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 March 31, 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 April 30, 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
March 31, 1999 and December 31, 1998 (Unaudited) 1
Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 1999
and 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 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 - 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 - 13
PART II OTHER INFORMATION 14 - 15
SIGNATURES 16
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Cash and amounts due from depository institutions $ 1,236,535 $ 1,474,529
Interest-bearing deposits in other banks 1,312,730 12,349,621
------------- -------------
Total cash and cash equivalents 2,549,265 13,824,150
Securities available for sale 70,280,670 62,734,597
Loans receivable 179,734,503 177,876,607
Premises and equipment 2,112,619 2,132,110
Foreclosed real estate -- 105,620
Federal Home Loan Bank of New York stock 2,355,100 2,007,500
Interest receivable 1,374,402 1,315,997
Other assets 301,271 450,231
------------- -------------
Total assets $ 258,707,830 $ 260,446,812
============= =============
Liabilities and stockholders' equity
Liabilities
Deposits $ 224,117,099 $ 223,270,284
Advance payments by borrowers for taxes and insurance 1,977,735 1,910,748
Advances from Federal Home Loan Bank of New York 400,000 --
Other liabilities 605,698 832,722
------------- -------------
Total liabilities 227,100,532 226,013,754
------------- -------------
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
March 31, 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 17,748,963 17,512,659
Unearned Employee Stock Ownership Plan ("ESOP") shares (1,356,892) (1,393,565)
Treasury stock, at cost; 275,046 shares at March 31, 1999 (2,817,228) --
Accumulated other comprehensive income -
unrealized gain on securities available for sale, net 304,063 585,169
------------- -------------
Total stockholders' equity 31,607,298 34,433,058
------------- -------------
Total liabilities and stockholders' equity $ 258,707,830 $ 260,446,812
============= =============
</TABLE>
See notes to consolidated financial statements.
- 1 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Interest income:
Loas $ 3,225,955 $ 2,858,970
Securities available for sale 836,792 716,243
Other interest-earning assets 157,497 177,561
----------- -----------
Total interest income 4,220,244 3,752,774
----------- -----------
Interest expense:
Deposits 2,522,887 2,305,279
Advances 58 --
----------- -----------
Total interest expense 2,522,945 2,305,279
----------- -----------
Net interest income 1,697,299 1,447,495
Provision for loan losses 15,000 15,000
----------- -----------
Net interest income after provision for loan losses 1,682,299 1,432,495
----------- -----------
Non-interest income:
Fees and service charges on deposits 46,398 43,950
Fees and service charges on loans 6,046 15,606
Gain on sale of loans -- 511
Miscellaneous 24,347 24,208
----------- -----------
Total non-interest income 76,791 84,275
----------- -----------
Non-interest expenses:
Salaries and employee benefits 570,627 547,288
Net occupancy expense of premises 146,721 106,765
Equipment 139,216 109,677
Directors' fees 46,200 46,233
Legal expenses 44,359 14,000
Advertising 78,125 57,000
Federal insurance premium 32,203 30,534
(Income) loss from foreclosed real estate (8,265) 3,000
Miscellaneous 219,192 108,752
----------- -----------
Total non-interest expenses 1,268,378 1,023,249
----------- -----------
Income before income taxes 490,712 493,521
Income taxes 179,515 185,756
----------- -----------
Net income $ 311,197 $ 307,765
=========== ===========
Net income per common share - basic/diluted $ 0.08 N/A (1)
=========== ===========
Weighted average number of
common shares outstanding - basic/diluted 3,753,893 N/A (1)
=========== ===========
</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>
Three Months Ended
March 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income $ 311,197 $ 307,765
--------- ---------
Other comprehensive (loss) income - unrealized holding (loss)
gain on securities
available for sale, net of
income taxes (benefit) (281,106) 2,994
--------- ---------
Total other comprehensive income (281,106) 2,994
--------- ---------
Comprehensive income $ 30,091 $ 310,759
========= =========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 311,197 $ 307,765
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 59,400 51,223
Amortization of premiums and accretion of discounts, net 154,682 65,824
Amortization of deferred loan fees, net (1,794) (6,635)
Provision for loan losses 15,000 15,000
Gain on sale of real estate owned (8,265) --
Gain on sale of student loans -- (511)
(Increase) decrease in accrued interest receivable (58,405) 55,421
Decrease (increase) in other assets 148,960 (245,387)
Amortization of unearned ESOP shares 36,270 --
(Decrease) in other liabilities (61,931) (203,595)
------------ ------------
Net cash provided by operating activities 595,114 39,105
------------ ------------
Cash flows from investing activities:
Purchases of securities available for sale (21,052,236) (3,160,969)
Principal repayments on securities available for sale 12,905,282 4,960,605
Proceeds from sale of student loans -- 68,055
Net (increase) decrease in loans receivable (1,871,102) 1,233,080
Proceeds from sale of real estate owned 113,885 --
Net additions to premises and equipment (39,909) (15,416)
Purchase of Federal Home Loan Bank of New York stock (347,600) (203,400)
------------ ------------
Net cash (used in) provided by investment activities (10,291,680) 2,881,955
------------ ------------
Cash flows from financing activities:
Net increase in deposits 846,815 7,579,154
Advances from Federal Home Loan Bank 400,000 --
Increase in advance payments by borrowers for taxes and insurance 66,987 45,016
Cash dividends paid (74,893) --
Purchase of treasury stock (2,817,228) --
------------ ------------
Net cash (used in) provided by financing activities (1,578,319) 7,624,170
------------ ------------
Net (decrease) increase in cash and cash equivalents (11,274,885) 10,545,230
Cash and cash equivalents - beginning 13,824,150 5,930,891
------------ ------------
Cash and cash equivalents - ending $ 2,549,265 $ 16,476,121
============ ============
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,522,945 $ 2,305,279
=========== ===========
Income taxes $ 254,523 $ 395,526
=========== ===========
Net change in unrealized (loss) gain on
securities available for sale $ (281,106) $ 2,994
=========== ===========
</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 months ended March 31, 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.
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.
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 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 March 31, 1999 and December 31, 1998
The Company's assets at March 31, 1999 totaled $258.7 million, which represents
a decrease of $1.7 million or 0.7% as compared with $260.4 million at December
31, 1998. Such decrease was largely due to the repurchase of common stock.
Cash and cash equivalents decreased by $11.3 million or 81.6% to $2.5 million at
March 31, 1999 from $13.8 million at December 31, 1998, as a result of increased
loan originations and the purchase of mortgage-backed securities.
Securities available for sale at March 31, 1999 increased by $7.6 million, or
12.1%, to $70.3 million from $62.7 million at December 31, 1998. The increase
during the three months ended March 31, 1999, resulted from purchases of
securities available for sale of $21.0 million; these purchase were partially
offset by a decrease in unrealized gain on such securities of $446,000, and
principal repayments of $12.9 million.
Net loans increased $1.8 million or 1.0.% to $179.7 million at March 31, 1999
from $177.9 million at December 31, 1998. The increase during the three months
ended March 31, 1999 resulted primarily from loan originations exceeding loan
principal repayments.
Foreclosed real estate amounting to $105,000 at December 31, 1998, consisting of
one property, was sold during the quarter ended March 31, 1999 for a profit of
approximately $8,000. There is no foreclosed real estate at March 31, 1999.
Deposits at March 31, 1999 increased $847,000 or 0.4% to $224.1 million when
compared with $223.2 million at December 31, 1998. The increase in deposits
resulted from interest credited by $2.4 million offset by withdrawals of $1.6
million.
Stockholders' equity totaled $31.6 million and $34.4 million at March 31, 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
totalling $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 March 31, 1999 and
1998
Net income increased by $3,000 or by 1.0% to $311,000 for the three months ended
March 31, 1999, compared with $308,000 for the same period in 1998. During the
quarter ended March 31, 1999, net interest income increased by $250,000 or 17.3%
which was offset by an increase in non-interest expenses of $245,000 or 24.0%.
Interest income on loans increased by $367,000 or 12.8% to $3.2 million during
the three months ended March 31, 1999 when compared with $2.9 million during the
same period in 1998. The increase during the 1999 period resulted from an
increase of $26.3 million in the average balance of loans outstanding offset by
a decrease of 29 basis points in the yield earned on the loan portfolio.
Interest on securities available for sale increased by $121,000 or 16.8% to
$837,000 during the three months ended March 31, 1999 when compared with
$716,000 for the same period in 1998. The increase during the 1999 period
resulted from an increase of $10.0 million in the average balance of securities
available for sale offset by a decrease of 10 basis points in the yield earned.
Interest earned on other interest-earning assets decreased by $21,000 or 11.8%
to $157,000 during the three months ended March 31, 1999 when compared with
$178,000 for the same 1998 period. The decrease during the 1999 period resulted
from a decrease of $982,000 or 8.4% in the average balance of other
interest-earning assets, along with a decrease of 23 basis points in the yield
earned on such portfolio.
Interest expense on deposits increased $218,000 or 9.4%to $2.5 million during
the three months ended March 31, 1999 when compared to $2.3 million during the
same period in 1998. Such increase during the 1999 period was attributable to an
increase of $20.8 million in the average balance of interest-bearing deposits
outstanding, along with a decrease of five basis points in the cost of
interest-bearing deposits from 4.67% to 4.62%.
Net interest income increased $250,000 or 17.3% to $1.7 million during the three
months ended March 31, 1999 when compared with $1.4 million during the same 1998
period. Such increase was due to an increase in total interest income of
$467,000 which more than offset an increase in total interest expense of
$218,000. The Bank's net interest rate spread decreased to 2.10% for the three
months ended March 31, 1999 from 2.28% for the same period in 1998. The decrease
in the interest rate spread in 1999 resulted from a decrease of 23 basis points
in the yield earned on interest-earning assets which offset a five basis points
decrease in the cost of interest-bearing liabilities.
The Bank provided $15,000 for loan losses during each of the three months ended
March 31, 1999 and 1998. 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. At March 31, 1999, the Bank's non-performing
loans, which were delinquent ninety days or more and placed in non-accrual
status, totaled $734,000 or .28% of total assets and 0.41% of total loans. The
Bank will continue its periodic review of the loan portfolio and make
appropriate adjustments to the loan loss reserve as necessary. At March 31,
1999, the Bank's non-performing loans, which were delinquent ninety days or more
and placed in non-accrual status, totalled $734,000 or 0.28% total assets and
0.41% total loans.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998(Cont'd.)
Non-interest income decreased by $7,000 or 8.8% to $77,000 during the three
months ended March 31, 1999 when compared to $84,000 during the same period in
1998. The decrease during the 1999 period resulted from decreases in fees and
service charges on loans of $10,000 and gains on sales of student loans of $500,
which offset an increase in fees and service charges on deposits of $2,000.
Non-interest expenses increased by $245,000 or 24.0% to $1.3 million during the
three months ended March 31, 1999 when compared with $1.0 million during the
same period in 1998. During the 1999 period, salaries and employee benefits,
occupancy, equipment, legal fees, advertising, federal insurance premium and
miscellaneous expenses increased by $23,000, $40,000, $30,000, $30,000, $21,000,
$2,000 and $110,000, respectively. These increases are additional expenses
primarily related to being a public company, partially offset by decrease in
loss from foreclosed real estate by $11,000.
Income taxes totaled $180,000 and $186,000 during the three months ended March
31, 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 42.3% during the month of March 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 March 31,
1999, the Bank had short-term outstanding advances of $400,000 from the FHLB.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At March 31, 1999, the Bank has outstanding
commitments to originate loans of $7.3 million. Certificates of deposits
scheduled to mature in one year or less at March 31, 1999, totalled $115.6
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.
- 9 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Cont'd.)
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 March 31, 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>
Total Capital
(to risk-weighted assets) $26,082 24.21% $ 8,620 8.00% $10,775 10.00%
Tier I Capital
(to risk-weighted assets) 25,329 23.51% -- -- 6,465 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 25,329 9.88% 10,260 4.00% 12,824 5.00%
Tangible Capital
(to adjusted total assets) 25,329 9.88% 3,847 1.50% -- --
</TABLE>
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's personnel have actively
participated in a proxy testing process with other users of the independent
third party vendor. This process involves developing, implementing and
validating scripts which will test the software of the independent third party
vendor. 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.
- 10 -
<PAGE>
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000
(Cont'd.)
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 independent third
party vendor. 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 developed a plan to test the
effectiveness of the contingency plan. That plan includes training employees and
simulating a disaster. The Bank intends to engage 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 Associations Insurance Fund ("SAIF"), and the Corporation, 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.
- 11 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKED 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. All of the Bank's investment
securities and mortgage-backed securities, other than FHLB stock, 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 March 31, 1999, the Bank had adjustable mortgage loans of $38.2 million, or
21.0% of total loans and $53.0 million or 76% 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.
- 12 -
<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 December 31, 1998, 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 December
31, 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)
300 (38.0)% (50.0)% 16,306 (10,069)
200 (23.0)% (38.0)% 20,405 (5,970)
100 (10.0)% (19.0)% 23,794 (2,581)
-- -- -- 26,375 --
(100) 7.0 15.0% 28,231 1,856
(200) 12.0 25.0% 29,466 3,091
(300) 19.0 50.0% 31,357 4,982
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.
- 13 -
<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
The Company held a Special Meeting of stockholders on February 3, 1999. At
said meeting 3,901,375 shares of common stock were eligible to vote, of
which 1,833,646 shares (minority shares) were held by stockholders other
than Liberty Bancorp, MHC. There were present at the Special Meeting, in
person or by proxy, holders of 3,291,732 votes. The following matters were
voted upon at the Special Meeting and the number of affirmative votes,
negative votes and abstained votes of minority interest with respect
thereto are as follows:
Proposal 1. The ratification and approval of the Liberty Bancorp Inc. 1999
Stock Option Plan.
Affirmative Negative
Votes Votes Abstained
----------- -------- ---------
Number of votes 3,037,965 244,217 9,550
Percentage of votes present in
person or by proxy 92.29% 7.42% 0.29%
Number of votes cast by
stockholders other than Liberty
Bancorp; MHC 970,236 244,217 9,550
Percentage of 1,833,646 votes 52.91% 13.32% 0.52%
- 14 -
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
PART II . OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders (Cont'd.)
Proposal 2. The ratification and approval of the Liberty Bancorp Inc., 1999
Recognition and Retention Plan.
Affirmative Negative
Votes Votes Abstained
----------- -------- ---------
Number of votes 3,000,660 280,222 10,850
Percentage of votes present in
person or by proxy 91.16% 8.51% 0.33%
Number of votes cast by
stockholders other than Liberty
Bancorp; MHC 932,931 280,222 10,850
Percentage of 1,833,646 votes 50.88% 15.28% 0.50%
ITEM 5. Other Information
1) The Company repurchased 275,046 shares of common stock in the open
market at an average price of $10.24 per share.
2) On January 20, 1999, the Company declared its quarterly cash dividend
of $0.02 per share, to be paid on February 18, 1999, to stockholders
of record on February 4, 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
1. Computation of earnings per common share.
(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: By
----------------------------------------
John R. Bowen
President and Chief Executive Officer
Date: By: ----------------------------------------
Michael J. Widmer
Executive Vice President and
Chief Financial Officer
- 16 -
Exhibit 1
LIBERTY BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months
Ended
March 31, 1999
--------------
Net income $ 311,197
----------
Weighted average common shares outstanding 3,753,893
Common stock equivalents due to dilution effect
of stock options None
Total weighted average common shares and
equivalents outstanding 3,753,893
Basic earnings per common share $ 0.08
==========
Diluted earnings per common share $ 0.08
==========
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