for the quarterly period during
which the Effective Time occurs
35
<PAGE> 40
shall, unless otherwise agreed upon in writing by BB&T and First
Liberty, be declared with a record date prior to the Effective Time
only if the normal record date for payment of the corresponding
quarterly dividend to holders of BB&T Common Stock is before the
Effective Time (it being the express intention of the parties that
shareholders of First Liberty receive not more than one dividend in the
calendar quarter in which the Effective Time occurs);
(c) issue any shares of its capital stock (including treasury
shares), except pursuant to the Stock Option Plans, the First Liberty
ESSOP or the BB&T Option Agreement;
(d) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like
change in capitalization, except that, on or before the earlier to
occur of November 30, 1999 and the Effective Time, First Liberty may,
consistent with past practice and subject to Section 5.9(i), grant
stock options for First Liberty's fiscal year ending September 30, 1999
based on First Liberty's financial performance for such fiscal year (1)
to purchase up to 116,850 shares of First Liberty Common Stock in the
aggregate to approximately 40 First Liberty employees under the
Performance Excellence Plan and (2) to purchase up to 116,000 shares of
First Liberty Common Stock in the aggregate to approximately 11
executive officers and nine directors of First Liberty under the Stock
Option Plans; provided, that any First Liberty employee to whom any
such options are issued who would otherwise be eligible to receive
stock options from BB&T in the first quarter of 2000 shall not be so
eligible;
(e) amend its Articles of Incorporation or Bylaws;
(f) impose or permit imposition, of any lien, charge or
encumbrance on any share of stock held by it in any First Liberty
Subsidiary, or permit any such lien, charge or encumbrance to exist; or
waive or release any material right or cancel or compromise any debt or
claim, in each case other than in the ordinary course of business;
(g) merge with any other entity or permit any other entity to
merge into it, or consolidate with any other entity; acquire control
over any other entity; or liquidate, sell or otherwise dispose of any
assets or acquire any assets other than in the ordinary course of its
business consistent with past practices;
(h) fail to comply in any material respect with any laws,
regulations, ordinances or governmental actions applicable to it and to
the conduct of its business;
(i) increase the rate of compensation of any of its directors,
officers or employees (excluding increases in compensation resulting
from the exercise of compensatory stock options outstanding as of the
date of this Agreement), or pay or agree
36
<PAGE> 41
to pay any bonus to, or provide any new employee benefit or incentive
to, any of its directors, officers or employees, except for increases
or payments made in the ordinary course of business consistent with
past practice pursuant to plans or arrangements in effect on the date
hereof;
(j) enter into or substantially modify (except as may be
required by applicable law or regulation) any pension, retirement,
stock option, stock purchase, stock appreciation right, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees; provided, however, that
this Section 5.9(j) shall not prevent (1) renewal of any of the
foregoing consistent with past practice or (2) amendment of the First
Liberty Shareholder Rights Plan dated August 2, 1989 only to extend the
term of such Rights Plan, if and to the extent determined by BB&T in
its sole reasonable discretion that such amendment will not cause the
Merger not to be accounted for as a pooling-of-interests;
(k) solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition or purchase of
all or a substantial portion of the assets of, or a substantial equity
interest in, First Liberty or any First Liberty Subsidiary or any
business combination with First Liberty or any First Liberty Subsidiary
other than as contemplated by this Agreement; or authorize any officer,
director, agent or affiliate of First Liberty or any First Liberty
Subsidiary to do any of the above; or fail to notify BB&T immediately
if any such inquiries or proposals are received, any such information
is requested or required, or any such negotiations or discussions are
sought to be initiated; provided, that this subsection (k) shall not
apply to furnishing information, negotiations or discussions following
an unsolicited offer if, as a result of such offer, First Liberty is
advised in writing by legal counsel that in its opinion the failure to
so furnish information or negotiate would likely constitute a breach of
the fiduciary duty of First Liberty's Board of Directors to the First
Liberty shareholders;
(l) enter into (i) any material agreement, arrangement or
commitment not made in the ordinary course of business, (ii) any
material agreement, indenture or other instrument not made in the
ordinary course of business relating to the borrowing of money by First
Liberty or a First Liberty Subsidiary or guarantee by First Liberty or
a First Liberty Subsidiary of any obligation, (iii) any agreement,
arrangement or commitment relating to the employment or severance of a
consultant or the employment, severance, election or retention in
office of any present or former director, officer or employee (this
clause shall not apply to the election of directors by shareholders or
the reappointment of officers in the normal course), or (iv) any
contract, agreement or understanding with a labor union;
37
<PAGE> 42
(m) change its lending, investment or asset liability
management policies in any material respect, except as may be required
by applicable law, regulation, or directives, and except that after
approval of the Agreement and the Plan of Merger by its shareholders
and after receipt of the requisite regulatory approvals for the
transactions contemplated by this Agreement and the Plan of Merger,
First Liberty shall cooperate in good faith with BB&T to adopt
policies, practices and procedures consistent with those utilized by
BB&T and in accordance with GAAP and all applicable regulations,
effective on or before the Closing Date;
(n) change its methods of accounting in effect at September
30, 1998, except as required by changes in GAAP concurred in by BB&T,
which concurrence shall not be unreasonably withheld, or change any of
its methods of reporting income and deductions for federal income tax
purposes from those employed in the preparation of its federal income
tax returns for the year ended September 30, 1998, except as required
by changes in law or regulation;
(o) incur any commitments for capital expenditures or
obligation to make capital expenditures in excess of $100,000, for any
one expenditure, or $1,000,000, in the aggregate;
(p) incur any indebtedness other than deposits from customers,
advances from the Federal Home Loan Bank or Federal Reserve Bank, draws
on its existing line of credit with SunTrust Bank and reverse
repurchase arrangements, in each case in the ordinary course of
business;
(q) take any action which would or could reasonably be
expected to (i) cause the Merger not to be accounted for as a
pooling-of-interests or not to constitute a reorganization under
Section 368 of the Code as determined by BB&T, (ii) result in any
inaccuracy of a representation or warranty herein which would allow for
a termination of this Agreement, or (iii) cause any of the conditions
precedent to the transactions contemplated by this Agreement to fail to
be satisfied;
(r) except in connection with the sale of two of its branches
as Disclosed, dispose of any material assets other than in the ordinary
course of business; or
(s) agree to do any of the foregoing.
38
<PAGE> 43
5.10 Employment Agreements
BB&T (or its specified BB&T Subsidiary) agrees to enter into employment
agreements as of the Effective Time with certain executives of First Liberty
substantially in the forms attached respectively as Annexes B-1 through B-10.
5.11 Affiliates
First Liberty shall use its best efforts to cause all persons who are
Affiliates of First Liberty to deliver to BB&T promptly following this Agreement
a written agreement providing that such person will not dispose of BB&T Common
Stock received in the Merger except in compliance with the Securities Act and
the rules and regulations promulgated thereunder and except as consistent with
qualifying the transactions contemplated hereby for pooling of interests
accounting treatment, and in any event shall use its best efforts to cause such
affiliates to deliver to BB&T such written agreement prior to the Closing Date.
5.12 Section 401(k) Plan; ESSOP; Other Employee Benefits
(a) Each employee of First Liberty at the Effective Time who becomes an
employee immediately following the Effective Time of BB&T or a BB&T Subsidiary
("Employer Entity") shall be eligible to participate in BB&T's 401(k) plan
(subject to BB&T's right to terminate such plan). For purposes of administering
BB&T's 401(k) plan, service with First Liberty and the First Liberty
Subsidiaries shall be deemed to be service with BB&T or the BB&T Subsidiaries
for participation and vesting purposes, but not for purposes of benefit accrual.
(b) (i) Each participant in the First Liberty ESSOP not fully
vested will become fully vested in his or her First Liberty ESSOP
account as of the Effective Time. As soon as practicable after the
execution of this Agreement, First Liberty and BB&T will cooperate to
cause the First Liberty ESSOP to be amended and other action taken, in
a manner reasonably acceptable to First Liberty and BB&T, to provide
that the First Liberty ESSOP will terminate upon the Effective Time.
Between the date hereof and the Effective Time, First Liberty or a
First Liberty Subsidiary shall make contributions to the First Liberty
ESSOP in accordance with the provisions of the First Liberty ESSOP and
consistent with past practice. First Liberty and BB&T agree that,
subject to the conditions described herein, as soon as practicable
after the Effective Time, participants in the First Liberty ESSOP shall
be entitled at their election to have the assets in their First Liberty
ESSOP accounts either distributed to them in a lump sum or rolled over
to another tax-qualified plan (including the BB&T 401(k) plan to the
extent permitted by such plan) or individual retirement account.
(ii) The actions relating to termination of the First Liberty
ESSOP will be adopted conditional upon the consummation of the Merger
and upon receiving a favorable determination letter from the IRS with
regard to the continued qualification of the First Liberty ESSOP. First
Liberty and BB&T will cooperate in submitting
39
<PAGE> 44
appropriate requests for any such determination letter to the IRS and
will use their best efforts to seek the issuance of such letter as soon
as practicable following the date hereof. First Liberty and BB&T will
adopt such additional amendments to the First Liberty ESSOP as may be
required by the IRS as a condition to granting such determination
letter, provided that such amendments do not (i) substantially change
the terms outlined herein, (ii) have a Material Adverse Effect on First
Liberty or (iii) result in an additional material liability to BB&T.
(iii) As of and following the Effective Time, BB&T shall cause
the First Liberty ESSOP to be maintained for the exclusive benefit of
employees and other persons who were participants or beneficiaries
therein prior to the Effective Time, and shall proceed with termination
of the First Liberty ESSOP through distribution of its assets in
accordance with its terms (subject to the amendments described herein
and as otherwise may be required to comply with applicable law or to
obtain a favorable determination from the IRS as to the continuing
qualified status of the First Liberty ESSOP); provided, however, that
no such termination distributions from the First Liberty ESSOP shall
occur after the Effective Time until a favorable determination letter
has been received from the IRS.
(c) Each employee of First Liberty at the Effective Time who
becomes an employee immediately following the Effective Time of an Employer
Entity shall be eligible to participate in the group hospitalization, medical,
dental, life, disability and other welfare benefit plans and programs available
to employees of the Employer Entity, subject to the terms of such plans and
programs; provided, that service with First Liberty shall be deemed to be
service with the Employer Entity for the purpose of determining eligibility to
participate and vesting (if applicable) in such welfare plans and programs, but
not for the purpose of computing benefits, if any, determined in whole or in
part with reference to service. Coverage under the group health plans of First
Liberty and the First Liberty Subsidiaries will be deemed "creditable coverage"
within the meaning of ERISA Section 701(c) for purposes of any preexisting
condition limitation which may apply under any group health plan maintained by
an Employer Entity; provided, however, that no coverage prior to a "significant
break in coverage" as defined in ERISA Section 701(c)(2) shall be counted as
"creditable coverage."
(d) Each employee of First Liberty or a First Liberty Subsidiary
who becomes an employee of an Employer Entity and is terminated by such or
another Employer Entity subsequent to the Effective Time, excluding any employee
who has an existing employment or special termination agreement which is
Disclosed, shall be entitled to severance pay in accordance with the general
severance policy maintained by BB&T, if and to the extent that such employee is
entitled to severance pay under such policy. Such employee's service with First
Liberty or a First Liberty Subsidiary shall be treated as service with BB&T for
purposes of determining the amount of severance pay, if any, under BB&T's
severance policy.
40
<PAGE> 45
(e) BB&T agrees to honor all employment agreements, severance
agreements and deferred compensation agreements, including without limitation
outstanding obligations under First Liberty's Nonqualified Deferred Compensation
Plan, that First Liberty and the First Liberty Subsidiaries have with their
current and former employees and directors and which have been Disclosed to BB&T
pursuant to this Agreement, except to the extent any such agreements shall be
superseded or terminated at the Closing or following the Closing Date. Except
for the agreements described in the preceding sentence, the Stock Option Plans,
Performance Excellence Plan and other employee benefit plans of First Liberty
shall be terminated as of the Effective Time.
5.13 Directors and Officers Protection
BB&T or a BB&T Subsidiary shall provide and keep in force for a period
of three years after the Effective Time directors' and officers' liability
insurance providing coverage to directors and officers of First Liberty for acts
or omissions occurring prior to the Effective Time. Such insurance shall provide
at least the same coverage and amounts as contained in First Liberty's policy on
the date hereof; provided, that in no event shall the annual premium on such
policy exceed 150% of the annual premium payments on First Liberty's policy in
effect as of the date hereof (the "Maximum Amount"). If the amount of the
premiums necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, BB&T shall use its reasonable efforts to maintain the most
advantageous policies of directors' and officers' liability insurance obtainable
for a premium equal to the Maximum Amount. Notwithstanding the foregoing, BB&T
further agrees to indemnify all individuals who are or have been officers,
directors or employees of First Liberty or any First Liberty Subsidiary prior to
the Effective Time from any acts or omissions in such capacities prior to the
Effective Time, to the extent that such indemnification is provided pursuant to
the Articles of Incorporation of First Liberty on the date hereof and is
permitted under the GBCC. If BB&T or the BB&T Subsidiary maintaining the
insurance provided for in this Section 5.13 or any successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of the consolidation or merger, or shall transfer all or
substantially all of its assets to any entity, proper provision shall be made so
that the successor or assign of BB&T or the BB&T Subsidiary shall assume the
obligations in this Section 5.13. This Section 5.13 is intended for the benefit
of and shall be enforceable by each indemnified officer and director and their
respective heirs and representatives.
41
<PAGE> 46
5.14 Forbearances of BB&T
Except with the prior written consent of First Liberty, neither BB&T
nor any BB&T Subsidiary shall take any action which would or might be expected
to (i) cause the business combination contemplated hereby not to be accounted
for as a pooling-of-interests or not to constitute a reorganization under
Section 368 of the Code; (ii) result in any inaccuracy of a representation or
warranty herein which would allow for termination of this Agreement; (iii) cause
any of the conditions precedent to the transactions contemplated by this
Agreement to fail to be satisfied; (iv) exercise the BB&T Option Agreement other
than in accordance with its terms, or dispose of the shares of First Liberty
Common Stock issuable upon exercise of the option rights conferred thereby other
than as permitted by the terms thereof; or (v) fail to comply in any material
respect with any laws, regulations, ordinances or governmental actions
applicable to it and to the conduct of its business.
5.15 Reports
Each of First Liberty and BB&T shall file (and shall cause the First
Liberty Subsidiaries and the BB&T Subsidiaries, respectively, to file), between
the date of this Agreement and the Effective Time, all reports required to be
filed by it with the Commission and any other regulatory authorities having
jurisdiction over such party, and shall deliver to BB&T or First Liberty, as the
case may be, copies of all such reports promptly after the same are filed. If
financial statements are contained in any such reports filed with the
Commission, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows for the periods then ended in accordance with GAAP
(subject in the case of interim financial statements to the absence of notes and
to normal year-end adjustments that are not material). As of their respective
dates, such reports filed with the Commission will comply in all material
respects with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained
in any other reports to a regulatory authority other than the Commission shall
be prepared in accordance with requirements applicable to such reports.
5.16 Exchange Listing
BB&T shall use its reasonable best efforts to list, prior to the
Effective Time, on the NYSE, subject to official notice of issuance, the shares
of BB&T Common Stock to be issued to the holders of First Liberty Common Stock
pursuant to the Merger, and BB&T shall give all notices and make all filings
with the NYSE required in connection with the transactions contemplated herein.
42
<PAGE> 47
5.17 Advisory Board for Georgia Area
As of the Effective Time, Robert F. Hatcher shall be named chairman of
the BB&T Advisory Board for the State of Georgia (the "State Advisory Board"),
the initial members of which are to be chosen by Robert F. Hatcher and BB&T. The
State Advisory Board shall meet not more than six times per year, and members
shall receive a fee of $1,000 per meeting attended. In addition, the Advisory
Boards of First Liberty in existence on the date hereof shall continue in effect
as Area Advisory Boards of BB&T for their respective market areas ("Area
Advisory Boards"). For two years following the Effective Time, the Area Advisory
Board members appointed pursuant to this Section 5.17 and who continue to serve
shall receive, as compensation for service on an Area Advisory Board, fees
(annual retainer and attendance fees) equal in amount each year (prorated for
any partial year) to the annual retainer and schedule of attendance fees for
directors of First Liberty in effect on January 1, 1999. Following such two-year
period, Area Advisory Board Members, if they continue to serve in such capacity,
shall receive fees in accordance with BB&T's standard schedule of fees for
service thereon as in effect from time to time. For two years after the
Effective Time, no such Area Advisory Board member shall be prohibited from
serving thereon because he or she shall have attained the maximum age for
service thereon (currently age 70).
5.18 Board of Directors of Branch Banking and Trust Company
As of the Effective Time, Branch Banking and Trust Company, a North
Carolina banking corporation, shall elect Robert F. Hatcher to its Board of
Directors, to serve until its next annual meeting (subject to the right of
removal for cause) and thereafter so long as he is elected and qualifies.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent - BB&T and First Liberty
The respective obligations of BB&T and First Liberty to effect the
transactions contemplated by this Agreement shall be subject to satisfaction or
waiver of the following conditions at or prior to the Effective Time:
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Agreement and the Plan of Merger, and consummation of
the transactions contemplated hereby and thereby, shall have been duly and
validly taken, including, without limitation, the approval by the shareholders
of First Liberty of the Agreement and the Plan of Merger;
43
<PAGE> 48
(b) The Registration Statement (including any post-effective amendments
thereto) shall be effective under the Securities Act, no proceedings shall be
pending or to the knowledge of BB&T threatened by the Commission to suspend the
effectiveness of such Registration Statement and the BB&T Common Stock to be
issued as contemplated in the Plan of Merger shall have either been registered
or be subject to exemption from registration under applicable state securities
laws;
(c) The parties shall have received all regulatory approvals required
in connection with the transactions contemplated by this Agreement and the Plan
of Merger, all notice periods and waiting periods with respect to such approvals
shall have passed and all such approvals shall be in effect;
(d) None of BB&T, any of the BB&T Subsidiaries, First Liberty or any of
the First Liberty Subsidiaries shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated by this Agreement; and
(e) First Liberty and BB&T shall have received an opinion of BB&T's
legal counsel, in form and substance satisfactory to First Liberty and BB&T,
substantially to the effect that the Merger will constitute one or more
reorganizations under Section 368 of the Code and that the shareholders of First
Liberty will not recognize any gain or loss to the extent that such shareholders
exchange shares of First Liberty Common Stock for shares of BB&T Common Stock.
6.2 Conditions Precedent - First Liberty
The obligations of First Liberty to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following additional conditions at or prior to the Effective Time, unless waived
by First Liberty pursuant to Section 7.4:
(a) All representations and warranties of BB&T shall be evaluated as of
the date of this Agreement and as of the Effective Time as though made on and as
of the Effective Time (or on the date designated in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in writing by
First Liberty. The representations and warranties of BB&T set forth in Sections
4.1, 4.2 (except as relates to qualification), 4.3(a), 4.3(b)(i) and 4.4 (except
as relates to qualification) shall be true and correct (except for inaccuracies
which are de minimis in amount). There shall not exist inaccuracies in the
representations and warranties of BB&T set forth in this Agreement (including
the representations and warranties set forth in Sections 4.1, 4.2, 4.3(a),
4.3(b)(i) and 4.4) such that the aggregate effect of such inaccuracies has, or
is reasonably likely to have, a Material Adverse Effect on BB&T;
(b) BB&T shall have performed in all material respects all obligations
and complied in all material respects with all covenants required by this
Agreement;
44
<PAGE> 49
(c) BB&T shall have delivered to First Liberty a certificate, dated the
Closing Date and signed by its Chairman or President or an Executive Vice
President, to the effect that the conditions set forth in Sections 6.1(a),
6.1(b), 6.1(c), 6.1(d), 6.2(a) and 6.2(b) hereof, to the extent applicable to
BB&T, have been satisfied and that there are no actions, suits, claims,
governmental investigations or procedures instituted, pending or, to the best of
such officer's knowledge, threatened that reasonably may be expected to have a
Material Adverse Effect on BB&T or that present a claim to restrain or prohibit
the transactions contemplated herein or in the Plan of Merger;
(d) First Liberty shall have received opinions of counsel to BB&T in
the form reasonably acceptable to First Liberty's legal counsel; and
(e) The shares of BB&T Common Stock issuable pursuant to the Merger
shall have been approved for listing on the NYSE, subject to official notice of
issuance.
6.3 Conditions Precedent - BB&T
The obligations of BB&T to effect the transactions contemplated by this
Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Time, unless waived by BB&T pursuant to
Section 7.4:
(a) All representations and warranties of First Liberty shall be
evaluated as of the date of this Agreement and as of the Effective Time as
though made on and as of the Effective Time (or on the date designated in the
case of any representation and warranty which specifically relates to an earlier
date), except as otherwise contemplated by this Agreement or consented to in
writing by BB&T. The representations and warranties of First Liberty set forth
in Sections 3.1, 3.2 (except the last sentence thereof), 3.3, 3.4 (except the
last sentence thereof), 3.5(a), 3.5(b)(i), 3.23 and 3.24 shall be true and
correct (except for inaccuracies which are de minimis in amount). There shall
not exist inaccuracies in the representations and warranties of First Liberty
set forth in this Agreement (including the representations and warranties set
forth in the Sections designated in the preceding sentence) such that the effect
of such inaccuracies individually or in the aggregate has, or is reasonably
likely to have, a Material Adverse Effect on First Liberty and the First Liberty
Subsidiaries taken as a whole;
(b) No regulatory approval shall have imposed any condition or
requirement which, in the reasonable opinion of the Board of Directors of BB&T,
would so materially adversely affect the business or economic benefits to BB&T
of the transactions contemplated by this Agreement as to render consummation of
such transactions inadvisable or unduly burdensome;
(c) First Liberty shall have performed in all material respects all
obligations and complied in all material respects with all covenants required by
this Agreement;
45
<PAGE> 50
(d) First Liberty shall have delivered to BB&T a certificate, dated the
Closing Date and signed by its Chairman or President, to the effect that the
conditions set forth in Sections 6.1(a), 6.1(c), 6.3(a) and 6.3(c) hereof, to
the extent applicable to First Liberty, have been satisfied and that there are
no actions, suits, claims, governmental investigations or procedures instituted,
pending or, to the best of such officer's knowledge, threatened that reasonably
may be expected to have a Material Adverse Effect on First Liberty or that
present a claim to restrain or prohibit the transactions contemplated herein or
in the Plan of Merger;
(e) BB&T shall have received opinions of counsel to First Liberty in
the form reasonably acceptable to BB&T's legal counsel;
(f) BB&T shall have received the written agreements from Affiliates as
specified in Section 5.11 hereof to the extent necessary, in the reasonable
judgment of BB&T, to ensure that the Merger will be accounted for as a pooling
of interests under GAAP and to promote compliance with Rule 145 promulgated by
the Commission;
(g) BB&T shall have received letters, dated as of the date of filing of
the Registration Statement with the Commission and as of the Effective Time,
addressed to BB&T, in form and substance reasonably satisfactory to BB&T, from
Arthur Andersen, LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment; and
(h) BB&T shall have received Employment Agreements substantially in the
form of Annex B-1, B-2 and B-3 executed by Robert F. Hatcher, Lee B. Murphey and
Larry D. Flowers, respectively.
ARTICLE VII
TERMINATION, DEFAULT, WAIVER AND AMENDMENT
7.1 Termination
This Agreement may be terminated:
(a) At any time prior to the Effective Time, by the mutual consent in
writing of the parties hereto.
(b) At any time prior to the Effective Time, by either party (i) in the
event of a material breach by the other party of any covenant or agreement
contained in this Agreement, or (ii) in the event of an inaccuracy of any
representation or warranty of the other party contained in this Agreement, which
inaccuracy would provide the nonbreaching party the ability to refuse to
consummate the Merger under the applicable standard set forth in Section 6.2(a)
hereof in the case of First Liberty and Section 6.3(a) hereof in the case of
BB&T; and, in the case of (i) or (ii), if such breach or inaccuracy has not been
cured by the earlier of thirty days following written notice of such breach to
the party committing such breach or the Effective Time.
46
<PAGE> 51
(c) At any time prior to the Effective Time, by either party hereto in
writing, if any of the conditions precedent to the obligations of the other
party to consummate the transactions contemplated hereby cannot be satisfied or
fulfilled prior to the Closing Date, and the party giving the notice is not in
material breach of any of its representations, warranties, covenants or
undertakings herein.
(d) At any time, by either party hereto in writing, if any of the
applications for prior approval referred to in Section 5.4 hereof are denied,
and the time period for appeals and requests for reconsideration has run.
(e) At any time, by either party hereto in writing, if the shareholders
of First Liberty do not approve the Agreement and the Plan of Merger.
(f) At any time following December 31,1999 by either party hereto in
writing, if the Effective Time has not occurred by the close of business on such
date, and the party giving the notice is not in material breach of any of its
representations, warranties, covenants or undertakings herein.
(g) At any time prior to 11:59 p.m. on June 15, 1999 by BB&T in
writing, if BB&T determines in its sole good faith judgment, through review of
information Disclosed by First Liberty, or otherwise, that the financial
condition, results of operations, business or business prospects of First
Liberty and of the First Liberty Subsidiaries, taken as a whole, are materially
adversely different from BB&T's reasonable expectations with respect thereto on
the date of execution of this Agreement (which reasonable expectations were
formed without regard to any Disclosed information); provided that BB&T shall
inform First Liberty upon such termination as to the reasons for BB&T's
determination. The fact that First Liberty has Disclosed information shall not
prevent BB&T from terminating this Agreement pursuant to this Section 7.1(g) on
account of such information.
7.2 Effect of Termination
In the event this Agreement and the Plan of Merger is terminated
pursuant to Section 7.1 hereof, both this Agreement and the Plan of Merger shall
become void and have no effect, except that (i) the provisions hereof relating
to confidentiality and expenses set forth in Sections 5.7 and 8.1 hereof,
respectively, shall survive any such termination and (ii) a termination pursuant
to Section 7.1(b) hereof shall not relieve the breaching party from liability
for a breach of the covenant, agreement, representation or warranty giving rise
to such termination. The BB&T Option Agreement shall be governed by its own
terms.
47
<PAGE> 52
7.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement or the
Plan of Merger or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Time, other than
covenants that by their terms are to be performed after the Effective Time
(including Sections 5.13, 5.17 and 5.18), provided that no such representations,
warranties or covenants shall be deemed to be terminated or extinguished so as
to deprive BB&T or First Liberty (or any director, officer or controlling person
thereof) of any defense at law or in equity which otherwise would be available
against the claims of any person, including, without limitation, any shareholder
or former shareholder of either BB&T or First Liberty, the aforesaid
representations, warranties and covenants being material inducements to
consummation by BB&T and First Liberty of the transactions contemplated herein.
7.4 Waiver
Except with respect to any required regulatory approval, each party
hereto, by written instrument signed by an executive officer of such party, may
at any time (whether before or after approval of the Agreement and the Plan of
Merger by the First Liberty shareholders) extend the time for the performance of
any of the obligations or other acts of the other party hereto and may waive (i)
any inaccuracies of the other party in the representations or warranties
contained in this Agreement, the Plan of Merger or any document delivered
pursuant hereto or thereto, (ii) compliance with any of the covenants,
undertakings or agreements of the other party, or satisfaction of any of the
conditions precedent to its obligations, contained herein or in the Plan of
Merger, or (iii) the performance by the other party of any of its obligations
set out herein or therein; provided that no such extension or waiver, or
amendment or supplement pursuant to this Section 7.4, executed after approval by
the First Liberty shareholders of this Agreement and the Plan of Merger, shall
reduce either the Exchange Ratio or the payment terms for fractional interests.
48
<PAGE> 53
7.5 Amendment or Supplement
This Agreement or the Plan of Merger may be amended or supplemented at
any time in writing by mutual agreement of BB&T and First Liberty, subject to
the proviso to Section 7.4.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated by this Agreement,
including, without limitation, fees and expenses of its own financial
consultants, accountants and counsel; provided, however, that the filing fees
and printing costs incurred in connection with the Registration Statement and
the Proxy Statement/Prospectus shall be borne 50% by BB&T and 50% by First
Liberty.
8.2 Entire Agreement
This Agreement, including the documents and other writings referenced
herein or delivered pursuant hereto, contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and thereunder
and supersedes all arrangements or understandings with respect thereto, written
or oral, entered into on or before the date hereof. The terms and conditions of
this Agreement and the BB&T Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and thereto and their respective successors.
Nothing in this Agreement or the BB&T Option Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto and thereto,
and their respective successors, any rights, remedies, obligations or
liabilities, except for the rights of directors and officers of First Liberty to
enforce rights in Sections 5.13, 5.17 and 5.18.
8.3 No Assignment
Except for a substitution of parties pursuant to Section 5.4(a), none
of the parties hereto may assign any of its rights or obligations under this
Agreement to any other person, except upon the prior written consent of each
other party.
8.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
nationally recognized overnight express courier or by facsimile transmission,
addressed or directed as follows:
49
<PAGE> 54
If to First Liberty:
Robert F. Hatcher
First Liberty Financial Corp.
201 Second Street
Macon, Georgia 31297
Telephone: 912-722-7400
Fax: 912-722-7288
With a required copy to:
Richard A. Hills, Jr.
First Liberty Financial Corp.
6491 Peachtree Industrial Boulevard
Atlanta, Georgia 31297
Telephone: 770-936-3252
Fax: 770-936-3323
If to BB&T:
Scott E. Reed
BB&T Corporation
150 South Stratford Road, 4th Floor
Winston-Salem, North Carolina 27104
Telephone: 336-733-3088
Fax: 336-733-2296
With a required copy to:
William A. Davis, II
Womble Carlyle Sandridge & Rice, PLLC
200 West Second Street
Winston-Salem, North Carolina 27102
Telephone: 336-721-3624
Fax: 336-733-8364
Any party may by notice change the address to which notice or other
communications to it are to be delivered.
50
<PAGE> 55
8.5 Specific Performance
First Liberty acknowledges that the First Liberty Common Stock and the
First Liberty business and assets are unique, and that if First Liberty fails to
consummate the transactions contemplated by this Agreement such failure will
cause irreparable harm to BB&T for which there will be no adequate remedy at
law, BB&T shall be entitled, in addition to its other remedies at law, to
specific performance of this Agreement if First Liberty shall, without cause,
refuse to consummate the transactions contemplated by this Agreement.
8.6 Captions
The captions contained in this Agreement are for reference only and are
not part of this Agreement.
8.7 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.8 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina, without regard to the principles of
conflicts of laws, except to the extent federal law may be applicable.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed in counterparts by their duly
authorized officers, all as of the day and year first above written.
BB&T CORPORATION
By: /s/John A. Allison, IV
------------------------------------------
Name: John A. Allison, IV
Title: President and Chief Executive Officer
FIRST LIBERTY FINANCIAL CORP.
By: /s/Robert F. Hatcher
------------------------------------------
Name: Robert F. Hatcher
Title: President and Chief Executive Officer
51
<PAGE> 56
Robert F. Hatcher, Lee B. Murphey and Larry D. Flowers hereby agree to
execute and deliver to BB&T at Closing the Employment Agreements substantially
in the form of Annex B-1, B-2 and B-3, respectively.
/s/Robert F. Hatcher
--------------------
Robert F. Hatcher
/s/Lee B. Murphey
--------------------
Lee B. Murphey
/s/Larry D. Flowers
--------------------
Larry D. Flowers
52
<PAGE> 57
BB&T to acquire First Liberty Financial Corp. of Macon, Ga.
WINSTON-SALEM, N.C., April 28 /PRNewswire/ -- BB&T Corporation (NYSE: BBT -
news) said today it will buy First Liberty Financial Corp. (Nasdaq: FLFC - news)
of Macon, Ga., in a $500 million stock swap that will give BB&T its second
Georgia bank.
First Liberty Financial, with $1.7 billion in assets, operates 39 banking
offices and 13 consumer finance offices in Macon and Savannah, Ga., and
neighboring areas. Its principal subsidiaries include First Liberty Mortgage
Corp. and OFC Capital Corp., an equipment leasing subsidiary.
The transaction, approved by the directors of both companies, will be accounted
for as a pooling of interests. Based on BB&T's closing price of $39 on Monday,
First Liberty shareholders will receive 0.8525 BB&T share for each First Liberty
share, worth $33.25.
The final exchange ratio will be determined based on a pricing period prior to
closing. First Liberty shareholders will receive $33.25 worth of BB&T common
stock if BB&T's average price during the pricing period is between $38.22 and
$39.12. If BB&T's price is less than $38.22, shareholders will receive a fixed
exchange ratio of 0.87. If BB&T's price is more than $39.12, they will receive a
fixed exchange ratio of 0.85.
"First Liberty is a quality institution that will allow us to expand our
presence into economically strong markets in Georgia," said BB&T Chairman and
Chief Executive Officer John Allison. "We're excited about adding a community
bank with a philosophy and corporate culture that is very compatible with ours."
BB&T announced its initial move into Georgia in late January with its pending
acquisition of First Citizens Corp. of Newnan, Ga., giving it entry into
metropolitan Atlanta. First Liberty will boost BB&T's assets in Georgia to more
than $2 billion.
First Liberty President and Chief Executive Officer Robert Hatcher will be named
president of BB&T's Georgia Operations.
BB&T's newest region will be headquartered in Macon and First Liberty Executive
Vice President Larry Flowers will be named its president. BB&T currently has 17
<PAGE> 58
autonomous regions, which operate like community banks. More than 95 percent of
lending decisions are made locally.
First Liberty also operates a regional community banking network. The similar
operating systems should make First Liberty's transition an easy one for bank
customers and employees.
"Just like First Liberty, BB&T is a financial institution attuned to the
customer," Hatcher said. "BB&T's community banking structure will allow us to
serve existing customers and new ones the way we always have. Only now we'll
also be able to provide all the products and services of a financial institution
with nearly $38 billion in assets."
First Liberty customers will be introduced to a broad product line that includes
insurance, mutual funds, annuities, trust, retail brokerage, investment banking,
treasury services and international banking.
First Liberty operates banking offices in Macon and Savannah, and the following
locations: Adel, Butler, Byron, Douglas, Forsyth, Fort Valley, Milledgeville,
Nashville, Roberta, Swainsboro, Sylvania, Tifton, Valdosta, Vidalia, Warner
Robins and Waycross.
Named the top "small business-friendly" bank in the nation by the U.S. Small
Business Administration, BB&T expects to expand consumer, small business and
commercial lending opportunities in those communities.
"Maybe the best thing about our new partnership is that both companies believe
in treating customers with the highest level of personal service possible,"
Hatcher said. "We look forward to joining an expanding franchise rooted in a
community banking philosophy."
The acquisition will extend BB&T's presence from northern Maryland to south
Georgia.
The merger, which is subject to the approval of the First Liberty shareholders
and banking regulators, is expected to be completed in the fourth quarter of
1999.
<PAGE> 59
Winston-Salem, N.C.-based BB&T Corporation, with $37.8 billion in assets,
operates 581 banking offices in the Carolinas, Virginia, Maryland and
Washington, D.C.
Business Week magazine recently named BB&T Corporation the second highest
performing S&P 500 bank holding company in the nation.
<PAGE> 1
EXHIBIT 99.7
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into
as of April 27, 1999 by and between FIRST LIBERTY FINANCIAL CORP., a Georgia
corporation ("First Liberty" or "Issuer"), and BB&T CORPORATION, a North
Carolina corporation ("Grantee").
R E C I T A L S:
WHEREAS, Grantee and Issuer have entered into that certain Agreement and
Plan of Reorganization, dated this date (the "Merger Agreement"), providing for,
among other things, the merger of Issuer with and into Grantee; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed,
to grant to Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein and in the Merger
Agreement, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 2,838,708 shares (as adjusted as set forth herein, the "Option
Shares," which term shall refer to the Option Shares before and after any
transfer of such Option Shares), of the common stock of Issuer, par value $1.00
per share ("Issuer Common Stock"), at a purchase price per Option Share (subject
to adjustment as set forth herein, the "Purchase Price") equal to $25.00.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder (as hereinafter defined),
as applicable, shall not be in material breach of its agreements or covenants
contained in this Agreement or the Merger Agreement, and (ii) no preliminary or
permanent injunction or other order against the delivery of shares covered by
the Option issued by any court of competent jurisdiction in the United States
shall be in effect, Holder may exercise the Option, in whole or in part, at any
time and from time to time following the occurrence of a Purchase Event (as
hereinafter defined); provided, that the Option shall terminate and be of no
further force and effect upon the earliest to occur of (A) the Effective Time,
(B) subject to clause (E) below, termination of the Merger Agreement in
accordance with the terms thereof prior to the occurrence of a Purchase Event or
a Preliminary Purchase Event (as hereinafter defined) (other than a termination
of the Merger
<PAGE> 2
Agreement by Grantee pursuant to Section 7.1(b) thereof (a "Default
Termination")), (C) 12 months after a Default Termination, (D) 12 months after
any termination of the Merger Agreement (other than a Default Termination)
following the occurrence of a Purchase Event or a Preliminary Purchase Event,
and (E) subject to clause (D) above, 12 months after termination of the Merger
Agreement pursuant to Section 7.1(e) thereof; provided further, that any
purchase of shares upon exercise of the Option shall be subject to compliance
with applicable law, including, without limitation, the Bank Holding Company Act
of 1956, as amended (the "BHC Act"). Subject to compliance with Section 12(h)
hereof, the term "Holder" shall mean the holder or holders of the Option from
time to time, including initially Grantee. The rights set forth in Section 8
hereof shall terminate when the right to exercise the Option terminates (other
than as a result of a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the
following events subsequent to the date of this Agreement:
(i) without Grantee's prior written consent, Issuer shall
have authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any Subsidiary of
Grantee) to effect an Acquisition Transaction (as defined below). As used
herein, the term "Acquisition Transaction" shall mean (A) a merger,
consolidation or similar transaction involving Issuer or any of its
Subsidiaries (other than transactions solely between Issuer's
Subsidiaries or between Issuer's Subsidiaries and Issuer), (B) the
disposition, by sale, lease, exchange or otherwise, of assets of Issuer
or any of its Subsidiaries representing in either case 15% or more of the
consolidated assets of Issuer and its Subsidiaries (other than a sale of
loan receivables in a financing transaction in the normal course of
business consistent with past practices), or (C) the issuance, sale or
other disposition (including by way of merger, consolidation, share
exchange or any similar transaction) of securities representing 15% or
more of the voting power of Issuer or any of its Subsidiaries; or
(ii) any person (other than Grantee or any Subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the right
to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act), other than a group of which Grantee or
any of the Subsidiaries of Grantee is a member, shall have been formed
which beneficially owns or has the right to acquire beneficial ownership
of, 15% or more of the then-outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of
the following events:
<PAGE> 3
(i) any person (other than Grantee or any Subsidiary of
Grantee) shall have commenced (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement
under the Securities Act with respect to, a tender offer or exchange
offer to purchase any shares of Issuer Common Stock such that, upon
consummation of such offer, such person would own or control 15% or more
of the then-outstanding shares of Issuer Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively); or
(ii) the holders of Issuer Common Stock shall not have
approved the Merger Agreement at the meeting of such shareholders held
for the purpose of voting on the Merger Agreement, such meeting shall not
have been held or shall have been canceled prior to termination of the
Merger Agreement, or Issuer's Board of Directors shall have withdrawn or
modified in a manner adverse to Grantee the recommendation of Issuer's
Board of Directors with respect to the Merger Agreement, in each case
after any person (other than Grantee or any Subsidiary of Grantee) shall
have (A) made, or disclosed an intention to make, a proposal to engage in
an Acquisition Transaction, (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer, or (C) filed an application (or given a notice), whether
in draft or final form, under any federal or state statute or regulation
(including an application or notice filed under the BHC Act, the Bank
Merger Act, the Home Owners' Loan Act or the Change in Bank Control Act
of 1978) seeking the consent to an Acquisition Transaction from any
federal or state governmental or regulatory authority or agency.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Notwithstanding the foregoing, the obligation of First
Liberty to issue Option Shares upon exercise of the Option shall be deferred
(but shall not terminate): (i) until the receipt of all required governmental or
regulatory approvals or consents necessary for First Liberty to issue the Option
Shares or Holder to exercise the Option, or until the expiration or termination
of any waiting period required by law, or (ii) so long as any injunction or
other order, decree or ruling issued by any federal or state court of competent
jurisdiction is in effect which prohibits the sale or delivery of the Option
Shares.
(e) In the event Holder wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein referred
to as the "Notice Date") specifying (i) the total number of Option Shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than three business days nor later than 15 business days from the Notice
Date for the closing (the "Closing") of such purchase (the "Closing Date"). If
prior consent of any governmental or regulatory agency or authority is required
in connection with such purchase, Issuer shall cooperate with Holder in the
filing of the required notice or application for such consent and the obtaining
of such consent at Holder's expense, and the Closing shall occur not earlier
than three business days nor later than 15 business days following receipt of
such consents (and expiration of any mandatory waiting periods).
<PAGE> 4
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender this
Agreement to the Issuer at the address of the Issuer referenced in Section 12(f)
hereof.
(b) At each Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided in
Section 4(a) hereof, (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no preemptive rights, and (B)
if the Option is exercised in part only, an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall
deliver to Issuer a letter evidencing Holder's agreement not to offer, sell or
otherwise dispose of such Option Shares in violation of applicable federal and
state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable
law, certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT
DATED AS OF APRIL 27, 1999. A COPY OF SUCH AGREEMENT WILL BE
PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE
ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Holder shall have delivered
to Issuer a copy of a letter from the staff of the Commission, or an opinion of
counsel in form and substance reasonably satisfactory to Issuer and its counsel,
to the effect that such legend is not required for purposes of the Securities
Act.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and authority to
enter into this Agreement and, subject to its obtaining any approvals or
consents referred to herein, to consummate the transactions contemplated hereby.
The execution and delivery of this
<PAGE> 5
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Issuer. This
Agreement has been duly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue and, at all times from the date
hereof until the obligation to deliver Issuer Common Stock upon the exercise of
the Option terminates, will have reserved for issuance, upon exercise of the
Option, the number of shares of Issuer Common Stock necessary for Holder to
exercise the Option, and Issuer will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Issuer Common Stock
or other securities which may be issued pursuant to Section 7 hereof upon
exercise of the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer Common Stock
or other securities which may be issuable pursuant to Section 7 hereof, upon
issuance pursuant hereto, shall be duly and validly issued, fully paid, and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges, and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any shareholder of Issuer.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby
represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to its obtaining any approvals or
consents referred to herein, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Grantee represents that it is acquiring the Option for
Grantee's own account and not with a view to, or for sale in connection with,
any distribution of the Option or the Option Shares. Grantee represents that it
is aware that neither the Option nor the Option Shares is the subject of a
registration statement filed with and declared effective by the Commission
pursuant to Section 5 of the Securities Act, but instead each is being offered
in reliance upon the exemption from the registration requirement provided by
Section 4(2) thereof and the representations and warranties made by Grantee in
connection therewith. Grantee represents that neither the Option nor the Option
Shares will be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Laws, and that with
respect to any transfer or other disposition proposed to be made in reliance
upon an exemption from registration, such transfer or other disposition shall
not be made unless First Liberty first receives an opinion of counsel in form
and substance reasonably acceptable to it regarding the availability of such
exemption.
<PAGE> 6
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of
a stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the Option and the Purchase Price therefor shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, when added to the
number of shares of Issuer Common Stock previously issued pursuant hereto,
equals 19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) In the event that Issuer shall enter into an agreement (prior
to termination of the Option pursuant to Section 3(a) hereof): (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and Issuer shall not be the continuing or surviving corporation of
such consolidation or merger; (ii) to permit any person, other than Grantee or
one of its Subsidiaries, to merge into Issuer, and Issuer shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Issuer Common Stock shall be changed into or
exchanged for stock or other securities of Issuer or any other person or cash or
any other property or the outstanding shares of Issuer Common Stock immediately
prior to such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company; (iii) to permit
any person, other than Grantee or one of its Subsidiaries, to acquire all of the
outstanding shares of Issuer Common Stock pursuant to a statutory share
exchange; or (iv) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
Grantee, deemed granted by either (x) the Acquiring Corporation (as defined
below), (y) any person that controls the Acquiring Corporation, or (z) in the
case of a merger described in clause (ii), the Issuer (in each case, such person
being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal reasons,
be identical to those of the Option, such terms shall be as similar as possible
and in no event less advantageous to Grantee. The Substitute Option Issuer shall
also enter into an agreement with the then-holder or holders of the Substitute
Option in substantially the same form as this Agreement, which agreement shall
be applicable to the Substitute Option.
<PAGE> 7
(d) The Substitute Option shall be exercisable for such number of
shares of the Substitute Common Stock (as hereinafter defined) as is equal to
the Assigned Value (as hereinafter defined) multiplied by the number of shares
of the Issuer Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as hereinafter defined). The exercise price of the
Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the Purchase Price multiplied by a
fraction in which the numerator is the number of shares of the Issuer Common
Stock for which the Option was theretofore exercisable and the denominator is
the number of shares for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), Issuer in a merger in which Issuer is the continuing or
surviving person, the corporation that shall acquire all of the
outstanding shares of Issuer Common Stock pursuant to a statutory share
exchange, or the transferee of all or substantially all of the Issuer's
assets (or the assets of its Subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the highest of (x) the
price per share of the Issuer Common Stock at which a Tender Offer or
Exchange Offer therefor has been made by any person (other than Grantee),
(y) the price per share of the Issuer Common Stock to be paid by any
person (other than the Grantee) pursuant to an agreement with Issuer, and
(z) the highest closing sales price per share of Issuer Common Stock
quoted on the Nasdaq National Market System within the six-month period
immediately preceding the agreement; provided, that in the event of a
sale of less than all of Issuer's assets, the Assigned Value shall be the
sum of the price paid in such sale for such assets and the current market
value of the remaining assets of Issuer as determined by a nationally
recognized investment banking firm selected by Grantee (or by a majority
in interest of the Grantees if there shall be more than one Grantee (a
"Grantee Majority")), divided by the number of shares of the Issuer
Common Stock outstanding at the time of such sale. In the event that an
exchange offer is made for the Issuer Common Stock or an agreement is
entered into for a merger or consolidation involving consideration other
than cash, the value of the securities or other property issuable or
deliverable in exchange for the Issuer Common Stock shall be determined
by a nationally recognized investment banking firm mutually selected by
Grantee and Issuer (or if applicable, Acquiring Corporation). (If there
shall be more than one Grantee, any such selection shall be made by a
Grantee Majority.)
<PAGE> 8
(iv) "Average Price" shall mean the average closing price of
a share of the Substitute Common Stock for the one-year period
immediately preceding effectiveness of the consolidation, merger, share
exchange or sale in question, but in no event higher than the closing
price of the shares of the Substitute Common Stock on the day preceding
the effectiveness of such consolidation, merger, share exchange or sale;
provided, that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by Issuer, the person merging into Issuer or by any company which
controls or is controlled by such merger person, as Grantee may elect.
(f) In no event pursuant to any of the foregoing sections shall
the Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in
subsection (b) of this Section 7 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
(h) The provisions of Sections 8, 9, 10 and 11 hereof shall apply,
with appropriate adjustments, to any securities for which the Option becomes
exercisable pursuant to this Section 7 and, as applicable, references in such
sections to "Issuer," "Option," "Purchase Price" and "Issuer Common Stock" shall
be deemed to be references to "Substitute Option Issuer," "Substitute Option,"
"Substitute Purchase Price" and "Substitute Common Stock," respectively.
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) Subject to the last sentence of Section 3(a) hereof, at the
request of Holder at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d)) and ending 12 months immediately
thereafter, Issuer shall repurchase from Holder the Option and all shares of
Issuer Common Stock purchased by Holder pursuant hereto with respect to which
Holder then has beneficial ownership. The date on which Holder exercises its
rights under this Section 8 is referred to as the "Request Date." Such
repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
<PAGE> 9
(i) the aggregate Purchase Price paid by Holder for any
shares of Issuer Common Stock acquired by Holder pursuant to the Option
with respect to which Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as
defined below) for each share of Issuer Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 7), multiplied
by the number of shares of Issuer Common Stock with respect to which the
Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in
the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Holder for
each share of Issuer Common Stock with respect to which the Option has
been exercised and with respect to which Holder then has beneficial
ownership, multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer
shall, within ten business days after the Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment Holder shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Holder then has beneficial ownership, and
Holder shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or the consent or approval of any governmental
or regulatory agency or authority is required in connection with the payment of
all or any portion of the Section 8 Repurchase Consideration, Holder shall have
the ongoing option to revoke its request for repurchase pursuant to Section 8,
in whole or in part, or to require that Issuer deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is not then so
prohibited from paying and promptly file the required notice or application for
approval and expeditiously process the same (and each party shall cooperate with
the other in the filing of any such notice or application and the obtaining of
any such approval), in which case the ten business day period of time that would
otherwise run pursuant to the preceding sentence for the payment of the portion
of the Section 8 Repurchase Consideration shall run instead from the date on
which, as the case may be, any required notification period has expired or been
terminated or such approval has been obtained and, in either event, any
requisite waiting period shall have passed. If any governmental or regulatory
agency or authority disapproves of any part of Issuer's proposed repurchase
pursuant to this Section 8, Issuer shall promptly give notice of such fact to
Holder. If any governmental or regulatory agency or authority prohibits the
repurchase in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by such agency or
authority, determine whether the repurchase should apply to the Option and/or
Option Shares and to what extent to each, and Holder shall thereupon have the
right to exercise the Option as to the number of Option Shares for which the
Option was exercisable at the Request Date less the sum of the
<PAGE> 10
number of shares covered by the Option in respect of which payment has been made
pursuant to Section 8(a)(ii) and the number of shares covered by the portion of
the Option (if any) that has been repurchased. Holder shall notify Issuer of its
determination under the preceding sentence within five business days of receipt
of notice of disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all of
Holder's rights under this Section 8 shall terminate on the date of termination
of this Option pursuant to Section 3(a) hereof.
(c) For purposes of this Agreement, the "Applicable Price" means
the highest of (i) the highest price per share of Issuer Common Stock paid for
any such share by the person or groups described in Section 8(d)(i) hereof, (ii)
the price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Sections 7(b)(i), 7(b)(ii), 7(b)(iii) or 7(b)(iv) hereof, or (iii)
the highest closing sales price per share of Issuer Common Stock quoted on the
Nasdaq National Market (or if Issuer Common Stock is not quoted on the Nasdaq
National Market, the highest bid price per share as quoted on the principal
trading market or securities exchange on which such shares are traded as
reported by a recognized source chosen by Holder) during the 60 business days
preceding the Request Date; provided, however, that in the event of a sale of
less than all of Issuer's assets, the Applicable Price shall be the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by an independent nationally recognized
investment banking firm selected by Holder and reasonably acceptable to Issuer
(which determination shall be conclusive for all purposes of this Agreement),
divided by the number of shares of the Issuer Common Stock outstanding at the
time of such sale. If the consideration to be offered, paid or received pursuant
to either of the foregoing clauses (i) or (ii) shall be other than in cash, the
value of such consideration shall be determined in good faith by an independent
nationally recognized investment banking firm selected by Holder and reasonably
acceptable to Issuer, which determination shall be conclusive for all purposes
of this Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any
person (other than Grantee or any Subsidiary of Grantee) shall have acquired
actual ownership or control, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which shall have acquired actual ownership
or control, of 50% or more of the then-outstanding shares of Issuer Common
Stock, or (ii) any of the transactions described in Section 7(b)(i), 7(b)(ii),
7(b)(iii) or 7(b)(iv) shall be consummated.
9. REGISTRATION RIGHTS.
(a) For a period of 24 months following termination of the Merger
Agreement, Issuer shall, subject to the conditions of subsection (c) below, if
requested by any Holder, including Grantee and any permitted transferee of the
Option Shares ("Selling Holder"), as expeditiously as possible prepare and file
a registration statement under the Securities Laws if
<PAGE> 11
necessary in order to permit the sale or other disposition of any or all shares
of Issuer Common Stock or other securities that have been acquired by or are
issuable to Selling Holder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by the Selling Holder in
such request, including, without limitation, a "shelf" registration statement
under Rule 415 under the Securities Act or any successor provision, and Issuer
shall use its best efforts to qualify such shares or other securities for sale
under any applicable state securities laws.
(b) If Issuer at any time after the exercise of the Option
proposes to register any shares of Issuer Common Stock under the Securities Laws
in connection with an underwritten public offering of such Issuer Common Stock,
Issuer will promptly give written notice to Holder of its intention to do so
and, upon the written request of Holder given within 30 days after receipt of
any such notice (which request shall specify the number of shares of Issuer
Common Stock intended to be included in such underwritten public offering by
Selling Holder), Issuer will cause all such shares, the holders of which shall
have requested participation in such registration, to be so registered and
included in such underwritten public offering; provided, that Issuer may elect
to cause any such shares not to be so registered (i) if the underwriters in good
faith object for a valid business reason, or (ii) in the case of a registration
solely to implement a dividend reinvestment or similar plan, an employee benefit
plan or a registration filed on Form S-4 or any successor form, or a
registration filed on a form which does not permit registration of resales;
provided, further, that such election pursuant to clause (i) may be made only
one time. If some but not all the shares of Issuer Common Stock, with respect to
which Issuer shall have received requests for registration pursuant to this
subsection (b), shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Selling Holders and any
other person (other than Issuer or any person exercising demand registration
rights in connection with such registration) who or which is permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested to
be registered by each Selling Holder bears to the total number of shares
requested to be registered by all persons then desiring to have Issuer Common
Stock registered for sale.
(c) Issuer shall use all reasonable efforts to cause each
registration statement referred to in subsection (a) above to become effective
and to obtain all consents or waivers of other parties which are required
therefor and to keep such registration statement effective, provided,, that
Issuer may delay any registration of Option Shares required pursuant to
subsection (a) above for a period not exceeding 90 days in the event that Issuer
shall in good faith determine that any such registration would adversely affect
an offering or contemplated offering of other securities by Issuer, and Issuer
shall not be required to register Option Shares under the Securities Laws
pursuant to subsection (a) above:
(i) prior to the occurrence of a Purchase Event;
(ii) on more than two occasions;
<PAGE> 12
(iii) more than once during any calendar year;
(iv) within 90 days after the effective date of a
registration referred to in subsection (b) above pursuant to which the
Selling Holders concerned were afforded the opportunity to register such
shares under the Securities Laws and such shares were registered as
requested; and
(v) unless a request therefor is made to Issuer by Selling
Holders holding at least 25% or more of the aggregate number of Option
Shares then outstanding.
In addition to the foregoing, Issuer shall not be required
to maintain the effectiveness of any registration statement after the expiration
of nine months from the effective date of such registration statement. Issuer
shall use all reasonable efforts to make any filings, and take all steps, under
all applicable state securities laws to the extent necessary to permit the sale
or other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares, provided, that Issuer shall
not be required to consent to general jurisdiction or qualify to do business in
any state where it is not otherwise required to so consent to such jurisdiction
or to so qualify to do business.
(d) Except where applicable state law prohibits such payments,
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), accounting expenses, legal expenses, including reasonable fees and
expenses of one counsel to the Selling Holders whose Option Shares are being
registered, printing expenses, reasonable expenses of underwriters, excluding
discounts and commissions but including liability insurance if Issuer so desires
or the underwriters so require, and the reasonable fees and expenses of any
necessary special experts) in connection with each registration pursuant to
subsection (a) or (b) above (including the related offerings and sales by
Selling Holders) and all other qualifications, notifications or exemptions
pursuant to subsection (a) or (b) above. Underwriting discounts and commissions
relating to Option Shares and any other expenses incurred by such Selling
Holders in connection with any such registration shall be borne by such Selling
Holders.
(e) In connection with any registration under subsection (a) or
(b) above Issuer hereby indemnifies the Selling Holders, and each underwriter
thereof, including each person, if any, who controls such holder or underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses, losses,
claims, damages or liabilities of such indemnified party are caused by any
untrue statement or alleged untrue statement or omission or alleged omission
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any
<PAGE> 13
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such Selling Holder, or by such underwriter, as
the case may be, for all such expenses, losses, claims, damages and liabilities
caused by any untrue or alleged untrue statement or omission or alleged omission
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this
subsection (e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this subsection (e), such indemnified party
shall notify the indemnifying party in writing of the commencement of such
action, but the failure so to notify the indemnifying party shall not relieve it
of any liability which it may otherwise have to any indemnified party under this
subsection (e). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party agrees
to pay them, (ii) the indemnifying party fails to assume the defense of such
action with counsel satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided, for in this subsection (e)
is unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, all Selling Holders and the underwriters from the offering of the
securities and also the relative fault of Issuer, all Selling Holders and the
underwriters in connection with the statements or omissions which resulted in
such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or
<PAGE> 14
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim; provided, that in no case shall
any Selling Holder be responsible, in the aggregate, for any amount in excess of
the net offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any holder to indemnify shall be several and not joint with other
holders.
In connection with any registration pursuant to subsection
(a) or (b) above, Issuer and each Selling Holder (other than Grantee) shall
enter into an agreement containing the indemnification provisions of this
subsection (e).
(f) Issuer shall comply with all reporting requirements and will
do all such other things as may be necessary to permit the expeditious sale at
any time of any Option Shares by the Selling Holders in accordance with and to
the extent permitted by any rule or regulation promulgated by the Commission
from time to time, including, without limitation, Rules 144 and 144A. Issuer
shall at its expense provide the Selling Holders with any information necessary
in connection with the completion and filing of any reports or forms required to
be filed by them under the Securities Laws, or required pursuant to any state
securities laws or the rules of any stock exchange.
(g) Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save Holder harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. QUOTATION; LISTING. If Issuer Common Stock or any other securities
to be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the Nasdaq National Market or any other securities
exchange or any automated quotations system maintained by a self-regulatory
organization, Issuer will promptly file an application, if required, to
authorize for quotation or trading or listing the shares of Issuer Common Stock
or other securities to be acquired upon exercise of the Option on the Nasdaq
National Market or any other securities exchange or any automated quotations
system maintained by a self-regulatory organization and will use its best
efforts to obtain approval, if required, of such quotation or listing as soon as
practicable.
11. DIVISION OF OPTION. This Agreement (and the Option granted hereby)
is exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of
<PAGE> 15
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
12. MISCELLANEOUS.
(A) EXPENSES. Except as otherwise provided, herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(B) WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(C) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY.
This Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferees of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 12(h) hereof) any
rights or remedies hereunder. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or a federal or
state governmental or regulatory agency or authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Holder to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided, in Sections 3 and 8 hereof (as adjusted pursuant to
Section 7 hereof), it is the express intention of Issuer to allow Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible without any amendment or modification hereof.
(D) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of North
Carolina without regard to any applicable conflicts of law rules, except to the
extent that the federal laws of the United States shall govern.
<PAGE> 16
(E) DESCRIPTIVE HEADINGS. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(F) NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the addresses set forth in the Merger Agreement (or
at such other address for a party as shall be specified by like notice).
(G) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(H) ASSIGNMENT; TRANSFER. Neither this Agreement nor any of the
rights, interests or obligations hereunder or under the Option shall be assigned
or transferred by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except that
Grantee may assign this Agreement to a wholly owned subsidiary of Grantee and
Grantee may assign or transfer its rights hereunder in whole or in part after
the occurrence of a Purchase Event. In the case of any permitted assignment or
transfer of the Option, Issuer shall do all things necessary to facilitate the
same, and the Holder to whom the Option is assigned or transferred shall make
the representations contained in Section 6 hereof (with Holder substituted for
Grantee) and shall agree in writing to the terms and conditions hereof. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
(I) FURTHER ASSURANCES. In the event of any exercise of the Option
by Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided, for by such exercise.
(J) SPECIFIC PERFORMANCE. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
[remainder of page intentionally left blank]
<PAGE> 17
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
<TABLE>
<S> <C>
FIRST LIBERTY FINANCIAL CORP. BB&T CORPORATION
By: /s/Robert F. Hatcher By: /s/John A. Allison, IV
---------------------------------------------- ------------------------------------------
Name: Robert F. Hatcher Name: John A. Allison, IV
Title: President and Chief Executive Officer Title: President and Chief Executive Officer
</TABLE>
<PAGE> 1
EXHIBIT 99.8
BB&T to acquire First Liberty Financial Corp. of Macon, Ga.
WINSTON-SALEM, N.C., April 28 /PRNewswire/ -- BB&T Corporation (NYSE: BBT -
news) said today it will buy First Liberty Financial Corp. (Nasdaq: FLFC - news)
of Macon, Ga., in a $500 million stock swap that will give BB&T its second
Georgia bank.
First Liberty Financial, with $1.7 billion in assets, operates 39 banking
offices and 13 consumer finance offices in Macon and Savannah, Ga., and
neighboring areas. Its principal subsidiaries include First Liberty Mortgage
Corp. and OFC Capital Corp., an equipment leasing subsidiary.
The transaction, approved by the directors of both companies, will be accounted
for as a pooling of interests. Based on BB&T's closing price of $39 on Monday,
First Liberty shareholders will receive 0.8525 BB&T share for each First Liberty
share, worth $33.25.
The final exchange ratio will be determined based on a pricing period prior to
closing. First Liberty shareholders will receive $33.25 worth of BB&T common
stock if BB&T's average price during the pricing period is between $38.22 and
$39.12. If BB&T's price is less than $38.22, shareholders will receive a fixed
exchange ratio of 0.87. If BB&T's price is more than $39.12, they will receive a
fixed exchange ratio of 0.85.
"First Liberty is a quality institution that will allow us to expand our
presence into economically strong markets in Georgia," said BB&T Chairman and
Chief Executive Officer John Allison. "We're excited about adding a community
bank with a philosophy and corporate culture that is very compatible with ours."
BB&T announced its initial move into Georgia in late January with its pending
acquisition of First Citizens Corp. of Newnan, Ga., giving it entry into
metropolitan Atlanta. First Liberty will boost BB&T's assets in Georgia to more
than $2 billion.
First Liberty President and Chief Executive Officer Robert Hatcher will be named
president of BB&T's Georgia Operations.
BB&T's newest region will be headquartered in Macon and First Liberty Executive
Vice President Larry Flowers will be named its president. BB&T currently has 17
autonomous regions, which operate like community banks. More than 95 percent of
lending decisions are made locally.
First Liberty also operates a regional community banking network. The similar
operating systems should
<PAGE> 2
make First Liberty's transition an easy one for bank customers and employees.
"Just like First Liberty, BB&T is a financial institution attuned to the
customer," Hatcher said. "BB&T's community banking structure will allow us to
serve existing customers and new ones the way we always have. Only now we'll
also be able to provide all the products and services of a financial institution
with nearly $38 billion in assets."
First Liberty customers will be introduced to a broad product line that includes
insurance, mutual funds, annuities, trust, retail brokerage, investment banking,
treasury services and international banking.
First Liberty operates banking offices in Macon and Savannah, and the following
locations: Adel, Butler, Byron, Douglas, Forsyth, Fort Valley, Milledgeville,
Nashville, Roberta, Swainsboro, Sylvania, Tifton, Valdosta, Vidalia, Warner
Robins and Waycross.
Named the top "small business-friendly" bank in the nation by the U.S. Small
Business Administration, BB&T expects to expand consumer, small business and
commercial lending opportunities in those communities.
"Maybe the best thing about our new partnership is that both companies believe
in treating customers with the highest level of personal service possible,"
Hatcher said. "We look forward to joining an expanding franchise rooted in a
community banking philosophy."
The acquisition will extend BB&T's presence from northern Maryland to south
Georgia.
The merger, which is subject to the approval of the First Liberty shareholders
and banking regulators, is expected to be completed in the fourth quarter of
1999.
Winston-Salem, N.C.-based BB&T Corporation, with $37.8 billion in assets,
operates 581 banking offices in the Carolinas, Virginia, Maryland and
Washington, D.C.
Business Week magazine recently named BB&T Corporation the second highest
performing S&P 500 bank holding company in the nation.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST LIBERTY FINANCIAL CORP. FOR THE YEAR ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 41,703
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,073
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 344,134
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,073,808
<ALLOWANCE> 17,161
<TOTAL-ASSETS> 1,568,107
<DEPOSITS> 1,152,841
<SHORT-TERM> 158,821
<LIABILITIES-OTHER> 17,315
<LONG-TERM> 112,315
0
0
<COMMON> 126,815
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,568,107
<INTEREST-LOAN> 97,676
<INTEREST-INVEST> 20,632
<INTEREST-OTHER> 759
<INTEREST-TOTAL> 119,067
<INTEREST-DEPOSIT> 49,158
<INTEREST-EXPENSE> 62,880
<INTEREST-INCOME-NET> 56,187
<LOAN-LOSSES> 6,037
<SECURITIES-GAINS> 262
<EXPENSE-OTHER> 44,482
<INCOME-PRETAX> 24,912
<INCOME-PRE-EXTRAORDINARY> 15,957
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,957
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 4.059
<LOANS-NON> 8,802
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,866
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,800
<CHARGE-OFFS> 5,994
<RECOVERIES> 2,318
<ALLOWANCE-CLOSE> 17,161
<ALLOWANCE-DOMESTIC> 17,161
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,716
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST LIBERTY FINANCIAL CORP. FOR THE YEAR ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 42,233
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,908
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 298,101
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,043,463
<ALLOWANCE> 14,800
<TOTAL-ASSETS> 1,474,679
<DEPOSITS> 1,119,600
<SHORT-TERM> 119,037
<LIABILITIES-OTHER> 17,427
<LONG-TERM> 104,906
0
0
<COMMON> 113,709
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,474,679
<INTEREST-LOAN> 91,690
<INTEREST-INVEST> 19,195
<INTEREST-OTHER> 1,497
<INTEREST-TOTAL> 112,382
<INTEREST-DEPOSIT> 45,559
<INTEREST-EXPENSE> 59,697
<INTEREST-INCOME-NET> 52,685
<LOAN-LOSSES> 7,860
<SECURITIES-GAINS> 132
<EXPENSE-OTHER> 40,801
<INCOME-PRETAX> 19,845
<INCOME-PRE-EXTRAORDINARY> 13,730
<EXTRAORDINARY> (2,811)
<CHANGES> 0
<NET-INCOME> 10,919
<EPS-BASIC> 0.79
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 4.04
<LOANS-NON> 6,442
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,943
<CHARGE-OFFS> 6,413
<RECOVERIES> 1,410
<ALLOWANCE-CLOSE> 14,800
<ALLOWANCE-DOMESTIC> 14,800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,646
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST LIBERTY FINANCIAL CORP. FOR THE YEAR ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 46,378
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 40,741
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 272,755
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 939,012
<ALLOWANCE> 11,943
<TOTAL-ASSETS> 1,358,232
<DEPOSITS> 1,011,628
<SHORT-TERM> 181,175
<LIABILITIES-OTHER> 16,376
<LONG-TERM> 36,144
7,564
0
<COMMON> 97,781
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,358,232
<INTEREST-LOAN> 80,069
<INTEREST-INVEST> 17,044
<INTEREST-OTHER> 1,249
<INTEREST-TOTAL> 98,362
<INTEREST-DEPOSIT> 42,759
<INTEREST-EXPENSE> 52,022
<INTEREST-INCOME-NET> 46,340
<LOAN-LOSSES> 3,543
<SECURITIES-GAINS> 39
<EXPENSE-OTHER> 39,093
<INCOME-PRETAX> 16,642
<INCOME-PRE-EXTRAORDINARY> 11,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,241
<EPS-BASIC> 0.83
<EPS-DILUTED> 0.82
<YIELD-ACTUAL> 4.12
<LOANS-NON> 7,205
<LOANS-PAST> 0
<LOANS-TROUBLED> 5,252
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,071
<CHARGE-OFFS> 5,283
<RECOVERIES> 2,612
<ALLOWANCE-CLOSE> 11,943
<ALLOWANCE-DOMESTIC> 11,943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,198
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST LIBERTY FINANCIAL CORP. FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 45,158
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 24,471
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 421,035
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,002,847
<ALLOWANCE> 17,083
<TOTAL-ASSETS> 1,662,364
<DEPOSITS> 1,237,508
<SHORT-TERM> 161,322
<LIABILITIES-OTHER> 18,012
<LONG-TERM> 112,305
0
0
<COMMON> 133,217
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,662,364
<INTEREST-LOAN> 47,839
<INTEREST-INVEST> 11,795
<INTEREST-OTHER> 483
<INTEREST-TOTAL> 60,117
<INTEREST-DEPOSIT> 24,911
<INTEREST-EXPENSE> 31,818
<INTEREST-INCOME-NET> 28,299
<LOAN-LOSSES> 1,744
<SECURITIES-GAINS> (51)
<EXPENSE-OTHER> 24,043
<INCOME-PRETAX> 15,775
<INCOME-PRE-EXTRAORDINARY> 10,072
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,072
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 3.88
<LOANS-NON> 11,648
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,866
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,161
<CHARGE-OFFS> 2,949
<RECOVERIES> 1,127
<ALLOWANCE-CLOSE> 17,083
<ALLOWANCE-DOMESTIC> 17,083
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,953
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST LIBERTY FINANCIAL CORP. FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 51,565
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,378
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 339,654
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,064,184
<ALLOWANCE> 15,943
<TOTAL-ASSETS> 1,561,147
<DEPOSITS> 1,157,372
<SHORT-TERM> 239,196
<LIABILITIES-OTHER> 14,841
<LONG-TERM> 29,472
0
0
<COMMON> 120,266
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,561,147
<INTEREST-LOAN> 48,333
<INTEREST-INVEST> 9,976
<INTEREST-OTHER> 422
<INTEREST-TOTAL> 58,731
<INTEREST-DEPOSIT> 24,529
<INTEREST-EXPENSE> 31,062
<INTEREST-INCOME-NET> 27,669
<LOAN-LOSSES> 3,352
<SECURITIES-GAINS> 81
<EXPENSE-OTHER> 20,112
<INCOME-PRETAX> 13,355
<INCOME-PRE-EXTRAORDINARY> 8,418
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,418
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 4.13
<LOANS-NON> 8,534
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,800
<CHARGE-OFFS> 2,895
<RECOVERIES> 686
<ALLOWANCE-CLOSE> 15,943
<ALLOWANCE-DOMESTIC> 15,943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,646
</TABLE>
