<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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
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Commission File number 033-59399
LIBERTY BANCSHARES, INC.
(Exact name of registrants as specified in their charters)
<TABLE>
<S> <C>
43-1716068 Missouri
(IRS Employer (State or other jurisdiction of
Identification No.) incorporation
or organization)
</TABLE>
1414 East Primrose
Springfield, MO 65804
(Address of principal executive offices)
(Zip Code)
417 888-3000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
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<PAGE> 2
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ----------------
(Unaudited)
<S> <C> <C>
Cash $ 5,705,208 $ 914,839
Due from banks 8,694,718 8,653,420
Federal funds sold 4,050,000 4,839,087
-------------- ----------------
Cash and cash equivalents 18,449,926 14,407,346
Available-for-sale securities 22,035,283 14,037,078
Mortgage loans held for sale 646,950 1,672,018
Loans, net of allowance for loan losses of $2,149,455 and $1,108,687 212,354,327 108,088,021
Interest receivable 2,000,139 858,498
Premises and equipment, net 6,391,708 3,630,865
Deferred income taxes 392,304 80,921
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $178,191 3,385,615 --
Other 1,975,686 1,247,417
-------------- ----------------
Total Assets $ 267,631,938 $ 144,022,164
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 226,841,225 $ 122,267,289
Securities sold under agreements to repurchase 3,123,297 5,252,773
Note payable 5,250,000 4,201,000
Advances from Federal Home Loan Bank 13,852,098 5,000,000
Accrued interest payable 1,051,960 423,054
Income taxes payable 29,897 148,213
Accrued expenses and other liabilities 230,479 62,349
-------------- ----------------
Total Liabilities 250,378,956 137,354,678
-------------- ----------------
STOCKHOLDERS' EQUITY
Capital stock
Class A common;
Par value $1 a share; 5,000,000 shares authorized, issued 819,835 shares
at September 30, 1999 and 511,090
shares at December 31, 1998 819,835 511,090
Additional paid-in capital 14,074,237 5,256,480
Retained earnings 2,537,744 804,720
Accumulated other comprehensive income -
unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes (126,365) 95,196
-------------- ----------------
17,305,451 6,667,486
Treasury stock, at cost; September 30, 1999 - 1,775 shares (52,469) --
-------------- ----------------
Total Stockholders' Equity 17,252,982 6,667,486
-------------- ----------------
Total Liabilities and Stockholders' Equity $ 267,631,938 $ 144,022,164
============== ================
</TABLE>
<PAGE> 3
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine months Ended September 30
------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 4,473,561 $ 1,947,964 $ 12,308,364 $ 4,903,701
Available-for-sale securities 302,454 237,578 958,515 664,045
Federal funds sold and securities purchased
under agreements to resell 53,370 72,339 171,912 234,016
Deposits with banks 17,156 4,414 61,130 4,414
------------- ------------- ------------- -------------
4,846,541 2,262,295 13,499,921 5,806,176
------------- ------------- ------------- -------------
INTEREST EXPENSE
Deposits 2,172,643 1,084,461 6,085,830 2,812,545
Federal funds purchased and securities sold
under agreements to repurchase 39,855 97,476 186,862 238,096
Notes payable and FHLB advances 280,817 125,200 780,544 209,255
------------- ------------- ------------- -------------
2,493,315 1,307,137 7,053,236 3,259,896
------------- ------------- ------------- -------------
NET INTEREST INCOME 2,353,226 955,158 6,446,685 2,546,280
PROVISION FOR LOAN LOSSES 153,000 128,000 308,000 354,800
------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,200,226 827,158 6,138,685 2,191,480
------------- ------------- ------------- -------------
NONINTEREST INCOME
Income on sale of loans 50,666 -- 193,544 78,209
Income on sale of securities -- -- 39,603 --
Service charges and fees 247,720 115,345 602,909 204,053
Other income 18,904 4,415 55,276 8,098
------------- ------------- ------------- -------------
317,290 119,760 891,332 290,360
------------- ------------- ------------- -------------
NONINTEREST EXPENSE
Salaries and employee benefits 852,110 405,160 2,280,045 1,054,589
Net occupancy expense 159,201 64,526 384,013 168,901
Deposit assessments and fees 15,914 7,750 44,064 18,946
Other operating expenses 585,796 191,542 1,643,171 523,357
------------- ------------- ------------- -------------
1,613,021 668,978 4,351,293 1,765,793
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 904,495 277,940 2,678,724 716,047
PROVISION FOR INCOME TAXES 334,600 120,100 945,700 265,600
------------- ------------- ------------- -------------
NET INCOME 569,895 157,840 1,733,024 450,447
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C>
OTHER COMPREHENSIVE INCOME
Unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes
of $(19,847),$64,649, $(115,470) and $59,354
for the three and nine months ended September
30, 1999 and 1998, respectively (33,794) 110,078 (196,611) 101,062
Less: Reclassification adjustment for
appreciation included in net income, net of
income taxes of $(14,653) for the nine months
ended September 30, 1999 -- -- (24,950) --
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 536,101 $ 267,918 $ 1,511,463 $ 551,509
============= ============= ============= =============
$ .70 $ .31 $ 2.13 $ .90
============= ============= ============= =============
BASIC EARNINGS PER SHARE
$ .68 $ .31 $ 2.07 $ .91
============= ============= ============= =============
DILUTED EARNINGS PER SHARE
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,733,024 $ 450,447
Items not requiring (providing) cash:
Depreciation and amortization 167,142 85,248
Provision for loan losses 308,000 354,800
Amortization of premiums and discounts on securities 29,136 (3,339)
Deferred income taxes (23,636) (176,192)
Origination of loans held for sale (11,613,937) (10,988,131)
Proceeds from loans held for sale 12,487,611 11,634,340
Gain on sale of loans (193,544) (78,209)
Gain on sale of available-for-sale securities (39,603) --
Changes in:
Accrued interest receivable (26,585) (440,148)
Prepaid expenses and other (250,621) (518,389)
Accrued interest payable 117,627 188,488
Accounts payable and accrued expenses 133,818 (20,328)
Income taxes payable (receivable) (95,982) 95,576
---------------- ----------------
Net cash provided by operating activities 2,732,450 584,163
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (38,621,263) (43,318,696)
Purchase of premises and equipment (2,114,131) (1,061,159)
Purchase of Sac River Valley Bank, net of cash acquired 7,010,469 --
Proceeds from sales of available-for sale securities 2,057,800 --
Proceeds from maturities of available-for-sale securities 11,915,000 4,400,000
Purchases of available-for-sale securities (6,728,026) (9,100,794)
---------------- ----------------
Net cash used in investing activities (26,480,151) (49,080,649)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money market, NOW
and savings deposits 3,728,042 9,178,907
Net increase in time deposits 24,620,110 28,637,971
Proceeds from FHLB advances 2,000,000 5,000,000
Repayments of FHLB advances (47,902) --
Proceeds from note payable 1,350,000 1,625,000
Repayments of note payable (301,000) --
Proceeds from issuance of common stock -- 750,400
Purchase of treasury stock (52,469) --
Net increase (decrease) in securities sold under agreements to repurchase (3,506,500) 2,756,423
---------------- ----------------
Net cash provided by financing activities 27,790,281 47,948,701
---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,042,580 (547,785)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,407,346 13,146,166
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,449,926 $ 12,598,381
================ ================
</TABLE>
<PAGE> 6
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
NOTE 2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Liberty
Bancshares, Inc. ("Bancshares") and its 100%-owned subsidiary, Liberty Bank
("Bank"). Significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 3. MERGER
On January 4, 1999, Sac River Valley Bank ("Sac River") of Stockton,
Missouri merged with and into the Bank. Sac River held approximately $97 million
in assets at the date of merger. In the transaction, accounted for as a
purchase, all of the outstanding stock of Sac River was exchanged for cash,
Bancshares stock, or a combination of the two. Bancshares registered the stock
involved in the merger with the Securities and Exchange Commission ("SEC"). The
pro forma statements of income for the three and nine months ended September 30,
1998 included below are based on the merger occurring as of the beginning of
that period. The pro forma balance sheet at December 31, 1998, included below,
is based on the merger occurring as of that date.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents $ 11,847
Available-for-sale securities 29,680
Loans, net of allowance for loan losses of $1,982 175,420
Premises and equipment, net 4,746
Interest receivable 1,974
Excess of cost over fair value of net assets acquired 3,403
Other 1,609
------------
Total Assets $ 228,679
============
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<PAGE> 7
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Deposits $ 187,630
Federal funds purchased and securities sold under
agreements to repurchase 6,630
Note payable 5,551
Advances from Federal Home Loan Bank 11,900
Other liabilities 1,227
------------
Total Liabilities 212,938
------------
STOCKHOLDERS' EQUITY
Common stock 820
Additional paid-in capital 14,074
Retained earnings 804
Accumulated other comprehensive income -
unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes
95
15,793
Treasury stock, at cost (52)
------------
Total Stockholders' Equity 15,741
------------
Total Liabilities and Stockholders' Equity $ 228,679
============
</TABLE>
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine
months months
ended ended
----- -----
<S> <C> <C>
INTEREST INCOME
Loans $ 3,391 $ 9,173
Available-for-sale securities 392 1,320
Held-to-maturity securities 73 237
Federal funds sold and securities purchased
under agreements to resell 183 503
Deposits with banks 24 48
---------- ----------
4,063 11,281
---------- ----------
INTEREST EXPENSE
Deposits 1,782 4,884
Federal funds purchased and securities sold
under agreements to repurchase 129 501
Notes payable and FHLB advances 279 639
---------- ----------
2,190 6,024
---------- ----------
NET INTEREST INCOME 1,873 5,257
PROVISION FOR LOAN LOSSES 128 355
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,745 4,902
---------- ----------
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
NONINTEREST INCOME
Service charges and fees 172 504
Other income 12 56
----------- -----------
184 560
----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 618 1,724
Net occupancy expense 98 261
Other operating expenses 394 1,105
----------- -----------
1,110 3,090
----------- -----------
INCOME BEFORE INCOME TAXES 819 2,372
PROVISION FOR INCOME TAXES 334 925
----------- -----------
NET INCOME $ 485 $ 1,447
=========== ===========
$ .58 $ 1.72
=========== ===========
BASIC EARNINGS PER SHARE
$ .57 $ 1.70
=========== ===========
DILUTED EARNINGS PER SHARE
</TABLE>
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of financial condition and results of operations
should be read in conjunction with the consolidated financial statements of
Liberty Bancshares. As used in the following discussion, the terms "Company" and
"Bancshares" refer to Liberty Bancshares and its subsidiary on a consolidated
basis; the terms "Liberty" and "Bank" refer to Liberty Bank; and the term
"Liberty Bancshares" refers to Liberty Bancshares, Inc., on a parent company
only basis.
The discussion set forth below, as well as other portions of this Form
10-Q, may contain forward-looking comments. Such comments are based upon the
information currently available to management of the Company and management's
perception thereof as of the date of this Form 10-Q. Actual results of the
Company's operations could materially differ from those forward-looking
comments. The differences could be caused by a number of factors or combination
of factors including, but not limited to: changes in the availability and/or
cost of capital; changes in demand for banking services; changes in the
portfolio composition; changes in the interest rate yield on the Company's
investments; changes in management strategy; increased competition from both
bank and non-bank companies; changes in the economic, political or regulatory
environments in the United States; litigation involving the Company and/or its
subsidiaries; and changes in the availability of qualified labor. Readers should
take these factors into account in evaluating any such forward-looking comments.
The consolidated interim financial statements as of September 30, 1999
included in this report have been prepared by Bancshares without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation are reflected in the September 30,
1999, interim financial statements. The consolidated pro forma financial
statements as of September 30, 1998 and December 31, 1998 included in Note 3
have been prepared by Bancshares without audit. The results of operations for
the periods ended September 30, 1999 and pro forma September 30, 1998 are not
necessarily indicative of the operating results for the full year. The December
31, 1998 Consolidated Balance Sheet presented with the interim financial
statements was included in the 1998 annual financial statements on which the
Company's independent accountants expressed an unqualified opinion.
Bancshares has enjoyed rapid growth since its commencement of operations in
late October 1995. Total assets have increased from $12,223,000 at December 31,
1995, to $267,632,000 at September 30, 1999. The Bank's rapid growth since its
opening is a result of numerous factors including merging with Sac River,
opening locations in Springfield and surrounding areas, hiring experienced
lending officers, adding depositors as a result of area bank mergers, the
economic vitality of the Springfield area, and the Bank's marketing program.
The Bank's rapid growth has required the periodic injection of additional
capital to ensure that the Bank remains well capitalized. Bancshares has
provided additional capital for the Bank by borrowing under its line of credit
and by issuing additional shares of capital stock to Bancshares' existing
shareholders. In conjunction with the merger, Bancshares paid out cash of $6.2
million to Sac River shareholders, of which Bancshares borrowed $1,426,000, and
also issued 309,000 additional shares of Bancshares common stock to former Sac
River shareholders.
<PAGE> 10
At September 30, 1999, Bancshares had total borrowing of $5,250,000 and an
additional $3,000,000 of availability under its line of credit.
FINANCIAL CONDITION
TOTAL ASSETS
The Company's total assets increased from $228,679,000 at pro forma
December 31, 1998, to $267,632,000 at September 30, 1999, or 17.0%. This
increase was driven by the growth of total deposits during the period.
NET LOANS
Loans, net of loan loss allowances, were the principal component of
Bancshares' asset growth. Net loans increased from $175,420,000 at pro forma
December 31, 1998, to $212,354,000 at September 30, 1999, or 21.1%. Loan growth
consisted of increases in all major loan categories.
AVAILABLE-FOR-SALE SECURITIES
Certain available-for-sale securities were sold during the first two
quarters of 1999 and proceeds from maturing investments were used to meet
liquidity needs and fund loan growth. As a result, securities available-for-sale
decreased $7,645,000, or 25.8% from pro forma December 31, 1998 to September 30,
1999.
DEPOSITS
Deposits grew as a result of the Bank opening two new branches and its
marketing efforts. Total deposits at September 30, 1999, were $226,841,000, a
$39,211,000 or 20.9%, increase over $187,630,000 at pro forma December 31, 1998.
BORROWINGS
Short-term borrowings, in the form of repurchase agreements, decreased from
$6,630,000 at pro forma December 31, 1998, to $3,123,000 at September 30, 1999,
a 52.9% decline. The decrease was primarily a result of the transfer of customer
funds to deposit accounts from repurchase agreements.
Borrowings under Bancshares' note payable decreased $301,000 from
$5,551,000 at pro forma December 31, 1998 to $5,250,000 at September 30, 1999.
The reduction is a result of the pay-down of Bancshares line of credit with
excess funds available following the completion of the Sac River merger and
scheduled principal amortization.
Advances from the Federal Home Loan Bank ("FHLB") increased $1,952,000 from
$11,900,000 at pro forma December 31, 1998 to $13,852,000 at September 30, 1999
due to a $2,000,000 advance obtained to fund loan growth and was partially
offset by scheduled principal amortization of $48,000.
<PAGE> 11
STOCKHOLDERS' EQUITY
Growth of retained earnings increased stockholders' equity by $1,512,000,
or 9.6%, from $15,741,000 at pro forma December 31, 1998, to $17,253,000 at
September 30, 1999.
RESULTS OF OPERATIONS
NET INCOME
Net income for the nine months and three months ended September 30, 1999,
was $1,733,000 and $570,000, compared to $1,447,000 and $485,000 for the pro
forma periods a year earlier, increasing 19.8% and 17.5%. The primary reasons
for the increase are discussed below.
INTEREST INCOME
The Company's interest income has increased principally because of the
Bank's asset growth. Interest income for the nine months and three months ended
September 30, 1999, was $13,500,000 and $4,847,000, increases of $2,219,000 and
$784,000, or 19.7% and 19.3%, over the pro forma periods in the prior year.
INTEREST EXPENSE
Interest expense primarily reflected the growth in the Bank's interest
bearing deposits. Interest expense for the nine months and three months ended
September 30, 1999 was $7,053,000 and $2,493,000, increases of $1,029,000 and
$303,000, or 17.1% and 13.8%, over the pro forma periods in the prior year.
NET INTEREST INCOME
As a result of the above increases in interest income and interest expense,
net interest income increased $1,190,000 and $480,000 or 22.6% and 25.6%, to
$6,447,000 and $2,353,000 in the nine months and three months ended September
30, 1999, compared to the pro forma periods in the prior year.
PROVISION FOR LOAN LOSSES
The provisions for loan losses for the nine-month and three-month periods
ended September 30, 1999, were $308,000 and $153,000, as compared to provisions
of $355,000 and $128,000 during the pro forma periods in 1998. The decrease in
the nine-month provision is due to additional expense taken in the prior year to
build the allowance to the level required by regulatory authorities. The Bank
periodically reviews its allowance for loan losses and makes adjustments to the
balance based on management's evaluation of the loan portfolio, the amount of
non-performing and classified assets and general economic conditions. Although
the Bank maintains its allowance for loan losses at a level that it considers to
be sufficient to provide for potential losses, there can be no assurance that
future losses will not exceed the Bank's estimates. In addition, the amount of
the allowance for loan losses is subject to review by regulatory agencies that
can order the establishment of additional loss provisions.
<PAGE> 12
NONINTEREST INCOME
Noninterest income grew by 59.1% and 72.3% for the nine months and three
months ended September 30, 1999, over the pro forma periods in the prior year.
The increases were due primarily to gains recorded on the sale of loans
held-for-sale (increase of $115,000), increased service charges and fees
(increase of $99,000) and gains from the sale of securities available-for-sale
(increase of $40,000).
NONINTEREST EXPENSE
Noninterest expense includes the cost of operations, including overhead and
expenses associated with both existing and new branches and departments in the
Bank, including the costs of additional personnel. Noninterest expense was
$4,351,000 and $1,613,000 for the nine months and three months ended September
30, 1999, increases of $1,261,000 and $503,000 or 40.8% and 45.3% over the
$3,090,000 and $1,110,000 recorded in the pro forma periods in the prior year.
These increases are primarily attributable to locations opened during February
and May 1999 and the additional staffing costs to service the Bank's growth.
Salaries and employee benefits accounted for $556,000 and $234,000 of the
increases for the nine months and three months with sizeable increases in other
areas as well.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is managed by the Company through the composition of its
assets and liabilities in an effort to meet efficiently the borrowing needs and
withdrawal requirements of its customers. Cash and cash equivalents include
cash, due from banks and federal funds sold. The primary sources of the
Company's liquidity are cash and cash equivalents, investment securities with
short-term maturities, and a $3,000,000 available bank line of credit.
The Company has a relatively high volume of its loans and certificates of
deposit ("CD's") that mature in one year or less. Management believes its CD's,
used primarily to fund loans, are a relatively stable source of funds. Since the
Bank's inception, a large majority of the loans and CD's originated by the Bank
have been renewed at maturity. In addition, the Bank continues to be competitive
on interest rates for both loans and CD's. If the Bank determined that it was
necessary to retain CD's for liquidity purposes, it could raise CD rates to
remain competitive.
If a significant portion of CD's were not replaced, the Bank could draw on
its available line of credit, utilize borrowings available from the FHLB or
purchase federal funds from correspondent banks.
The Company can also increase its liquidity by causing the Bank to sell SBA
guaranteed loans and participations in commercial loans. The Company believes
its process of asset/liability management allows adequate reaction time for
trends in the marketplace as they occur, minimizing the negative impact of such
trends on the net interest margin.
If a significant amount of loans that mature over the next year were not
renewed, the Bank could participate in loans originated by other financial
institutions, purchase additional available-for-sale securities, or lower
interest rates charged on loans to remain competitive.
<PAGE> 13
REGULATORY CAPITAL
At September 30, 1999, the Bank exceeded all regulatory capital
requirements to which it is subject. The Bank had Tier 1 Capital of $19,178
(7.4% of average assets), Tier 1 Risk-Based Capital of $19,178 (9.6% of
risk-weighted assets) and Total Risk-Based Capital of $21,327 (10.6% of
risk-weighted assets). Under current regulatory guidelines, the Bank is
considered to be "well-capitalized."
YEAR 2000
Liberty relies upon computer hardware, software, and data processing
services to operate and maintain customer accounts, loan accounts, investments,
ATM systems, and other functions which are susceptible to the "Year 2000"
problem. This means that software and microprocessors could report January 1,
2000, and subsequent dates as January 1, 1900, or other incorrect twentieth
century dates. This incorrect dating could make it very difficult for Liberty to
conduct business electronically.
Liberty has formed a committee of bank employees to assess and coordinate
the Bank's Year 2000 compliance. The committee reports to Liberty's Board of
Directors quarterly on the status of the Bank's compliance efforts. Since its
formation in 1997, the committee has undertaken activities to identify potential
problems, arrange testing of systems, prepare contingency and liquidity plans,
install compliant versions of affected properties, and assess customer
readiness, among others.
As of September 1999, vendors have conducted extensive tests on Liberty's
core data processing system and teller software and management has reviewed the
results of these tests. The Bank's software for communicating with the Federal
Reserve, loan processing software and ATM software is believed to be compliant.
All remaining software and embedded technology have been fully tested.
Third party vendors have borne most of the cost of making Liberty Year 2000
compliant. Costs incurred by Liberty have largely been in the form of the
compensation and benefits provided existing bank employees who have conducted
the compliance activities. To date, Liberty has not incurred any non-employee
expenses in implementing its compliance program and expects that its total
non-employee costs through January 1, 2000, will be $15,000 or less.
While Bank management believes that its systems and technology will be
compliant on January 1, 2000, and thereafter, it faces an unquantifiable risk
that third parties, such as customers, will encounter Year 2000 problems that
cause them to reduce their use of bank services, default on loans, or reduce
levels of future borrowings. There is also a risk that other financial
organizations that Liberty maintains relations with could experience Year 2000
issues that would adversely affect Liberty. Finally, if other service providers,
such as public utilities or telephone companies, are not Year 2000 compliant,
Liberty could experience service interruptions that would make it difficult to
conduct business.
Bank management has developed a contingency plan to address some of these
uncertainties. Back-up generators may be employed as needed to provide electric
power
<PAGE> 14
beginning January 1, 2000. Plans are in place for a cellular based modem
communication system to maintain communication with data service providers in
the event that landline communications are disrupted. Immediately before the
change of the century, electronic trial balances with extended information are
to be downloaded for import into local database files. A back-up of all files
considered pertinent will be performed before the century change, and critical
information is expected to be printed in hard copy. Validation of the
contingency plan was conducted during September 1999. Management anticipates
taking other steps to assure both liquidity and security.
Management believes it has completed the majority of the actions necessary
to achieve Year 2000 compliance for its core systems and all of the work
necessary to achieve overall compliance. Management expects the Bank will be
Year 2000 compliant before the century date change. There remains, however, the
possibility that problems encountered by third parties, including customers,
financial organizations and other service providers, could adversely affect the
Bank. This discussion of the impact of the Year 2000 is a Year 2000 readiness
disclosure within the meaning of the Year 2000 Readiness Disclosure Act.
PART II. - OTHER INFORMATION AND SIGNATURES
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
</TABLE>
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<S> <C>
2.1* Agreement and Plan of Merger
3.1 and 4.1* Articles of Incorporation, Liberty Bancshares, Inc.
3.2 and 4.2* Bylaws, Liberty Bancshares, Inc.
10.1* Garry Robinson Employment Agreement
10.2* Restated Liberty Bank Incentive Stock Option
10.3* Amendment to Restatement of Incentive Stock Option
10.4* Second Amendment to Restatement of Incentive Stock Option Plan
10.5** Loan agreement between Liberty Bancshares, Inc. and Mercantile Bank National
Association dated December 29, 1998.
11.1 Statement Re Computation of Earnings Per Share
27.1 Financial Data Schedule
99.1* Articles of Association Liberty Bank
99.2* By-Laws Liberty Bank
</TABLE>
* Incorporated by Reference to Bancshares Registration Statement on form S-4
No. 333-59399.
** Incorporated by Reference to Bancshares Annual Report on Form 10-K for the
fiscal year-ended December 31, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
LIBERTY BANCSHARES, INC.
By: /s/ Gary E. Metzger
----------------------
Gary E. Metzger, President and Chief
Executive Officer
By: /s/ Alana R. Patterson
-------------------------
Alana R. Patterson, Principal Financial
or Chief Accounting Officer
Dated: November 12, 1999
<PAGE> 1
EXHIBIT 11.1 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
--------------------------- ------------------------------
<S> <C> <C> <C> <C>
Basic:
Average shares outstanding 818,060 511,090 813,562 499,430
Net income $ 569,895 $ 157,840 $ 1,733,024 $ 450,447
Per share amount $ .70 $ .31 $ 2.13 $ .90
Diluted:
Average shares outstanding 818,060 511,090 813,562 499,430
Net effect of dilutive stock options 23,745 3,134 23,745 3,134
--------------------------- ------------------------------
Diluted shares 841,805 514,224 837,307 502,564
Net income $ 569,895 $ 157,840 $ 1,733,024 $ 450,447
Per share amount $ .68 $ .31 $ 2.07 $ .90
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AND THE UNAUDITED STATEMENT OF INCOME FILED AS PART OF
THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5705
<INT-BEARING-DEPOSITS> 671
<FED-FUNDS-SOLD> 4050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22035
<INVESTMENTS-CARRYING> 22035
<INVESTMENTS-MARKET> 22035
<LOANS> 212354
<ALLOWANCE> 2150
<TOTAL-ASSETS> 267632
<DEPOSITS> 226841
<SHORT-TERM> 3683
<LIABILITIES-OTHER> 260
<LONG-TERM> 18542
0
0
<COMMON> 820
<OTHER-SE> 16433
<TOTAL-LIABILITIES-AND-EQUITY> 267632
<INTEREST-LOAN> 12308
<INTEREST-INVEST> 959
<INTEREST-OTHER> 233
<INTEREST-TOTAL> 13500
<INTEREST-DEPOSIT> 6086
<INTEREST-EXPENSE> 7053
<INTEREST-INCOME-NET> 6447
<LOAN-LOSSES> 308
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 4351
<INCOME-PRETAX> 2679
<INCOME-PRE-EXTRAORDINARY> 2679
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1733
<EPS-BASIC> 2.13
<EPS-DILUTED> 2.07
<YIELD-ACTUAL> 4.03
<LOANS-NON> 115
<LOANS-PAST> 712
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3066
<ALLOWANCE-OPEN> 1981
<CHARGE-OFFS> 268
<RECOVERIES> 129
<ALLOWANCE-CLOSE> 2150
<ALLOWANCE-DOMESTIC> 2150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
