SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2000
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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
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LIBERTY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
UNITED STATES OF AMERICA 22-3593532
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1410 St. Georges Avenue, Avenel, New Jersey 07001
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(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 July 25, 2000, 3,548,399 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, 2000 and December 31, 1999 (Unaudited) 1
Consolidated Statements of Income for the Six and Three
Months Ended June 30, 2000 and 1999 (Unaudited) 2
Consolidated Statements of Comprehensive Income
for the Six and Three Months Ended June 30, 2000
and 1999 (Unaudited) 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 (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>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets
Cash and amounts due from depository institutions $ 1,243,866 $ 1,563,041
Interest-bearing deposits in other banks 2,371,576 2,049,256
------------- -------------
Total cash and cash equivalents 3,615,442 3,612,297
Securities held to maturity 19,481,256 19,468,185
Securities available for sale 43,592,673 48,707,248
Loans receivable 211,687,906 202,031,204
Premises and equipment 5,168,911 4,867,039
Foreclosed real estate 80,222 80,222
Federal Home Loan Bank of New York stock 2,355,100 2,355,100
Interest receivable 1,673,945 1,539,332
Other assets 559,354 608,061
------------- -------------
Total assets $ 288,214,809 $ 283,268,688
============= =============
Liabilities and stockholders' equity
Liabilities
Deposits $ 211,968,418 $ 220,532,547
Advances from Federal Home Loan Bank of New York 39,200,000 24,800,000
Capitalized lease obligations 2,592,303 2,596,031
Advance payments by borrowers for taxes and insurance 2,386,698 2,262,379
Other liabilities 390,957 1,129,787
------------- -------------
Total liabilities 256,538,376 251,320,744
------------- -------------
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
3,548,399 and 3,621,329 shares outstanding at
June 30, 2000 and December 31, 1999, respectively 3,901,375 3,901,375
Paid-in-capital 13,770,646 13,796,320
Retained earnings - substantially restricted 19,146,452 18,695,283
Unearned Employee Stock Ownership Plan ("ESOP") shares (1,173,528) (1,246,874)
Unearned Recognition Retention Plan ("RRP") Stock (371,245) --
Treasury stock, at cost; 352,976 and 280,046 shares at June 30, 2000 and -- --
December 31, 1999, respectively (3,335,942) (2,849,415)
Accumulated other comprehensive income -
unrealized (loss) on securities available for sale, net (261,325) (348,745)
------------- -------------
Total stockholders' equity 31,676,433 31,947,944
------------- -------------
Total liabilities and stockholders' equity $ 288,214,809 $ 283,268,688
============= =============
</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,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 7,494,496 $ 6,549,096 $ 3,809,357 $ 3,323,141
Securities held to maturity 605,211 298,319 299,601 $ 298,319
Securities available for sale 1,513,303 1,747,058 738,978 910,266
Other interest-earning assets 123,266 220,789 59,668 63,292
----------- ----------- ----------- -----------
Total interest income 9,736,276 8,815,262 4,907,604 4,595,018
----------- ----------- ----------- -----------
Interest expense:
Deposits 4,753,773 5,017,310 2,382,109 2,494,423
Advances 943,727 218,756 537,143 218,698
Capitalized lease obligations 134,303 89,469 67,144 89,469
----------- ----------- ----------- -----------
Total interest expense 5,831,803 5,325,535 2,986,396 2,802,590
----------- ----------- ----------- -----------
Net interest income 3,904,473 3,489,727 1,921,208 1,792,428
Provision for loan losses 60,000 30,000 30,000 15,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,844,473 3,459,727 1,891,208 1,777,428
----------- ----------- ----------- -----------
Non-interest income:
Fees and service charges on deposits 88,544 94,637 46,748 48,239
Fees and service charges on loans 21,689 39,188 16,414 33,142
Gain on sale of assets -- 15,625 -- 15,625
Miscellaneous 69,312 53,653 42,807 29,306
----------- ----------- ----------- -----------
Total non-interest income 179,545 203,103 105,969 126,312
----------- ----------- ----------- -----------
Non-interest expenses:
Salaries and employee benefits 1,363,892 1,128,114 682,473 557,487
Net occupancy expense of premises 401,216 301,488 208,559 154,767
Equipment 319,841 274,380 162,213 135,164
Directors' fees 88,033 93,500 42,234 47,300
Legal expenses 57,864 82,253 34,646 37,894
Advertising 215,671 156,250 110,330 78,125
Federal insurance premium 23,448 65,017 11,543 32,814
(Income) from foreclosed real estate -- (8,265) -- --
Miscellaneous 566,007 582,093 293,296 362,901
----------- ----------- ----------- -----------
Total non-interest expenses 3,035,972 2,674,830 1,545,294 1,406,452
----------- ----------- ----------- -----------
Income before income taxes 988,046 988,000 451,883 497,288
Income taxes 356,924 377,247 167,357 197,732
----------- ----------- ----------- -----------
Net income $ 631,122 $ 610,753 $ 284,526 $ 299,556
----------- ----------- ----------- -----------
Net income per common share - basic/diluted $ 0.18 $ 0.17 $ 0.08 $ 0.08
----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding - basic/diluted 3,470,719 3,691,028 3,450,979 3,628,162
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 631,122 $ 610,753 $ 284,526 $ 299,556
--------- --------- --------- ---------
Other comprehensive income (loss) - unrealized holding gain
(loss) on securities available for sale, net of
income taxes (benefit) 87,420 (714,511) 18,502 (433,405)
--------- --------- --------- ---------
Total other comprehensive income (loss) 87,420 (714,511) 18,502 (433,405)
--------- --------- --------- ---------
Comprehensive income (loss) $ 718,542 $(103,758) $ 303,028 $(133,849)
========= ========= ========= =========
</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,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 631,122 $ 610,753
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 228,639 178,812
Amortization of premiums and accretion of discounts, net 46,628 237,729
Amortization of deferred loan fees, net 23,330 21,755
Provision for loan losses 60,000 30,000
Loss on sale of real estate owned -- (8,265)
(Increase) in accrued interest receivable (134,613) (386,799)
(Increase) Decrease in other assets (2,635) 52,627
Amortization of unearned ESOP shares 47,672 72,943
Amortization of RRP shares 125,502 --
(Decrease) in other liabilities (738,830) 201,942
------------ ------------
Net cash provided by operating activities 286,815 1,011,497
------------ ------------
Cash flows from investing activities:
Purchases of securities held to maturity -- (19,421,865)
Purchases of securities available for sale -- (18,984,641)
Principal repayments on securities available for sale 5,193,638 21,321,140
Net (increase) in loans receivable (9,740,032) (10,416,326)
Proceeds from sale of real estate owned -- 113,885
Net additions to premises and equipment (530,511) (204,346)
Purchase of Federal Home Loan Bank of New York stock -- (347,600)
------------ ------------
Net cash (used in) investing activities (5,076,905) (27,929,803)
------------ ------------
Cash flows from financing activities:
Net (decrease) increase in deposits (8,564,129) 1,348,197
Advances from Federal Home Loan Bank of New York 14,400,000 18,000,000
Increase in advance payments by borrowers for taxes and insurance 124,319 158,648
Repayment of capitalized lease obligations (3,728) (1,544)
Purchase of RRP Stock (496,747) --
Cash dividends paid (179,953) (106,066)
Purchase of treasury stock (486,527) (2,817,228)
------------ ------------
Net cash provided by financing activities 4,793,235 16,582,007
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,145 (10,346,299)
Cash and cash equivalents - beginning 3,612,297 13,824,150
------------ ------------
Cash and cash equivalents - ending $ 3,615,442 $ 3,477,851
============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
2000 1999
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 5,855,014 $ 5,117,385
----------- -----------
Income taxes $ 479,686 $ 441,523
----------- -----------
Supplemental disclosure of noncash activities:
Unrealized gain (loss) on
securities available for sale $ 138,762 $(1,134,145)
Deferred income taxes (Benefit) (51,342) 419,634
----------- -----------
Net Non-Cash Activities $ 87,420 $ (714,511)
=========== ===========
Property Acquired under Capital Leases $ -0- $ 2,600,000
=========== ===========
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, representing the consolidation
of the financial results of Liberty Bancorp, Inc. (the "Company") and its
subsidiary Liberty Bank (the "Bank"), 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 six months ended June 30, 2000, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. 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 or
other contracts to issue common stock, 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 June 30, 2000 and December 31, 1999
The Company's assets at June 30, 2000 totaled $288.2 million, which represents
an increase of $4.9 million or 1.73% as compared with $283.2 million at December
31, 1999. Such increase was largely funded by a $14.4 million increase in
advances from the Federal Home Loan Bank of New York ("FHLB") offset by a
decrease of $8.5 million in deposits.
Cash and cash equivalents showed no change at June 30, 2000 from December 31,
1999, with balances at $3.6 million.
Securities available for sale at June 30, 2000 decreased by $5.1 million, or
10.5% to $43.6 million from $48.7 million at December 31, 1999. The decrease
during the six months ended June 30, 2000, resulted primarily from principal
repayments. There were no purchases of securities available for sale during the
period.
Securities held to maturity increased by $13,000 due to accretions of discounts
during the six month period.
Net loans increased $9.7 million or 4.8% to $211.7 million at March 31, 2000
from $202 million at December 31, 1999. The increase during the six months ended
June 30, 2000, resulted primarily from loan originations exceeding loan
principal repayments.
Foreclosed real estate amounting to $80,000 and consisting of one property at
June 30, 2000 was unchanged from the balance at December 31, 1999.
Deposits at June 30, 2000 decreased $8.5 million or 3.90% to $212.0 million when
compared with $220.5 million at December 31, 1999. The decrease in deposits
resulted from interest credited of $4.6 million offset by net withdrawals of
$13.1 million.
Stockholders' equity totaled $31.7 million and $31.9 million at June 30, 2000
and December 31, 1999, respectively. Such decrease was largely due to the
repurchase of 72,930 shares of common stock at an average price of $6.67
totaling $486,527 and the payment of dividends partially offset by net income.
-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 June 30, 2000 and
1999
Net income decreased $15,000 or 5.0% to $285,000 for the three months ended June
30, 2000 compared with $300,000 for the same period in 1999. The decrease in net
income during the 2000 period resulted primarily from an increase in
non-interest expense and a decrease in non-interest income that were partially
offset by an increase in net-interest income.
Interest income on loans increased by $486,000 or 14.6% to $3.8 million during
the three months ended June 30, 2000 from $3.3 million during the same period in
1999. The increase during the 2000 period resulted from an increase of $23.8
million in the average balances of loans outstanding and a 12 basis point
increase 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, decreased by
$171,000 to $739,000 during the three months ended June 30, 2000 from $910,000
for the same period in 1999. The decrease during the 2000 period resulted from a
$17.7 million decrease in average balances of securities available for sale,
partially offset by an 80 basis point increase in the yield earned on such
securities.
Interest on securities held to maturity, consisting of short-term and mid-term
government agency bonds, increased by $2,000 to $300,000 during the three months
ended June 30, 2000 from $298,000 for the same period in 1999. The increase
during the 2000 period resulted from a $1.0 million increase in average balances
of securities held to maturity offset by a 30 basis point decrease in the yield
earned on such securities.
Interest income on other interest-earning assets decreased by $4,000 during the
three months ended June 30, 2000 when compared to same period in 1999. The
decrease during the 2000 period resulted from a $1.1 million decrease in the
average balance offset by a 115 basis point increase in the yield on this
portfolio.
Interest expense on deposits decreased by $113,000 or 4.5% to $2.38 million
during the three months ended June 30, 2000 when compared to $2.49 million for
the same period in 1999. Such decrease during the 2000 period was attributable
to a $12.8 million or 5.8% decrease in average balances of interest bearing
deposits outstanding partially offset by a 6 basis point increase in cost of
funds. Interest expense on FHLB advances and other borrowings increased by
$296,000 or 96.1% to $604,000 during the three months ended June 30, 2000 when
compared to $308,000 for the same period in 1999. The increase during the 2000
period was attributable to a $17 million or 80.5% increase in average balances
of FHLB advances and other borrowings outstanding coupled with a 50 basis point
increase in cost of such liabilities.
Net interest income increased $129,000 or 7.2% to $1.92 million during the three
months ended June 30, 2000 when compared with $1.79 million for the same period
in 1999. Such increase was due to an increase in total interest income of
$313,000 partially offset by an increase in total interest expense of $184,000.
The net interest rate spread increased 9 basis points to 2.22% for the three
months ended June 30, 2000. The yield on interest earning assets increased by 31
basis points which was partially offset by a 22 basis point increase in the cost
of interest bearing liabilities.
During the three months ended June 30, 2000 and 1999, the Bank made provisions
for loan losses of $30,000 and $15,000, respectively. The allowance for loan
losses is based on management's evaluation of the risks inherent in the Bank's
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.
-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 June 30, 2000 and
1999 (Cont'd.)
At June 30, 2000 and 1999, the Bank's non-performing loans which were delinquent
ninety days or more totaled $318,000 or 0.11% of total assets and $625,000 or
0.22% of total assets, respectively; all such loans were on non-accrual status.
Non-interest income decreased by $20,000 or 16.1% to $106,000 during the three
months ended June 30, 2000 when compared to $126,000 during the same period in
1999. The decrease during the three months ended June 30, 2000 resulted
primarily from decreases in fees and service charges on loans and gain on sale
of assets of $17,000 and $16,000, respectively, partially offset by an increase
in miscellaneous income of $14,000.
Non-interest expenses increased by $139,000 or 9.9% to $1.55 million during the
three months ended June 30, 2000 when compared to the same period in 1999.
During the 2000 period salaries and employee benefits expense, occupancy
expense, equipment, and advertising expenses increased by $125,000, $54,000,
$27,000, and $32,000 respectively. Most of these increases are related to
increased marketing expenses and activities related to the branch expansion
plan. During the same period directors' fees, legal expense, deposit insurance
premiums and miscellaneous expenses decreased by $5,000, $3,000, $21,000 and
$70,000 respectively.
Income taxes totaled $167,000 and $198,000 for the three months ended June 30,
2000 and 1999 respectively.
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999
Net income increased $20,000 or 3.3% to $631,000 for the six months ended June
30, 2000 compared with $611,000 for the same period in 1999. The increase in net
income during the 2000 period resulted primarily from increases in net-interest
income partially offset by an increase in non-interest expense and a decrease in
non-interest income.
Interest income on loans increased by $945,000 or 14.4% to $7.5 million during
the six months ended June 30, 2000 from $6.5 million during the same period in
1999. The increase during the 2000 period resulted from an increase of $24.9
million in the average balances of loans outstanding and a five basis point
increase 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, decreased by
$234,000 to $1.5 million during the six months ended June 30, 2000 from $1.7
million for the same period in 1999. The decrease during the 2000 period
resulted from a $18.2 million decrease in average balances of securities
available for sale offset by a 115 basis points increase in the yield earned on
such securities.
Interest on securities held to maturity, consisting of short-term and mid-term
government agency bonds, increased by $307,000 to $605,000 during the six months
ended June 30, 2000 from $298,000 for the same period in 1999. The increase
during the 2000 period resulted from a $9.9 million increase in average balances
of securities held to maturity partially offset by a 3 basis points decrease in
the yield earned on such securities.
Interest income on other interest-earning assets decreased by $98,000 during the
six months ended June 30, 2000 when compared to same period in 1999. The
decrease during the 2000 period resulted from a $2.7 million decrease in the
average balance combined with a 27 basis point increase in the yield on this
portfolio.
-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 Six Months Ended June 30, 2000 and 1999
(Cont'd.)
Interest expense on deposits decreased by $263,000 or 5.2% to $4.75 million
during the six months ended June 30, 2000 when compared to $5.0 million for the
same period in 1999. Such decrease during the 2000 period was attributable to a
$9.7 million or 4.4% decrease in average balances of interest bearing deposits
outstanding combined with a 4 basis point decrease in cost of funds.
Interest expense on FHLB advances and other borrowings increased by $770,000 or
250% to $1.08 million during the six months ended June 30, 2000 when compared to
$308,000 for the same period in 1999. Such increase during the 2000 period was
attributable to a $24.2 million or 228% increase in average balances of FHLB
advances and other borrowings outstanding coupled with a 39 basis point increase
in cost of such liabilities.
Net interest income increased $415,000 or 11.9% to $3.9 million during the six
months ended June 30, 2000 when compared with $3.49 million for the same period
in 1999. Such increase was due to an increase in total interest income of
$921,000 partially offset by an increase in total interest expense of $506,000.
The net interest rate spread increased 19 basis points to 2.28% for the six
months ended June 30, 2000. The yield on interest earning assets increased by 33
basis points which was partially offset by a 14 basis point increase in the cost
of interest bearing liabilities.
During the six months ended June 30, 2000 and 1999, the Bank made provisions for
loan losses of provided $60,000 and $30,000, respectively. The allowance for
loan losses is based on management's evaluation of the risks inherent in the
Bank's 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 June 30, 2000 and 1999, the Bank's non-performing loans which were delinquent
ninety days or more totaled $318,000 or 0.11% of total assets and $625,000 or
0.22% of total assets, respectively; all such loans were on non-accrual status.
Non-interest income decreased by $23,000 or 11.6% to $180,000 during the six
months ended June 30, 2000 when compared to $203,000 during the same period in
1999. The decrease during the six months ended June 30, 2000 resulted primarily
from decreases in fees and service charges on deposits and loans and gain on
sale of assets of $6,000, $17,000 and $16,000, respectively, partially offset by
an increase in miscellaneous income of $16,000.
Non-interest expenses increased by $361,000 or 13.5% to $3.0 million during the
six months ended June 30, 2000 when compared to the same period in 1999. During
the 2000 period salaries and employee benefits expense, occupancy expense,
equipment, and advertising expenses increased by $236,000, $100,000, $45,000,
and $59,000 respectively. Most of these increases are related to increased
marketing activites and activities related to the branch expansion plans. During
the same period directors' fees, legal expense, deposit insurance premiums and
miscellaneous expenses decreased by $5,000, $24,000, $42,000 and $16,000
respectively.
Income taxes totaled $357,000 and $377,000 for the six months ended June 30,
2000 and 1999 respectively.
-10-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision ("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 27.97% during
the month of June 2000. 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 June 30,
2000, the Bank had short-term outstanding advances of $7,400,000 and securities
sold under agreements to repurchase of $31,800,000 from the FHLB.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At June 30, 2000, the Bank has outstanding commitments
to originate loans of $12.1 million. Certificates of deposit scheduled to mature
in one year or less at June 30, 2000, totaled $92.6 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.
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 June 30, 2000 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) $27,525 20.79% $10,594 8.00% $13,241 10.00%
Tier I Capital
(to risk-weighted assets) 26,687 20.15% -- -- 7,947 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 26,687 9.35% 11,417 4.00% 14,271 5.00%
Tangible Capital
(to adjusted total assets) 26,687 9.35% 4,281 1.50% -- --
</TABLE>
-11-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000
The Company had developed and implemented a plan to deal with the issues
associated with the programming code within the computer systems and related
embedded technology with respect to the rollover of the two digit year value to
00 ("Year 2000"). The issue was whether computer systems would properly
recognize date sensitive information when the year changed to 2000.
The Company has not experienced any significant issues associated with the Year
2000 problem as a result of the date change to January 1, 2000 or any date
subsequent thereto. The incremental costs related to the Year 2000 compliance
were approximately $3,000 in 1999 and $100,000 in 1998, respectively. Any
additional incremental costs associated with Year 2000 issues are not expected
to be material.
Management will continue to monitor operations through the year 2000 and
although no assurances can be given, it is not expected that any future adverse
developments will arise with respect to Year 2000.
Supervisory Examination
The OTS and the Federal Deposit Insurance Corporation ("FDIC") as part of their
regulatory oversight of the thrift industry periodically examine the Bank's
financial statements. 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, (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 and (5) originating commercial real estate loans
with shorter maturities than residential loans.
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 June 30, 2000, the Bank had adjustable rate mortgage loans of $41.9 million,
or 19.8% of total loans and $33.7 million or 77% of securities available for
sale in adjustable rate mortgage-backed securities.
Net Portfolio Value
The Bank's interest rate sensitivity is monitored by management through the use
of the OTS model which estimates the change in the Bank's net portfolio value
(NPV") over a range of interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The OTS
produces its analysis based upon data submitted on the Bank's quarterly Thrift
Financial Reports.
-13-
<PAGE>
LIBERTY BANCORP, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Net Portfolio Value (Cont'd.)
The following table presents the Bank's NPV at March 31, 2000, the latest
information available, as calculated by the OTS, which is based upon quarterly
information that the Bank provided voluntarily to the OTS. In the opinion of
management, there have been no material changes to the Bank's NPV since March
31, 2000.
Percentage Change in Net Portfolio Value
--------------------------------------------------------------
Changes
in Market Projected Estimated Amount of
Interest Rates Change NPV Change
--------------- --------- --------- ---------
(basis points) ($ in 000's) ($ in 000's)
300 (79.00)% 4,961 (18,930)
200 (53.00)% 11,340 (12,551)
100 (26.00)% 17,740 (6,151)
-- -- 23,891 --
(100) 22.00 % 29,166 5,275
(200) 36.00 % 32,462 8,571
(300) 46.00 % 34,765 10,874
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 19, 2000 the Company declared a quarterly cash dividend of $0.025
per share, to be paid on August 16, 2000, to stockholders of record on
August 2, 2000.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. 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: August 11, 2000 By /s/ John R. Bowen
---------------- -------------------------------------
John R. Bowen
President and Chief Executive Officer
Date: August 11, 2000 By: /s/ Michael J. Widmer
---------------- -------------------------------------
Michael J. Widmer
Executive Vice President and
Chief Financial Officer
-16-
