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, 1999
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 15, 1999, 3,626,329 common shares, $1.00 par value, were
outstanding.
<PAGE>
LIBERTY BANCORP, INC.
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1999 and December 31, 1998 (Unaudited) 1
Consolidated Statements of Income for the Nine and
Three Months Ended September 30, 1999 and 1998
(Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Nine and Three Months Ended September 30, 1999
and 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 - 14
PART II OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
Assets
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,283,193 $ 1,474,529
Interest-bearing deposits in other banks 2,085,490 12,349,621
------------- -------------
Total cash and cash equivalents 3,368,683 13,824,150
Securities held to maturity 19,454,648 --
Securities available for sale 53,168,080 62,734,597
Loans receivable 196,901,596 177,876,607
Premises and equipment 4,764,895 2,132,110
Foreclosed real estate -- 105,620
Federal Home Loan Bank of New York stock 2,355,100 2,007,500
Interest receivable 1,707,138 1,315,997
Other assets 452,420 450,231
------------- -------------
Total assets $ 282,172,560 $ 260,446,812
============= =============
Liabilities and stockholders' equity
Liabilities
Deposits $ 223,937,098 $ 223,270,284
Advance payments by borrowers for taxes and insurance 2,065,681 1,910,748
Advances from Federal Home Loan Bank of New York 20,600,000 --
Other liabilities 3,683,837 832,722
------------- -------------
Total liabilities 250,286,616 226,013,754
------------- -------------
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
3,626,329 and 3,901,375 shares outstanding at
September 30, 1999 and December 31, 1998, respectively 3,901,375 3,901,375
Paid-in-capital 13,827,017 13,827,420
Retained earnings - substantially restricted 18,355,999 17,512,659
Unearned Employee Stock Ownership Plan ("ESOP") shares (1,283,546) (1,393,565)
Treasury stock, at cost; 275,046 shares at September 30, 1999 (2,817,228) --
Accumulated other comprehensive income -
unrealized (loss) gain on securities available for sale, net (97,673) 585,169
------------- -------------
Total stockholders' equity 31,885,944 34,433,058
------------- -------------
Total liabilities and stockholders' equity $ 282,172,560 $ 260,446,812
============= =============
</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,
------------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 10,023,561 $ 9,048,829 $ 3,474,465 $ 3,281,098
Securities held to maturity 611,122 -- 312,803 --
Securities available for sale 2,576,170 2,113,997 829,112 698,815
Other interest-earning assets 280,633 702,715 59,844 221,307
------------ ------------ ------------ ------------
Total interest income 13,491,486 11,865,541 4,676,224 4,201,220
------------ ------------ ------------ ------------
Interest expense:
Deposits 7,502,904 7,204,475 2,485,594 2,447,848
Advances 469,370 -- 250,615 --
Capitalized lease obligations 156,592 -- 67,123 --
------------ ------------ ------------ ------------
Total interest expense 8,128,866 7,204,475 2,803,332 2,447,848
------------ ------------ ------------ ------------
Net interest income 5,362,620 4,661,066 1,872,892 1,753,372
Provision for loan losses 45,000 45,000 15,000 15,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 5,317,620 4,616,066 1,857,892 1,738,372
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges on deposits 141,794 129,999 47,157 44,013
Fees and service charges on loans 71,136 125,468 31,948 23,221
Gain on sale of loans -- 511 -- --
Gain on sale of assets 15,625 -- -- --
Miscellaneous 86,309 75,265 32,656 25,960
------------ ------------ ------------ ------------
Total non-interest income 314,864 331,243 111,761 93,194
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 1,845,988 1,635,858 654,373 625,234
Net occupancy expense of premises 464,954 367,163 163,467 139,454
Equipment 423,319 280,126 148,939 77,904
Directors' fees 137,088 126,783 43,588 38,550
Legal expenses 101,102 59,734 18,852 24,883
Advertising 251,892 177,250 95,642 60,125
Federal insurance premium 97,548 92,744 32,531 31,416
(Income) loss from foreclosed real estate (8,265) -- -- --
Miscellaneous 766,438 593,190 247,842 195,734
------------ ------------ ------------ ------------
Total non-interest expenses 4,080,064 3,332,848 1,405,234 1,193,300
------------ ------------ ------------ ------------
Income before income taxes 1,552,420 1,614,461 564,419 638,266
Income taxes 571,841 578,967 194,595 221,295
------------ ------------ ------------ ------------
Net income $ 980,579 $ 1,035,494 $ 369,824 $ 416,971
============ ============ ============ ============
Net income per common share - basic/diluted $ 0.27 N/A (1) $ 0.11 $ 0.11
============ ============ ============ ============
Weighted average number of
common shares outstanding - basic/diluted 3,584,719 N/A (1) 3,496,738 3,756,683
============ ============ ============ ============
</TABLE>
(1) Liberty Bancorp, Inc. issued stock 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,
-------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 980,579 $1,035,494 $ 369,824 $ 416,971
---------- ---------- ---------- ----------
Other comprehensive (loss) income - unrealized holding (loss)
gain on securities available for sale, net of income taxes (benefit) (682,842) 301,277 31,669 253,116
---------- ---------- ---------- ----------
Total other comprehensive (loss) income (682,842) 301,277 31,669 253,116
---------- ---------- ---------- ----------
Comprehensive (loss) income $ 297,737 $1,336,771 $ 401,493 $ 670,087
========== ========== ========== ==========
</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,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 980,579 $ 1,035,494
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 281,558 138,335
Amortization of premiums and accretion of discounts, net 284,723 254,670
Amortization of deferred loan fees, net 29,188 9,862
Provision for loan losses 45,000 45,000
Loss on sale of real estate owned (8,265) --
Gain on sale of student loans -- (511)
(Increase) decrease in accrued interest receivable (391,142) (213,073)
Decrease (increase) in other assets 55,174 (63,350)
Amortization of unearned ESOP shares 109,616 36,673
Increase (decrease) in other liabilities 597,527 (9,477)
------------ ------------
Net cash provided by operating activities 1,983,958 1,233,623
------------ ------------
Cash flows from investing activities:
Purchases of securities held to maturity (19,421,865) --
Purchases of securities available for sale (18,984,641) (20,913,823)
Principal repayments on securities available for sale 27,149,775 23,620,847
Proceeds from sale of student loans -- 68,055
Net (increase) decrease in loans receivable (19,099,177) (19,185,234)
Proceeds from sale of real estate owned 113,885 --
Net additions to premises and equipment (2,914,343) (118,015)
Purchase of Federal Home Loan Bank of New York stock (347,600) (203,400)
------------ ------------
Net cash (used in) investment activities (33,503,966) (16,731,570)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 666,814 2,639,278
Advances from Federal Home Loan Bank of New York 20,600,000 --
Increase in advance payments by borrowers for taxes and insurance 154,933 35,239
Capitalized lease obligations 2,600,000 --
Repayment of capitalized lease obligations (2,740) --
Net proceeds from issuance of common stock -- 16,315,524
Proceeds from stock subscriptions -- 10,480,862
Cash dividends paid (137,238) --
Purchase of treasury stock (2,817,228) --
------------ ------------
Net cash provided by financing activities 21,064,541 29,470,903
------------ ------------
Net (decrease) increase in cash and cash equivalents (10,455,467) 13,972,956
Cash and cash equivalents - beginning 13,824,150 5,930,891
------------ ------------
Cash and cash equivalents - ending $ 3,368,683 $ 19,903,847
============ ============
</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,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $7,727,467 $7,199,578
========== ==========
Income taxes $ 623,523 $ 803,036
========== ==========
Supplemental disclosure of noncash activities:
Net change in unrealized (loss) gain on
securities available for sale $1,083,877 $ 488,582
Deferred income taxes 401,035 187,305
---------- ----------
$ 682,842 $ 301,277
========== ==========
</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 ("GAAP"). 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, 1999,
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
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, the 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 "Company"). The Plan was approved by the Office of
Thrift Supervision ("OTS"), 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 Company
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"). In addition, the Company issued
2,067,729 shares to Liberty Bancorp, MHC (the "Mutual Holding Company"). Costs
of approximately $603,000 incurred in connection with the offering were recorded
as a reduction of the proceeds from the offering.
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 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.
-6-
<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 Company 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 Company'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, 1999 and December 31, 1998
The Company's assets at September 30, 1999 totaled $282.1 million, which
represents an increase of $21.7 million or 8.3% as compared with $260.4 million
at December 31, 1998. Such increase was largely due to $20.6 million in advances
from the Federal Home Loan Bank of New York (FHLB) which were utilized to
purchase investment securities and fund loan originations.
Cash and cash equivalents decreased by $10.4 million or 75.3% to $3.4 million at
September 30, 1999 from $13.8 million at December 31, 1998, as a result of
increased loan originations and the purchase of investment securities held to
maturity.
Securities available for sale at September 30, 1999 decreased by $9.6 million,
or 15.3% to $53.1 million from $62.7 million at December 31, 1998. The decrease
during the nine months ended September 30, 1999, resulted from principal
repayments of $27.5 million which were partially offset by purchases of such
securities in the amount of $19.0 million and a decrease in unrealized gain on
such securities of $1.1 million.
Securities held to maturity increased by $19.5 million during the period. At
December 31, 1998 the Company had no securities classified as held to maturity.
Net loans increased $19 million or 10.7% to $194.9 million at September 30, 1999
from $177.9 million at December 31, 1998. The increase during the nine months
ended September 30, 1999 resulted primarily from loan originations exceeding
loan principal repayments.
Foreclosed real estate amounting to $106,000 at December 31, 1998, consisting of
one property, which was sold during the nine months ended September 30, 1999 for
a profit of approximately $8,000. There was no foreclosed real estate of
September 30, 1999.
Deposits at September 30, 1999 increased $700,000 or 0.3% to $223.9 million when
compared with $223.2 million at December 31, 1998. The increase in deposits
resulted from interest credited of $7.5 million offset by withdrawals of $6.8
million.
Stockholders' equity totaled $31.8 million and $34.4 million at September 30,
1999 and December 31, 1998, respectively. Such decrease was largely due to the
repurchase of 275,046 shares of common stock at an average price of $10.24
totaling $2.8 million.
-7-
<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, 1999
and 1998
Net income decreased $47,000 or 11.3% to $370,000 for the three months ended
September 30, 1999 compared with $417,000 for the same period in 1998. The
decrease in net income during the 1999 period resulted from increases in
non-interest expenses that were partially offset by an increase in net interest
income and non-interest income.
Interest income on loans increased by $193,000 or 5.9% to $3.5 million during
the three months ended September 30, 1999 from $3.3 million during the same
period in 1998. The increase during the 1999 period resulted from an increase of
$24.3 million in the average balances of loans outstanding, partially offset by
a decrease of 57 basis points in the yield earned on the loan portfolio.
Interest on securities available for sale, consisting of adjustable rate
mortgage-backed securities and Collateralized Mortgage Obligations, increased by
$130,000 to $829,000 during the three months ended September 30, 1999 from
$699,000 for the same period in 1998. The increase during the 1999 period
resulted from an increase of 100 basis points in the yield earned offset by a
$536,000 decrease in the average balance. Interest income on securities held to
maturity, consisting of short-term government agency bonds, was $313,000 on an
average balance of $19.4 million with a yield of 6.43%. There were no securities
held to maturity during the same period in 1998.
Interest income on other interest-earning assets decreased by $161,000 during
the three months ended September 30,1999 when compared to same period in 1998.
The decrease during the 1999 period resulted from an $11.2 million decrease in
the average balance partially offset by a 63 basis point increase in the yield
on this portfolio.
Interest expense on deposits increased by $38,000 or 1.5% to $2.49 million
during the three months ended September 30, 1999 when compared to $2.45 million
for the same period in 1998. Such increase during the 1999 period was
attributable to $13.8 million or 6.7% increase in average balances of interest
bearing deposits outstanding coupled with a decrease of 23 basis points in cost
of funds. Interest expense on FHLB advances and capitalized lease obligations
during the quarter ended September 30, 1999 amounted to $318,000 on an average
balance of $22.1 million with an average cost of 5.75%. There were no such
liabilities during the same period in 1998.
Net interest income increased $120,000 or 6.85% to $1.87 million during the
three months ended September 30, 1999 when compared with $1.75 million for the
same period in 1998. Such increase was due to an increase in total interest
income of $ 475,000 partially offset by an increase in total interest expense of
$355,000. The Bank's net interest rate spread remained static at 2.23% for the
three months ended September 30, 1999. Although the yield on interest earning
assets decreased by 12 basis points, there was a similar decrease in the cost of
interest bearing liabilities.
During the three months ended September 30, 1999 and 1998, the Bank provided
$15,000 each for provision for loan losses. The allowance for loan losses is
based on management's evaluation of the risks inherent in its portfolio given
due consideration to changes in general market conditions and the nature and
volume of the Bank's loan activity. The Bank intends to continue to provide for
loan losses as needed based on its periodic review of the loan portfolio and
general market conditions.
At September 30, 1999 and 1998, the Bank's non-performing loans, which were
delinquent ninety days or more totaled $667,000 or 0.24% of total assets and
$763,000 or 0.31% of total assets, respectively; all these loans were on
non-accrual status.
-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, 1999
and 1998 (Cont'd.)
Non-interest income increased by $19,000 or 20.4% to $112,000 during the three
months ended September 30,1999 when compared to $93,000 during the same period
in 1998. The increase during the three months ended September 30, 1999 resulted
from increases in fees and service charges on deposits of $3,000, an increase in
loan fees and service charges of $9,000, and an increase in miscellaneous income
of $7,000.
Non-interest expenses increased by $212,000 or 17.8% to $1.4 million during the
three months ended September 30, 1999 when compared to the same period in 1998.
During 1999 period salaries and employee benefits expense, occupancy expense,
equipment, director's fees, advertising, federal insurance premium and
miscellaneous expenses increased by $29,000, $24,000, $71,000, $5,000, $35,500,
$1,000, and $52,000 respectively. Most of these increases are related to the
stock institution and branch expansion of activities. During the same period
legal expense decreased by $6,000.
Income taxes totaled $195,000 and $221,000 for the three months ended September
30, 1999 and 1998 respectively.
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998.
Net income decreased by $55,000 or 5.3% to $981,000 for nine months ended
September 30,1999 compared with net income of $1,035,000 for the same period in
1998. The decrease in net income during the 1999 period resulted from increases
in non-interest expense and decreases in non-interest income offset by increases
in net interest income.
Interest income on loans increased by $975,000 or 10.8% to $10 million during
the nine months ended September 30, 1999 when compared with $9 million during
the same 1998 period. The increase during the 1999 period resulted from an
increase of $25.6 million in the average balance of loans outstanding which was
partially offset by a decrease of 33 basis points in the yield earned on the
loan portfolio.
Interest on securities available for sale increased $462,000 or 21.8% to $2.6
million during the nine months ended September 30, 1998 when compared with $2.1
million for the same period in 1998. The increase during the 1999 period
resulted from an increase of $7.4 million in the average balance of securities
available for sale and an increase of 37 basis points in the yield earned.
Interest earned on investment securities held to maturity during the nine months
ended September 30, 1999 was $611,000 on an average portfolio balance of $12.8
million with a yield of 6.34%. There were no investment securities held to
maturity during the 1998 period.
Interest earned on other interest-earning assets decreased by $422,000 or 60% to
$281,000 during the nine months ended September 30, 1999, when compared with
$703,000 for the same period in 1998. The decrease during the 1999 period
resulted from a decrease of $10.9 million in the average balance of other
interest-earning assets outstanding which offset an increase of 107 basis points
in the yield earned on such portfolio.
Interest expense on deposits increased $298,000 or 4.14% to $7.5 million during
the nine months ended September 30, 1999 when compared to $7.2 million during
the same period in 1998. Such increase during the 1999 period was attributable
to a decrease of 16 basis points in the cost of interest-bearing deposits offset
by an increase of $15.8 million in the average balance of interest-bearing
deposits outstanding. Interest on advances and other borrowings amounted to
$626,000 during the nine months ended September 30, 1999. During the 1998
period, the Bank had no advances and borrowings outstanding.
-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 Nine Months Ended September 30, 1999 and
1998 (Cont'd.)
Net interest income increased $702,000 or 15.0% to $5.4 million during the nine
months ended September 30, 1999 when compared with $4.7 million during the same
1998 period. Such increase was due to an increase in total interest income of
$1.63 million partially offset by an increase in total interest expense of
$924,000. The Bank's net interest rate spread remained stable at 2.13%. The
interest rate spread was affected by an eight basis point decrease in both the
yield on interest earning assets and the cost of interest bearing liabilities.
During the nine months ended September 30, 1999 and 1998, the Bank provided
$45,000 each as provision for loan losses.
Non-interest income during the nine months ended September 30, 1999, decreased
by $16,000 or 4.8% to $315,000 when compared to $331,000 for the same 1998
period. The decreases during the 1999 period resulted from increase of fees and
service charges on deposits of $12,000, gain on sale of fixed assets of $15,000
and miscellaneous income of $11,000 offset by a decrease in fees and service
charges on loans of $54,000.
Non-interest expenses increased by $747,000 or 22.4% to $4.1 million during the
nine months ended September 30, 1998 when compared with $3.3 million during the
same 1998 period. The increases during the 1999 period resulted primarily from
the increases in salaries and employee benefits, occupancy expense, equipment,
director's fees, legal expenses, advertising, federal insurance premium, and
miscellaneous expenses partially offset by decrease in loss from foreclosed real
estate. The increase in non-interest operating expenses are related in large
part to costs associated with opening a new branch office in June of 1999 and
other expenses related to planning three other new offices.
Income taxes totaled $572,000 and $579,000 during the nine months ended
September 30, 1999 and 1998, respectively.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
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 30.35% during the month of September 1999. 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.
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. The Bank has other sources of liquidity if a
need for additional funds arises, including advances from the FHLB. At September
30, 1999, the Bank had short-term outstanding advances of $20,600,000 from the
FHLB.
-10-
<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 anticipates that it will have sufficient funds available to meet its
current loan commitments. At September 30, 1999, the Bank has outstanding
commitments to originate loans of $6.3 million. Certificates of deposits
scheduled to mature in one year or less at September 30, 1999, totaled $124.4
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, 1999 as compared to the minimum regulatory capital
requirements:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
-------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) $26,842 22.13% $ 9,703 8.00% $12,129 10.00%
Tier I Capital
(to risk-weighted assets) 26,059 21.48% -- -- 7,277 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 26,059 9.35% 11,152 4.00% 13,940 5.00%
Tangible Capital
(to adjusted total assets) 26,059 9.35% 4,182 1.50% -- --
</TABLE>
-11-
<PAGE>
Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000
Like many financial institutions the Bank relies upon computers for the daily
conduct of its business and for data processing generally. 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 Bank's computer programs that
would have date-sensitive software may recognize a date ending "00" as the year
1900 rather than the year 2000. This could result in a systems failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Bank recognized that a comprehensive and coordinated plan of action was
needed to ensure complete readiness to perform Year 2000 processing. Year 2000
compliance responsibility has been assigned to initiate and implement the Year
2000 project, policies, document readiness of the Bank to accommodate Year 2000
processing, and to track and test progress towards full compliance. The Bank
generally relies on independent third parties to provide data processing service
to the Bank, and has been advised by its data processing service center that the
issue is being addressed. The Bank is also in the process of ensuring that
external vendors and additional services are adequately addressing the system
and software issues related to the Year 2000. The Bank has actively participated
in a proxy testing process with other users of the data processing service
center. This process involved developing, implementing and validating scripts
which tested the software of the independent third party vendor. The results of
these tests were satisfactory. The Bank continues to actively monitor all
external vendors to ensure that they are adequately addressing the system and
software issues related to the Year 2000.
The Bank has installed and tested vendor provided software updates or
replacements for all of its systems including; loan processing and closing,
investment accounting, accounts payable, fixed assets and ATM software. The Bank
has completed an end-to-end testing process with the Bank's data processing
service center. This testing was designed to ensure that the hardware and
communications software can properly function in a Year 2000 date environment.
The Bank has invested approximately $100,000 in the effort to upgrade its
computer systems. The Bank does not anticipate future expenses related to system
remediation. Future expenses are expected to be related to testing the business
resumption contingency plan (the "Contingency Plan") and should be nominal.
The Bank has developed a Contingency Plan that will be utilized in the event of
a failure of one or more systems. This plan assigns responsibility, identifies
the core business processes, establishes an event timeline and analyzes the
risks in each core business process. The Bank has tested the effectiveness of
the contingency plan. That plan includes training employees and simulating a
disaster. The Bank engaged independent auditors to validate the effectiveness of
the contingent procedures.
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
the Savings Association Insurance Fund ("SAIF"), and the Company, are 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 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.
-12-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
As with other savings institutions, the Bank's most significant form of market
risk is interest rate risk. The Bank's assets, consisting primarily of mortgage
loans, have longer maturities than its liabilities, consisting primarily of
deposits. As a result, a principal part of the Bank's business strategy is to
manage interest rate risk and manage the exposure of the Bank's net interest
income to changes in market interest rates. Accordingly, the Board of Directors
has established an Asset/Liability Management Committee which is responsible for
evaluating the interest rate risk inherent in the Bank's assets and liabilities,
determining the level of risk that is appropriate given the Bank's business
strategy, operating environment, capital, liquidity and performance objectives,
and managing this risk consistent with the guidelines approved by the Board of
Directors. The Asset/Liability Management Committee consists of senior
management operating under a policy adopted by the Board of Directors and meets
at least quarterly to review the Bank's asset/liability polices and interest
rate risk position.
The Bank has pursued the following strategies to manage interest rate risk: (1)
originating one-to-four family adjustable rate mortgage loans, (2) purchasing
adjustable rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac
or GNMA, (3) increasing adjustable rate home equity lending and fixed-rate home
equity lending with maturities of five years or less, and (4) investing in
shorter-term securities which generally have lower yields compared to longer
term investments, but which better position the Bank to reinvest its assets if
market interest rates increase.
The Bank's current investment strategy is to maintain a 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 consists primarily of U.S. Treasury, Federal Government
and government sponsored corporation securities. Much of the Bank's investment
securities and mortgage-backed securities are classified as available for sale
to provide management with the flexibility to make adjustments to the portfolio
in the event of changes in interest rates, to fulfill unanticipated liquidity
needs, or to take advantage of alternative investment opportunities.
At September 30, 1999, the Bank had adjustable mortgage loans of $73.9 million,
or 37.5% of total loans and $40.7 million or 92.9% of securities available for
sale in adjustable rate mortgage-backed securities.
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.
-13-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKED RISK
Net Portfolio Value (Cont'd.)
The following table presents the Bank's NPV at June 30, 1999, the latest
information 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,
1999.
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)
300 (67.00)% (50.0)% 9,205 (18,811)
200 (43.00)% (38.0)% 15,975 (12,041)
100 (20.00)% (19.0)% 22,470 (5,546)
-- -- -- 28,016 --
(100) 14.00 % 15.0 % 32,057 4,041
(200) 25.00 % 25.0 % 34,963 6,947
(300) 33.00 % 50.0 % 37,363 9,347
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurement. Modeling changes in NPV requires making certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remain constant over the
period being measured and assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration or
repricing of specific assets and liabilities. Accordingly, although the NPV
table provides an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income, and will differ from actual results.
Additionally, the guidelines established by the Board of Directors is to limit
projected NPV changes within the Board's guidelines, the Bank will not
necessarily limit projected changes in NPV if the required action would present
disproportionate risk to the Bank's continued profitability.
-14-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company 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 Company.
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
Not applicable
ITEM 5. Other Information
On July 21, 1999 the Company declared a quarterly cash dividend of $0.02
per share, paid on August 18, 1999, to stockholders of record on August 4,
1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
16. Computation of earnings per common share.
27. EDGAR Financial Data Schedule
(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: November 8, 1999 By /s/ John R. Bowen
----------------------------- -------------------------------------
John R. Bowen
President and Chief Executive Officer
Date: November 8, 1999 By: /s/ Michael J. Widmer
----------------------------- -------------------------------------
Michael J. Widmer
Executive Vice President and
Chief Financial Officer
-16-
Exhibit 1
LIBERTY BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Net income $ 980,578 $ 369,825
---------- ----------
Weighted average common shares outstanding 3,669,225 3,626,329
Common stock equivalents due to dilution effect
of stock options None None
---------- ----------
Total weighted average common shares and
equivalents outstanding 3,669,225 3,626,329
---------- ----------
Basic earnings per common share $ 0.27 $ 0.10
========== ==========
Diluted earnings per common share $ 0.27 $ 0.10
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,283
<INT-BEARING-DEPOSITS> 2,085
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,168
<INVESTMENTS-CARRYING> 19,454
<INVESTMENTS-MARKET> 0
<LOANS> 196,902
<ALLOWANCE> 783
<TOTAL-ASSETS> 282,173
<DEPOSITS> 223,937
<SHORT-TERM> 20,600
<LIABILITIES-OTHER> 5,750
<LONG-TERM> 0
0
0
<COMMON> 3,901
<OTHER-SE> 27,985
<TOTAL-LIABILITIES-AND-EQUITY> 282,173
<INTEREST-LOAN> 10,024
<INTEREST-INVEST> 3,187
<INTEREST-OTHER> 280
<INTEREST-TOTAL> 13,491
<INTEREST-DEPOSIT> 7,503
<INTEREST-EXPENSE> 8,129
<INTEREST-INCOME-NET> 5,362
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,088
<INCOME-PRETAX> 1,552
<INCOME-PRE-EXTRAORDINARY> 1,552
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 981
<EPS-BASIC> .27
<EPS-DILUTED> .27
<YIELD-ACTUAL> 6.76
<LOANS-NON> 667
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 768
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 783
<ALLOWANCE-DOMESTIC> 649
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 134
</TABLE>
