SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-24519
LIBERTY BANCORP, INC.
(Exact name of registrant as specified in its charter)
UNITED STATES OF AMERICA 22-3593532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1410 St. Georges Avenue, Avenel, New Jersey 07001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 732-499-7200
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes [X] No [_]
(2) Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of October 31, 1998, 3,901,375 common shares, $1.00 par value, were
outstanding.
<PAGE>
LIBERTY BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1998 and December 31, 1997 (Unaudited) 1
Consolidated Statements of Income for the Nine and
Three Months Ended September 30, 1998 and 1997 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Nine and Three Months Ended September 30, 1998
and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 (Unaudited) 4-5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14-15
PART II OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September December 31,
Assets 1998 1997
------------- -------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,140,164 $ 1,192,270
Interest-bearing deposits in other banks 18,763,683 4,738,621
------------- -------------
Total cash and cash equivalents 19,903,847 5,930,891
Securities available for sale 51,444,408 53,917,520
Loans receivable 171,262,696 152,199,868
Premises and equipment 2,093,584 2,113,904
Foreclosed real estate 121,064 121,064
Federal Home Loan Bank of New York stock 2,007,500 1,804,100
Interest receivable 1,433,051 1,219,978
Other assets 192,745 129,395
------------- -------------
Total assets $ 248,458,895 $ 217,436,720
============= =============
Liabilities and stockholders' equity
Liabilities
Deposits $ 211,537,234 $ 198,362,828
Advance payments by borrowers for taxes and insurance 1,694,854 1,659,615
Other liabilities 1,046,365 873,434
------------- -------------
Total liabilities 214,278,453 200,895,877
------------- -------------
Stockholders' equity
Preferred stock; $1.00 par value, 10,000,000 shares
authorized; issued and outstanding - none -- --
Common stock; $1.00 par value, 20,000,000 shares
authorized; 3,901,375 shares issued
and outstanding at September 30, 1998 3,901,375 --
Paid-in-capital 13,831,690 --
Retained earnings - substantially restricted 17,158,427 16,122,933
Unearned Employee Stock Ownership Plan ("ESOP") shares (1,430,237) --
Unrealized gain on securities available for sale, net 719,187 417,910
------------- -------------
Total stockholders' equity 34,180,442 16,540,843
------------- -------------
Total liabilities and stockholders' equity $ 248,458,895 $ 217,436,720
============= =============
</TABLE>
See notes to consolidated financial statements.
- 1 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 9,048,829 $ 8,072,804 $ 3,281,098 $ 2,876,729
Mortgage-backed securities available for sale 2,058,376 2,845,754 675,619 950,038
Investment securities available for sale 55,621 172,725 23,196 48,298
Other interest-earning assets 702,715 238,230 221,307 65,104
------------ ------------ ------------ ------------
Total interest income 11,865,541 11,329,513 4,201,220 3,940,169
------------ ------------ ------------ ------------
Interest expense:
Deposits 7,204,475 6,603,121 2,447,848 2,278,103
Advances -- 87,533 -- 57,338
------------ ------------ ------------ ------------
Total interest expense 7,204,475 6,690,654 2,447,848 2,335,441
------------ ------------ ------------ ------------
Net interest income 4,661,066 4,638,859 1,753,372 1,604,728
Provision for loan losses 45,000 150,000 15,000 50,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 4,616,066 4,488,859 1,738,372 1,554,728
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges on deposits 129,999 131,875 44,013 45,303
Fees and service charges on loans 125,468 97,664 23,221 22,145
Gain on sales of securities available for sale -- 24,611 -- 24,700
Gain on sale of loans 511 4,395 -- 4,395
Miscellaneous 75,265 72,424 25,960 28,447
------------ ------------ ------------ ------------
Total non-interest income 331,243 330,969 93,194 124,990
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 1,635,858 1,562,589 625,234 520,879
Net occupancy expense of premises 367,163 359,257 139,454 124,585
Equipment 280,126 289,238 77,904 90,249
Advertising 177,250 126,000 60,125 42,000
Federal insurance premium 92,744 89,007 31,416 29,871
Loss from foreclosed real estate -- 2,050
Miscellaneous 779,707 537,713 259,167 180,746
------------ ------------ ------------ ------------
Total non-interest expenses 3,332,848 2,965,854 1,193,300 988,330
------------ ------------ ------------ ------------
Income before income taxes 1,614,461 1,853,974 638,266 691 388
Income taxes 578,967 725,869 221,295 264 178
------------ ------------ ------------ ------------
Net income $ 1,035,494 $ 1,128,105 $ 416,971 $ 427,210
============ ============ ============ ============
Net income per common share - basic/diluted (1) N/A $ 0.11 N/A
============ ============ ============ ============
Weighted average number of
common shares outstanding - basic/diluted (1) N/A 3,756,683 N/A
============ ============ ============ ============
</TABLE>
(1) Liberty Bancorp, Inc. converted to stock form on June 30,1998.
See notes to consolidated financial statements.
-2-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ l,035,494 $ 1,128,105 $ 416,971 $ 427,210
----------- ----------- ----------- -----------
Other comprehensive income - unrealized holding
gains on securities available for sale, net of
income taxes 301,277 329,775 253,116 398,096
Less: Gains on dispositions of securities
available for sale, net of income taxes -- (15,751) -- (15,808)
----------- ----------- ----------- -----------
Total other comprehensive income 301,277 314,024 253,116 382,288
----------- ----------- ----------- -----------
Comprehensive income $ 1,336,771 $ 1,442,129 $ 670,087 $ 809,498
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,035,494 $ 1,128,105
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 138,335 166,677
Amortization of premiums and accretion of discounts, net 254,670 101,408
Amortization of deferred loan fees, net 9,862 (55,685)
Provision for loan losses 45,000 150,000
Gain on sale of securities available for sale -- (24,611)
Gain on sale of loans (511) (4,395)
(Increase) in accrued interest receivable (213,073) (119,329)
(Increase)decrease in other assets (63,350) 215,205
Increase (decrease) in accrued interest payable 4,897 3,703
Amortization of unearned ESOP shares 36,673 --
(Decrease) increase in other liabilities (14,374) 48,511
------------ ------------
Net cash provided by operating activities 1,233,623 1,609,589
------------ ------------
Cash flows from investing activities:
Purchases of securities available for sale (20,913,823) (12,071,760)
Principal repayments on securities available for sale 22,620,847 9,107,204
Proceeds from calls of securities available for sale 1,000,000
Proceeds from sale of securities available for sale -- 13,393,877
Proceeds from sale of student loans 68,055 651,014
Net increase in loans receivable (19,185,234) (22,570,977)
Net additions to premises and equipment (118,015) (10,859)
Recovery from insurance on foreclosed real estate -- 14,812
Purchase of Federal Home Loan Bank of New York stock (203,400) (188,700)
------------ ------------
Net cash (used in) investment activities (16,731,570) (11,675,389)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 13,169,509 9,827,963
Increase in advance payments by borrowers for taxes and insurance 35,239 14,119
Net proceeds from issuance of common stock 16,266,155 --
------------ ------------
Net cash provided by financing activities 29,470,903 9,842,082
------------ ------------
Net increase (decrease) in cash and cash equivalents 13,972,956 (223,718)
Cash and cash equivalents - beginning 5,930,891 5,774,783
------------ ------------
Cash and cash equivalents - ending $ 19,903,847 $ 5,551,065
============ ============
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $7,199,578 $6,686,951
---------- ----------
Income taxes, net of refunds $ 803,036 $ 475,900
---------- ----------
Supplemental disclosure of noncash activities:
Loans receivable transferred from foreclosed real estate $ -- $ 93,632
---------- ----------
Unrealized gain on securities available for sale:
Unrealized appreciation $ 488,582 $ 490,508
Deferred income taxes 187,305 176,484
---------- ----------
$ 301,277 $ 314,024
---------- ----------
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in accordance with
instructions for Form 10-QSB and regulation S-X and do not include information
or footnotes necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements have been included. The results of operations
for the three and nine months ended September 30, 1998, are not necessarily
indicative of the results which may be expected for the entire fiscal year.
Effective January 1, 1998, the Corporation adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards ("Statement") No.
130, "Reporting Comprehensive Income". Statement No. 130 requires the reporting
of comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. As required, the provisions of
Statement No. 130 have been retroactively applied to previously reported
periods. The application of Statement No. 130 had no effect on the Corporation's
consolidated financial condition or operations.
2. MUTUAL HOLDING COMPANY REORGANIZATION
On October 15, 1997, the Board of Directors of Axia Federal Savings Bank (the
"Bank") unanimously adopted the Plan of Reorganization from a Mutual Savings
Association to a Mutual Holding Company and Stock Issuance (the "Plan") which
was amended on April 15, 1998 and May 13, 1998. Pursuant to the Plan, Axia
Federal Savings Bank converted from a federal mutual savings bank to a federal
stock savings bank, changed its name to "Liberty Bank" and became a wholly owned
subsidiary of Liberty Bancorp, Inc. (the "Corporation"). The Plan was approved
by the Office of Thrift Supervision, the Bank's depositors of record as of April
30, 1998, and borrowers with outstanding loans as of December 10, 1986, which
remained outstanding as of April 30, 1998 (the "Members").
On June 30, 1998, the Bank completed the above-noted transaction and the
Corporation sold 1,833,646 shares, or 47% of its to be outstanding shares of
common stock, in an initial public offering at $10 per share to the Bank's
members and the Bank's Employee Stock Ownership Plan ("ESOP"). Liberty Bancorp,
MHC (the "Mutual Holding Company") maintains the majority ownership of 53%, or
2,067,729 shares of common stock of the Corporation. Costs of approximately
$603,000 incurred in connection with the offering were recorded as a reduction
of the proceeds from the offering.
All depositors who had membership or liquidation rights with respect to the Bank
as of the effective date of the reorganization will continue to have such rights
solely with respect to the Mutual Holding Company so long as they continue to
hold deposit accounts with the Bank. In addition, all persons who become
depositors of the Bank subsequent to the reorganization will have membership and
liquidation rights with respect to the Mutual Holding Company. Borrower members
of the Bank at the time of the reorganization will have the same membership
rights in the Mutual Holding Company that they had in the Bank immediately prior
to the reorganization so long as their existing borrowings remain outstanding.
Borrowers will not receive membership rights in connection with any new
borrowings made after the reorganization.
-6-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding, adjusted for the
unallocated portion of shares held by the ESOP in accordance with the American
Institute of Certified Public Accountants' Statement of Position ("SOP") 93-6.
Diluted net income per share is calculated by adjusting the weighted average
number of shares of common stock outstanding to include the effect of stock
options, if dilutive, using the treasury stock method.
-7-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion of Forward-Looking Statements
When used or incorporated by reference in disclosure documents, the words
"anticipate", "estimate", "expect", "target", "goal" and similar expressions are
intended to identify forward-looking statements. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, expected or projected. These forward-looking statements speak only as
of the date of the document. The Corporation expressly disclaims any obligation
or undertaking to publicly release any update or revisions to any
forward-looking statements contained herein to reflect any change in the
Corporation's expectation with regard thereto or any change in events,
conditions or circumstances on which such statement is based.
Comparison of Financial Condition at September 30, 1998 and December 31, 1997
The Corporation's assets at September 30, 1998 totaled $248.5 million, which
represents an increase of $31.1 million or 14.3% as compared with $217.4 million
at December 31, 1997. Such increase was largely due to the net proceeds of $16.3
million from the Bank's mutual holding company reorganization and the
Corporation's initial public offering ("IPO") of common stock, which was
completed on June 30, 1998.
Cash and cash equivalents increased $14.0 million to $19.9 million at September
30, 1998 from $5.9 million at December 31, 1997, resulting from an increase in
interest-bearing deposits resulting from the temporary investment of the
proceeds of the IPO.
Securities available for sale at September 30, 1998 decreased $2.5 million, or
4.6%, to $51.4 million from $53.9 million at December 31, 1997. The decrease
during the nine months ended September 30, 1998, resulted from principal
repayments of $22.6 million on securities available for sale which offset
purchases of securities available for sale of $20.9 million along with an
increase in the unrealized gain on such securities of $489,000.
Net loans increased $19.1 million or 12.5.% to $171.3 million at September 30,
1998 from $152.2 million at December 31, 1997. The increase during the nine
months ended September 30, 1998 resulted primarily from loan originations
exceeding loan principal repayments.
Foreclosed real estate amounted to $121,000 at September 30, 1998 and December
31, 1997, respectively, which consisted of one-to-four family residential
property.
Deposits at September 30, 1998 increased $13.1 million or 6.6% to $211.5 million
when compared with $198.4 million at December 31, 1997. The increase in deposits
resulted from interest credited and a net deposit inflow.
Stockholders' equity totaled $34.2 million and $16.5 million at September 30,
1998 and December 31, 1997, respectively. Such increase was largely due to net
proceeds of $16.3 million received from the IPO.
-8-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
Net income decreased $10,000 or 2.3% to $417,000 for the three months ended
September 30, 1998 compared with $427,000 for the same period in 1997. The
decrease in net income during the 1998 period resulted from increases in total
interest expense and non-interest expenses along with a decrease in non-interest
income which offset an increase in total interest income, and decreases in
provision for loan losses and income taxes.
Interest income on loans increased by $404,000 or 14.0% to $3.3 million during
the three months ended September 30, 1998 when compared with $2.9 million during
the same period in 1997. The increase during the 1998 period resulted from an
increase of $19.7 million in the average balance of loans outstanding along with
an increase of seven basis points in the yield earned on the loan portfolio.
Interest on mortgage-backed securities decreased $274,000 or 28.8% to $676,000
during the three months ended September 30, 1998 when compared with $950,000 for
the same period in 1997. The decrease during the 1998 period resulted from a
decrease of 216 basis points in the yield earned sufficient to offset an
increase of $1.0 million in the average balance of mortgage-backed securities
available for sale. The decrease in the yield on mortgage-backed securities
available for sale resulted from employing an interest rate risk reduction
strategy whereby the Bank sold fixed rate mortgage-backed securities and
purchased adjustable rate mortgage-backed securities. Interest earned on
investment securities available for sale decreased $25,000 or 52.1% to $23,000
during the three months ended September 30, 1998 when compared with $48,000 for
the same period in 1997. The decrease during the 1998 period resulted from a
decrease of $1.3 million in the average balance of securities outstanding along
with an 89 basis points decrease in the yield earned on such securities.
Interest earned on other interest-earning assets increased by $156,000 or 240.0%
to $221,000 during the three months ended September 30, 1998 when compared with
$65,000 for the same 1997 period. The increase during the 1998 period resulted
from an increase of $10.1 million in the average balance of other
interest-earning assets outstanding along with an increase in the yield earned
of 49 basis points on such portfolio.
Interest expense on deposits increased $170,000 or 7.5% to $2.4 million during
the three months ended September 30, 1998 when compared to $2.3 million during
the same period in 1997. Such increase during the 1998 period was attributable
to an increase of $14.5 million in the average balance of interest-bearing
deposits outstanding. The cost of interest-bearing deposits remained unchanged.
Interest on Federal Home Loan Bank of New York ("FHLB") advances amounted to
$57,000 during the three months ended September 30, 1997. During the 1998
period, the Bank had no FHLB advances outstanding.
Net interest income increased $148,000 or 9.2% to $1.8 million during the three
months ended September 30, 1998 when compared with $1.6 million the same 1997
period. Such increase was due to an increase in total interest income of
$261,000 which offset an increase in total interest expense of $13,000. The
Bank's net interest rate spread decreased to 2.23% for the three months ended
September 30, 1998 from 2.68% for the three months ended September 30, 1997. The
decrease in the interest rate spread in 1998 resulted from a decrease of 48
basis points in the yield earned on interest-earning assets which offset a three
basis points decrease in the cost of interest-bearing liabilities.
During the three months ended September 30, 1998 and 1997, the Bank provided
$15,000 and $50,000, respectively, for loan losses. The allowance for loan
losses is based on management's evaluation of the risks inherent in its loan
portfolio and gives due consideration to changes in general market conditions
and in the nature and volume of the Bank's loan activity. The Bank intends to
continue to provide for loan losses based on its periodic review of the loan
portfolio and general market conditions.
-9-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997 (Cont'd.)
At September 30, 1998 and 1997, the Bank's non-performing loans, which were
delinquent ninety days or more, totaled $807,000 or .32% of total assets and
$916,000 or .42% of total assets, respectively; all of these loans were on
non-accrual status.
Non-interest income decreased by $32,000 or 25.60% to $93,000 during the three
months ended September 30, 1998 when compared to $125,000 during the same period
in 1997. The decrease during the 1998 period resulted from decreases in fees and
service charges on deposits of $1,000, gains on sales of securities available
for sale of $25,000, gains on sale of student loans of $4,000 and an increase in
miscellaneous non-interest income of $2,000, which offset an increase in fees
and service charges on loans of $1,000.
Non-interest expenses increased by $204,000 or 20.1% to $1.2 million during the
three months ended September 30, 1998 when compared with $989,000 during the
same 1997 period. During the 1998 period, salaries and employee benefits,
occupancy, advertising, federal insurance premium and miscellaneous expenses
increased $104,000, $14,000, $18,000, $1,000 and $78,000, respectively, which
were partially offset by a decrease in equipment expenses of $12,000.
Income taxes totaled $221,000 and $264,000 during the three months ended
September 30, 1998 and 1997, respectively. The decrease during the 1998 period
resulted from a decrease in pre-tax income.
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997
Net income decreased $93,000 or 8.2% to $1.0 million for the nine months ended
September 30, 1998 compared with net income of $1.1 million for the same period
in 1997. The decrease in net income during the 1998 period resulted from
increases in total interest expense and non-interest expenses which offset an
increase in total interest income, and decreases in provision for loan losses
and income taxes.
Interest income on loans increased by $976,000 or 12.1% to $9.0 million during
the nine months ended September 30, 1998 when compared with $8.1 million during
the same 1997 period. The increase during the 1998 period resulted from an
increase of $17.9 million in the average balance of loans outstanding which
offset a decrease of two basis points in the yield earned on the loan portfolio.
Interest on mortgage-backed securities available for sale decreased $788,000 or
27.7% to $2.1 million during the nine months ended September 30, 1998 when
compared with $2.8 million for the same period in 1997. The decrease during the
1998 period resulted from a decrease in the average balance of mortgage-backed
securities available for sale outstanding of $2.9 million and a decrease of 163
basis points in the yield earned. The decrease in the yield on mortgage-backed
securities available for sale resulted from employing an interest rate risk
reduction strategy whereby the Bank sold fixed rate mortgage-backed securities
and purchased adjustable rate mortgage-backed securities. Interest earned on
investment securities available for sale decreased $118,000 or 68.2% to $55,000
during the nine months ended September 30, 1998 when compared with $173,000 for
the same period in 1997. The decrease during the nine months ended September 30,
1998 resulted from a decrease of $2.4 million in the average balance of
securities outstanding along with a 42 basis point increase in the yield earned
on such securities. Interest earned on other interest-earning assets increased
by $465,000 or 195.4% to $703,000 during the
-10-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997 (Cont'd.)
nine months ended September 30, 1998, when compared with $238,000 for the same
period in 1997. The increase during the 1998 period resulted from an increase of
$11.4 million in the average balance of other interest-earning assets
outstanding which offset a decrease in the yield earned of 45 basis points on
such portfolio.
Interest expense on deposits increased $601,000 or 9.1% to $7.2 million during
the nine months ended September 30, 1998 when compared to $6.6 million during
the same period in 1997. Such increase during the 1998 period was attributable
to an increase of eight basis points in the cost of interest-bearing deposits
along with an increase of $13.8 million in the average balance of
interest-bearing deposits outstanding. Interest on advances amounted to $88,000
during the nine months ended September 30, 1997. During the 1998 period, the
Bank had no advances outstanding.
Net interest income increased $22,000 or .27% to $4.66 million during the nine
months ended September 30, 1998 when compared with $4.64 million during the same
1997 period. Such increase was due to an increase in total interest income of
$536,000 sufficient to offset an increase in total interest expense of $514,000.
The Bank's net interest rate spread decreased to 2.13% in 1998 from 2.65% in
1997. The decrease in the interest rate spread in 1998 resulted from a decrease
of eight basis points in the yield earned on interest-earning assets along with
a 44 basis points increase in the cost of interest-bearing liabilities.
During the nine months ended September 30, 1998 and 1997, the Bank provided
$45,000 and $150,000, respectively, for loan losses.
Non-interest income remained unchanged during the nine months ended September
30, 1998 when compared to the same 1997 period.
Non-interest expenses increased by $367,000 or 12.4% to $3.3 million during the
nine months ended September 30, 1998 when compared with $2.0 million during the
same 1997 period. The increases, during the 1998 period, resulted primarily from
the increases in advertising of $51,000 and miscellaneous expenses of $242,000.
Income taxes totaled $579,000 and $726,000 during the nine months ended
September 30, 1998 and 1997, respectively. The decrease during the 1998 period
resulted from a decrease in pre-tax income.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision (the "OTS") regulations. The requirement, which
the OTS may vary from time to time, depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term borrowings.
The required ratio currently is 4.0%. The Bank's liquidity averaged 48.7% during
the month of September 1998. The Bank adjusts its liquidity levels in order to
meet funding needs for deposit outflows, payment of real estate taxes from
escrow accounts on mortgage loans, repayment of borrowings, when applicable, and
loan funding commitments. The Bank also adjusts its liquidity level as
appropriate to meet its asset/liability objectives.
-11-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Cont'd.)
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, maturities of investment
securities and funds provided by operations. While scheduled loan and
mortgage-backed securities amortization and maturing term deposits and
investment securities are relatively predictable source of funds, deposit flows
and loan and mortgage-backed securities prepayments are greatly influenced by
market interest rates, economic conditions and competition. The levels of these
assets are dependent on the Bank's operating, financing, lending and investing
activities during any given period. On June 30, 1998, the Corporation completed
its IPO, selling 1,686,955 shares of common stock to stockholders other than
Liberty Bancorp, MHC and the Bank's ESOP for net proceeds of $16.3 million. At
September 30, 1998, interest-bearing deposits and securities available for sale
totaled $18.8 million and $51.4 million, respectively. The Bank has other
sources of liquidity if a need for additional funds arises, including advances
from the FHLB. At September 30, 1998, no advances from the FHLB were
outstanding.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 1998, the Bank has outstanding
commitments to originate loans of $6.8 million. Certificates of deposits
scheduled to mature in one year or less at September 30, 1998, totalled $83.1
million. Management believes that, based upon its experience and the Bank's
deposit flow history, a significant portion of such deposits will remain with
the Bank.
Under OTS regulations, each savings institution must maintain tangible capital
equal to at least 1.5% of its total adjusted assets, core capital equal to at
least 4.0% of its total adjusted assets and total capital equal to at least 8.0%
of its risk-weighted assets. The following table sets forth the Bank's capital
position at September 30, 1998 as compared to the minimum regulatory capital
requirements:
Amount Percent of Adjusted Assets
------ --------------------------
(in thousands)
Tangible Capital:
Requirement $ 3,718 1.50%
Actual 24,539 9.90%
------- -----
Excess $20,821 8.40%
======= =====
Core Capital:
Requirement $ 9,915 4.00%
Actual 24,539 9.90%
------- -----
Excess $14,624 5.90%
======= =====
Risk-Based Capital:
Requirement $ 8,484 8.00%
Actual 25,300 23.86%
------- -----
Excess $16,816 15.86%
======= =====
-12-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Impact of the Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the computer
programs that would have date sensitive software may recognize a date during
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including among
other things a temporary inability to process transactions, or engage in similar
normal business activities.
Based on a recent assessment, the Bank has determined that it will be required
to modify or replace portions of its software and upgrade certain hardware so
that its computer systems will properly utilize dates beyond December 31, 1999.
The Bank presently believes that with modifications to existing software and
hardware and conversion to new software, the Year 2000 issue can be mitigated.
However, if such modifications and conversions are not made, or are not
completed on a timely basis, the Year 2000 Issue may have a material impact on
the operations of the Bank.
The Bank has initiated formal communications with all of its significant
suppliers and vendors to determine the extent to which the Bank is vulnerable to
those third parties failure to remediate their own Year 2000 issues. The Bank
will utilize both internal and external resources to reprogram, or replace, and
test the software for Year 2000 modifications. The Bank expects to complete the
Year 2000 project no later than December 31, 1998. The Bank expects the total
cost of the Year 2000 project to be approximately $100,000. To date, the Bank
has incurred $30,000 related to the assessment of, and preliminary efforts in
connection with its Year 2000 project and the development of a remediation plan.
Thrift Rechartering Legislation
Proposed legislation regarding elimination of the thrift charter and related
issues remains pending before Congress. The Bank, whose deposits are insured by
Savings Associations Insurance Fund ("SAIF"), is unable to predict whether such
legislation would be enacted, the extent to which the legislation would restrict
or disrupt its operations or whether the Bank Insurance Fund ("BIF") or SAIF
funds will eventually merge.
Supervisory Examination
The Bank's financial statements are periodically examined by the OTS and the
Federal Deposit Insurance Corporation ("FDIC") as part of their regulatory
oversight of the thrift industry. As a result of these examinations, the
regulators can direct that the Bank make adjustments to its financial statements
based on their findings.
-13-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Management of Interest Rate Risk
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap", provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would result in a
decrease in net interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. The securities portfolio is in federal government agency
securities providing high asset quality to the overall balance sheet mix.
Securities classified as available for sale provide management with the
flexibility to make adjustments to the portfolio given changes in the economic
or interest rate environment, to fulfill unanticipated liquidity needs, or to
take advantage of alternative investment opportunities.
Net Portfolio Value
The Bank's interest rate sensitivity is monitored by management through the use
of the OTS model which estimates the change in the Bank's net portfolio
value("NPV") over a range of interest rate scenarios. NPV is the present value
of expected cash flows from assets, liabilities, and off-balance sheet
contracts. The NPV ratio, under any interest rate scenario, is defined as the
NPV in that scenario divided by the market value of assets in the same scenario.
The OTS produces its analysis based upon data submitted on the Bank's quarterly
Thrift Financial Reports.
-14-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Net Portfolio Value (Cont'd.)
The following table presents the Bank's NPV at June 30, 1998, the latest
available, as calculated by the OTS, which is based upon quarterly information
that the Bank provided voluntarily to the OTS. In the opinion of management,
there have been no material changes to the Bank's NPV since June 30, 1998.
Percentage Change in Net Portfolio Value
-----------------------------------------------------------------------------
Changes Board
in Market Projected Policy Estimated Amount of
Interest Rates Change Guidelines NPV Change
-------------- --------- ---------- --------- --------
(basis points) (Dollars in Thousands)
400 (55.0)% (75.0)% $ 13,215 $(16,222)
300 (39.0)% (50.0)% 17,936 (11,501)
200 (24.0)% (37.5)% 22,477 (6,960)
100 (10.0)% (18.8)% 26,509 (2,928)
-- -- -- 29,437 --
(100) 7.0 (15.0)% 31,600 2,163
(200) 10.0 (25.0)% 32,268 2,831
(300) 11.0 (50.0)% 32,819 3,382
(400) 15.0 (100.0)% 33,933 4,496
- 15 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
PART II . OTHER INFORMATION
ITEM 1. Legal Proceedings
The Corporation is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of
business, which involve amounts which in the aggregate are believed by
management to be immaterial to the financial condition or operations
of the Corporation.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities and Use of Proceeds
(a) Defaults Upon Senior Securities.
Not applicable.
(b) Use of Proceeds.
The effective date of the Corporation's IPO was June 30, 1998.
The offering commenced on May 13, 1998 and terminated on June 22,
1998. The securities offered were common stock of the
Corporation, par value $1.00 per share. 1,833,646 shares of
common stock were sold for an aggregate offering price of $18.3
million. The expenses for the offering were $603,000, which were
direct or indirect payments to persons other than directors and
officers of the Corporation. The net proceeds of the offering
were $17.3 million. $8.9 million of the net proceeds of the
offering were invested in short-and intermediate-term securities
and the remainder was paid to the Bank in exchange for all of the
Bank's outstanding common stock, and is available as working
capital to support the Bank's lending and investing activities.
Such investments constituted direct or indirect payments to
persons other than officers, directors or owners of 10 percent or
more of the Corporation's common stock.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIBERTY BANCORP, INC.
Date: November 12, 1998 By /s/ John R. Bowen
--------------------------------------
John R. Bowen
President and Chief Executive Officer
Date: November 12, 1998 By: /s/ Michael J. Widmer
--------------------------------------
Michael J. Widmer
Executive Vice President and
Chief Financial Officer
-17-
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<PERIOD-END> SEP-30-1998
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0
0
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