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 June 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 ___ No _X_
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of June 30, 1998, 3,901,375 common shares, $1.00 par value, were
outstanding.
<PAGE>
LIBERTY BANCORP, INC.
INDEX
Page
Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1998 and December 31, 1997 (Unaudited) 1
Consolidated Statements of Income for the Six and
Three Months Ended June 30, 1998 and 1997 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Six and Three Months Ended June 30, 1998
and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 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
PART II OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Cash and amounts due from depository institutions $ 1,122,361 $ 1,192,270
Interest-bearing deposits in other banks 28,832,609 4,738,621
------------- -------------
Total cash and cash equivalents 29,954,970 5,930,891
Securities available for sale 53,242,340 53,917,520
Loans receivable 166,564,169 152,199,868
Premises and equipment 2,030,762 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 1,221,939 1,219,978
Other assets 214,140 129,395
------------- -------------
Total assets $ 255,356,884 $ 217,436,720
============= =============
Liabilities and retained earnings
Liabilities
Deposits 208,870,509 198,362,828
Stock subscriptions payable 10,480,862 --
Advance payments by borrowers for taxes and insurance 1,801,645 1,659,615
Other liabilities 680,817 873,434
------------- -------------
Total liabilities 221,833,833 200,895,877
------------- -------------
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 June 30, 1998 3,901,375 --
Paid-in-capital 13,881,059 --
Retained earnings - substantially restricted 16,741,456 16,122,933
Unearned Employee Stock Ownership Plan ("ESOP") shares (1,466,910) --
Unrealized gain on securities available for sale, net 466,071 417,910
------------- -------------
Total stockholders' equity 33,523,051 16,540,843
------------- -------------
Total liabilities and stockholders' equity $ 255,356,884 $ 217,436,720
============= =============
</TABLE>
See notes to consolidated financial statements.
- 1 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 5,767,731 $ 5,196,075 $ 2,908,761 $ 2,672,402
Mortgage-backed securities available for sale 1,382,756 1,895,716 682,725 954,894
Investment securities available for sale 32,425 124,427 16,213 59,972
Other interest-earning assets 481,409 173,127 303,848 80,802
----------- ----------- ----------- -----------
Total interest income 7,664,321 7,389,345 3,911,547 3,768,070
----------- ----------- ----------- -----------
Interest expense:
Deposits 4,756,627 4,325,018 2,451,348 2,200,121
Advances -- 30,195 -- 30,195
----------- ----------- ----------- -----------
Total interest expense 4,756,627 4,355,213 2,451,348 2,230,316
----------- ----------- ----------- -----------
Net interest income 2,907,694 3,034,132 1,460,199 1,537,754
Provision for loan losses 30,000 100,000 15,000 50,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 2,877,694 2,934,132 1,445,199 1,487,754
----------- ----------- ----------- -----------
Non-interest income:
Fees and service charges on deposits 85,986 86,571 42,036 45,993
Fees and service charges on loans 102,247 75,518 52,741 30,661
(Loss) on sales of securities available for sale -- (89) -- (89)
Gain on sale of loans 511 -- -- --
Miscellaneous 49,305 43,978 25,097 29,590
----------- ----------- ----------- -----------
Total non-interest income 238,049 205,978 119,874 106,155
----------- ----------- ----------- -----------
Non-interest expenses:
Salaries and employee benefits 1,010,624 1,011,110 463,336 478,866
Net occupancy expense of premises 227,709 232,736 120,944 119,067
Equipment 202,222 200,925 92,545 95,743
Advertising 117,125 84,000 60,125 42,000
Federal insurance premium 61,328 59,136 30,794 29,979
Loss from foreclosed real estate 3,000 2,050 -- --
Miscellaneous 517,540 387,567 314,655 219,680
----------- ----------- ----------- -----------
Total non-interest expenses 2,139,548 1,977,524 1,082,399 985,335
----------- ----------- ----------- -----------
Income before income taxes 976,195 1,162,586 482,674 608,574
Income taxes 357,672 461,391 171,916 237,571
----------- ----------- ----------- -----------
Net income $ 618,523 $ 701,195 $ 310,758 $ 371,003
=========== =========== =========== ===========
Net income per common share - basic/diluted(1) N/A N/A N/A N/A
=========== =========== =========== ===========
Weighted average number of
common shares outstanding - basic/diluted(1) N/A N/A N/A N/A
=========== =========== =========== ===========
</TABLE>
(1) Liberty Bancorp, Inc. converted to stock form on June 30, 1998.
See notes to consolidated financial statements.
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<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 618,523 $ 701,195 $ 310,758 $ 371,003
Other comprehensive income - unrealized holding
gains on securities available for sale, net of
income taxes 48,161 81,928 45,168 574,961
Add: Losses on dispositions of securities available for
sale, net of income tax benefit of $30 and $30,
respectively -- 59 -- 59
----------- ----------- ----------- -----------
Total other comprehensive income 48,161 81,987 45,168 575,020
----------- ----------- ----------- -----------
Comprehensive income $ 666,684 $ 783,182 $ 355,926 $ 946,023
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 618,523 $ 701,195
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income taxes (40,226) (46,015)
Depreciation and amortization of premises and equipment 87,258 121,936
Amortization of premiums and accretion of discounts, net 148,587 76,739
Amortization of deferred loan fees, net 2,818 (34,964)
Provision for loan losses 30,000 100,000
Loss on sale of securities available for sale -- 89
Gain on sale of loans (511) --
(Increase) in accrued interest receivable (1,961) (118,129)
(Increase) in other assets (84,745) 160,001
Increase (decrease) in accrued interest payable 2,497 (1,154)
(Decrease) increase in other liabilities (191,041) 3,328
------------ ------------
Net cash provided by operating activities 571,199 963,026
------------ ------------
Cash flows from investing activities:
Purchases of securities available for sale (12,327,537) (12,071,760)
Principal repayments on securities available for sale 12,940,941 5,917,059
Proceeds from sale of securities available for sale -- 5,949,413
Net increase in loans receivable (14,464,653) (15,749,801)
Net additions to premises and equipment (4,116) (18,842)
Proceeds from sale of loans receivable 68,045 --
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 (13,990,720) (16,147,819)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 10,505,184 9,188,505
Increase in advance payments by borrowers for taxes and insurance 142,030 76,266
Net proceeds from Federal Home Loan Bank advance -- 4,500,000
Net proceeds from issuance of common stock 16,315,524 --
Proceeds from stock subscriptions 10,480,862 --
------------ ------------
Net cash provided by financing activities 37,443,600 13,764,771
------------ ------------
Net increase (decrease) in cash and cash equivalents 24,024,079 (1,420,022)
Cash and cash equivalents - beginning 5,930,891 5,774,783
------------ ------------
Cash and cash equivalents - ending $ 29,954,970 $ 4,354,761
============ ============
</TABLE>
See notes to consolidated financial statements
- 4 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1998 1997
---------- -----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $4,754,130 $4,352,495
========== ==========
Income taxes, net of refunds $ 598,536 $ 353,472
========== ==========
Supplemental disclosure of noncash activities:
Loans receivable transferred from foreclosed real estate $ -- $ 93,632
========== ==========
Unrealized gain on securities available for sale:
Unrealized appreciation $ 86,811 $ 127,973
Deferred income taxes 38,650 46,045
---------- ----------
$ 48,161 $ 81,928
========== ==========
</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-Q 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 six months ended June 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 operation. 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 the voting record date (the "Members").
On June 30, 1998, the Bank completed the above-noted transaction and the
Corporation sold 1,686,955 shares of common stock in an initial public offering
at $10 per share, which represents a minority ownership interest in the
Corporation of 43.2%. Liberty Bancorp, MHC (the "Mutual Holding Company")
maintains the majority ownership of 53%, or 2,067,729 shares of common stock of
the Corporation. In addition, 146,691 shares of common stock are held by the
Liberty Bank Employee Stock Ownership Plan and related trust ("ESOP"). Costs of
approximately $554,000 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.
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<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.
Net income per common share data for the three and six months ended June 30,
1998 is inapplicable as the Bank did not complete its reorganization until June
30, 1998.
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<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 June 30, 1998 and December 31, 1997
The Corporation's assets at June 30, 1998 totaled $255.4 million, which
represents an increase of $38.0 million or 17.5% as compared with $217.4 million
at December 31, 1997. Such increase was largely due to proceeds of $26.8 million
from the Corporation's initial public offering ("IPO") of common stock, which
was completed on June 30, 1998. The IPO was oversubscribed and, as a result, at
June 30, 1998, stock subscriptions payable amounted to $10.5 million.
Cash and cash equivalents increased $24.1 million to $30.0 million at June 30,
1998 from $5.9 million at December 31, 1997, primarily reflecting a $24.1
million increase in interest-bearing deposits resulting from the temporary
investment of the proceeds of the IPO.
Securities available for sale at June 30, 1998 decreased $675,000, or 1.3%, to
$53.2 million from $53.9 million at December 31, 1997. The decrease during the
six months ended June 30, 1998, resulted from purchases of securities available
for sale of $12.3 million along with an increase in the unrealized gain on such
securities of $87,000 offset by the principal repayments of $12.9 million on
securities available for sale.
Net loans increased $14.4 million or 9.5% to $166.6 million at June 30, 1998 as
compared to $152.2 million at December 31, 1997. The increase during the six
months ended June 30, 1998 resulted primarily from loan originations exceeding
loan principal repayments.
Foreclosed real estate amounted to $121,000 at June 30, 1998 and December 31,
1997, respectively, which consisted of one-to-four family residential property.
Deposits at June 30, 1998 increased $10.5 million or 5.3% to $208.9 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 $33.5 million and $16.5 million at June 30, 1998
and December 31, 1997, respectively. Such increase was largely due to net
proceeds of $16.3 million received from the IPO.
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<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 June 30, 1998 and
1997
Net income decreased $60,000 or 16.2% to $311,000 for the three months ended
June 30, 1998 compared with $371,000 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 which offset the increases in total interest
income and non-interest income, combined with decreases in provision for loan
losses and income taxes.
Interest income on loans increased by $236,000 or 8.8% to $2.9 million during
the three months ended June 30, 1998 when compared with $2.7 million during the
same period in 1997. The increase during the 1998 period resulted from an
increase of $16.9 million in the average balance of loans outstanding which was
partially offset by a decrease of 20 basis points in the yield earned on the
loan portfolio. Interest on mortgage-backed securities decreased $272,000 or
28.5% to $683,000 during the three months ended June 30, 1998 when compared with
$955,000 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 $4.4 million along with a decrease of 151
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 $44,000 or 73.3% to $16,000
during the three months ended June 30, 1998 when compared with $60,000 for the
same period in 1997. The decrease during the 1998 period resulted from a
decrease of $2.7 million in the average balance of securities outstanding which
was partially offset by a 5 basis points increase in the yield earned on such
securities. Interest earned on other interest-earning assets increased by
$223,000 or 275.3% to $304,000 during the three months ended June 30, 1998 when
compared with $81,000 for the same 1997 period. The increase during the 1998
period resulted from an increase of $16.5 million in the average balance of
other interest-earning assets outstanding which was partially offset by a
decrease in the yield earned of 102 basis points on such portfolio.
Interest expense on deposits increased $251,000 or 11.4% to $2.5 million during
the three months ended June 30, 1998 when compared to $2.2 million during the
same period in 1997. Such increase during the 1998 period was attributable to an
increase of 10 basis points in the cost of interest-bearing deposits along with
an increase of $17.2 million in the average balance of interest-bearing deposits
outstanding. Interest on FHLB advances amounted to $30,000 during the three
months ended June 30, 1997. During the 1998 period, the Bank had no FHLB
advances outstanding.
Net interest income decreased $78,000 or 5.1% to $1.5 million during the three
months ended June 30, 1998 when compared with $1.6 million the same 1997 period.
Such decrease was due to an increase in total interest expense of $221,000 which
offset an increase in total interest income of $143,000. The Bank's net interest
rate spread decreased to 1.95% for the three months ended June 30, 1998 from
2.64% for the three months ended June 30, 1997. The decrease in the interest
rate spread in 1998 resulted from a decrease of 57 basis points in the yield
earned on interest-earning assets along with a 12 basis points increase in the
cost of interest-bearing liabilities.
During the three months ended June 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
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<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
loan losses based on its periodic review of the loan portfolio and general
market conditions. At June 30, 1998 and 1997, the Bank's non-performing loans,
which were delinquent 90 days or more, totaled $778,000 or .30% of total assets
and $722,000 or .37% of total assets, respectively. At June 30, 1998 and 1997,
of $778,000 and $722,000, respectively, of non-performing loans, $756,000 and
$691,000, respectively, were on non-accrual status.
Non-interest income increased by $14,000 or 13.2% to $120,000 during the three
months ended June 30, 1998 when compared to $106,000 during the same period in
1997. The increase during the 1998 period resulted from an increase in fees and
service charges on loans of $22,000 which offset decreases in fees and service
charges on deposits of $4,000 and in miscellaneous income of $4,000.
Non-interest expenses increased by $97,000 or 9.8% to $1.1 million during the
three months ended June 30, 1998 when compared with $985,000 during the same
1997 period. During the 1998 period, occupancy, advertising, federal insurance
premium and miscellaneous expenses increased $2,000, $18,000, $1,000 and
$95,000, respectively, which were partially offset by decreases in salaries and
employees benefits and equipment $16,000 and $3,000.
Income taxes totaled $172,000 and $238,000 during the three months ended June
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 Six Months Ended June 30, 1998 and 1997
Net income decreased $82,000 or 11.7% to $619,000 for the six months ended June
30, 1998 compared with net income of $701,000 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 which offset increases in total
interest income and non-interest income, as well as decreases in provision for
loan losses and income taxes.
Interest income on loans increased by $572,000 or 11.0% to $5.8 million during
the six months ended June 30, 1998 when compared with $5.2 million during the
same 1997 period. The increase during the 1998 period resulted from an increase
of $17.3 million in the average balance of loans outstanding which offset a
decrease of 11 basis points in the yield earned on the loan portfolio. Interest
on mortgage-backed securities available for sale decreased $513,000 or 27.1% to
$1.4 million during the six months ended June 30, 1998 when compared with $1.9
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 $4.8 million and a decrease of 136 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 $92,000 or 74.2% to $32,000
during the six months ended June 30, 1998 when compared with $124,000 for the
same period in 1997. The decrease during the six months ended June 30, 1998
resulted from a decrease of $2.9 million in the average balance of securities
outstanding which offset a 4 basis point increase in the yield earned on such
securities. Interest earned on other interest-earning assets increased by
$308,000 or 178.0% to $481,000 during the six months ended June 30, 1998, when
compared with $173,000 for the same period in 1997. The increase during the 1998
period, resulted from an increase of $12.0 million in the average balance of
other interest-earning assets outstanding which offset a decrease in the yield
earned of 88 basis points on such portfolio.
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<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense on deposits increased $431,000 or 10.0% to $4.8 million during
the six months ended June 30, 1998 when compared to $4.3 million during the same
period in 1997. Such increase during the 1998 period was attributable to an
increase of 8 basis points in the cost of interest-bearing deposits along with
an increase of $15.0 million in the average balance of interest-bearing deposits
outstanding. Interest on advances amounted to $30,000 during the six months
ended June 30, 1997. During the 1998 period, the Bank had no advances
outstanding.
Net interest income decreased $126,000 or 4.2% to $2.9 million during the six
months ended June 30, 1998 when compared with $3.0 million the same 1997 period.
Such decrease was due to an increase in total interest expense of $401,000
sufficient to offset an increase in total interest income of $275,000. The
Bank's net interest rate spread decreased to 2.12% in 1998 from 2.66% in 1997.
The decrease in the interest rate spread in 1998 resulted from a decrease of 45
basis points in the yield earned on interest-earning assets along with a 9 basis
points increase in the cost of interest-bearing liabilities.
During the six months ended June 30, 1998 and 1997, the Bank provided $30,000
and $100,000, respectively, for loan losses.
Non-interest income increased by $32,000 or 15.5% to $238,000 during the six
months ended June 30, 1998 when compared to $206,000 during the same 1997
period. The increase during the 1998 period resulted from increases in fees and
service charges on loans of $27,000, gain on sale of loans of $1,000 and
miscellaneous income of $5,000 sufficient to offset a decrease in fees and
service charges on deposits of $1,000. During the six months ended June 30,
1998, the Bank sold loans of $68,000 resulting in gains of $1,000.
Non-interest expenses increased by $162,000 or 8.2% to $2.1 million during the
six ended June 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 $33,000 and miscellaneous expenses of $129,000.
Income taxes totaled $358,000 and $461,000 during the six months ended June 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 52.7% during
the month of June 1998. The Bank adjusts its liquidity levels in order to meet
funding needs for
- 11 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 it liquidity level as appropriate to meet its
asset/liability objectives.
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
June 30, 1998, interest-bearing deposits and securities available for sale
totaled $28.8 million and $53.2, respectively. The Bank has other sources of
liquidity if a need for additional funds arises, including advances from the
FHLB. At June 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 June 30, 1998, the Bank has outstanding commitments
to originate loans of $10.4 million. Certificates of deposits scheduled to
mature in one year or less at June 30, 1998, totalled $76.0 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%, 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 June 30,
1998 as compared to the minimum regulatory capital requirements:
Amount Percent of Adjusted Assets
------ --------------------------
(in thousands)
Tangible Capital:
Requirement $ 3,826 1.50 %
Actual 24,165 9.47
------- -------
Excess $20,339 7.97 %
======= =======
Core Capital:
Requirement $10,204 4.00 %
Actual 24,165 9.47
------- -------
Excess $13,961 5.47 %
======= =======
Risk-based Capital:
Requirement $ 8,468 8.00 %
Actual 25,377 23.98
------- -------
Excess $16,909 15.98 %
======= =======
- 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.
- 13 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET 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.
The following table presents the Bank's NPV at March 31, 1998, the latest
available, as calculated by the OTS, which is based upon quarterly information
that he Bank provided voluntarily to the OTS.
[OBJECT OMITTED]
- 14 -
<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
Not applicable.
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
- 15 -
<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: August 14, 1998 By: /s/ John R. Bowen
-------------------------- -------------------------------------
John R. Bowen
President and Chief Executive Officer
Date: August 14, 1998 By: /s/ Michael J. Widmer
-------------------------- -------------------------------------
Michael J. Widmer
Executive Vice President and
Chief Financial Officer
- 16-
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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