<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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
------------------- --------------------
Commission File number 033-59399
LIBERTY BANCSHARES, INC.
(Exact name of registrants as specified in their charters)
43-1716068 Missouri
(IRS Employer (State or other jurisdiction of incorporation
Identification No.) or organization)
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
JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash $ 3,824,062 $ 914,839
Due from banks 6,892,152 8,653,420
Federal funds sold 4,450,000 4,839,087
------------- --------------
Cash and cash equivalents 15,166,214 14,407,346
Available-for-sale securities 22,542,425 14,037,078
Mortgage loans held for sale 971,090 1,672,018
Loans, net of allowance for loan losses of $2,029,215 and $1,108,687 198,142,673 108,088,021
Interest receivable 1,916,661 858,498
Premises and equipment, net 6,167,058 3,630,865
Deferred income taxes 360,396 80,921
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $118,794 3,445,011 --
Income taxes receivable 69,074 --
Other 1,822,976 1,247,417
------------- --------------
Total Assets $ 250,603,578 $ 144,022,164
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 209,887,882 $ 122,267,289
Securities sold under agreements to repurchase 5,476,052 5,252,773
Note payable 5,375,000 4,201,000
Advances from Federal Home Loan Bank 11,867,806 5,000,000
Accrued interest payable 1,018,604 423,054
Income taxes payable -- 148,213
Accrued expenses and other liabilities 261,353 62,349
-------------- --------------
Total Liabilities 233,886,697 137,354,678
-------------- --------------
STOCKHOLDERS' EQUITY
Capital stock
Class A common;
Par value $1 a share; 5,000,000 shares authorized, issued 819,835 shares
at June 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 1,967,849 804,720
Accumulated other comprehensive income -
unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes (92,571) 95,196
--------------- --------------
16,769,350 6,667,486
Treasury stock, at cost; June 30, 1999 - 1,775 shares (52,469) --
--------------- --------------
Total Stockholders' Equity 16,716,881 6,667,486
-------------- --------------
Total Liabilities and Stockholders' Equity $ 250,603,578 $ 144,022,164
============== ==============
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 4,038,106 $ 1,647,904 $ 7,834,803 $ 2,955,737
Available-for-sale securities 295,758 221,349 656,061 426,467
Federal funds sold and securities purchased
under agreements to resell 84,988 50,405 118,542 161,677
Deposits with banks 25,476 -- 43,974 --
------------ ------------- ------------- -------------
4 ,444,328 1,919,658 8,653,380 3,543,881
------------ ------------- ------------- -------------
INTEREST EXPENSE
Deposits 2,024,197 939,052 3,913,187 1,728,084
Federal funds purchased and securities sold
under agreements to repurchase 65,725 67,324 147,007 140,620
Notes payable and FHLB advances 252,963 62,215 499,727 84,055
------------ ------------- ------------- -------------
2,342,885 1,068,591 4,559,921 1,952,759
------------ ------------- ------------- -------------
NET INTEREST INCOME 2,101,443 851,067 4,093,459 1,591,122
PROVISION FOR LOAN LOSSES 85,000 176,800 155,000 226,800
------------ ------------- ------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,016,443 674,267 3,938,459 1,364,322
------------ ------------- ------------- -------------
NONINTEREST INCOME
Income on sale of loans 49,433 -- 142,878 --
Income on sale of securities 2,800 -- 39,603 --
Service charges and fees 215,650 92,753 355,189 166,917
Other income 2,983 1,208 36,372 3,683
------------ ------------- ------------- -------------
270,866 93,961 574,042 170,600
------------ ------------- ------------- -------------
NONINTEREST EXPENSE
Salaries and employee benefits 774,110 330,296 1,427,935 649,429
Net occupancy expense 126,807 53,628 224,812 104,375
Deposit assessments and fees 14,248 6,734 28,150 11,196
Other operating expenses 595,248 177,897 1,057,375 331,815
------------ ------------- ------------- -------------
1,510,413 568,555 2,738,272 1,096,815
------------ ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 776,896 199,673 1,774,229 438,107
PROVISION FOR INCOME TAXES 244,100 60,500 611,100 145,500
------------ ------------- ------------- -------------
NET INCOME 532,796 139,173 1,163,129 292,607
OTHER COMPREHENSIVE INCOME
Unrealized appreciation on available-for-sale
securities, net of income taxes of $(56,382),
$3,833, $(95,623) and $(5,295) for the three
and six months ended June 30, 1999 and
1998, respectively (96,001) 6,527 (162,817) (9,016)
Less: Reclassification adjustment for
appreciation included in net income, net of
income taxes of $(1,036) and $(14,653) for
the three and six months ended June 30, 1999 (1,764) -- (24,950) --
------------ ------------- ------------- -------------
COMPREHENSIVE INCOME $ 435,031 $ 145,700 $ 975,362 $ 283,591
============ ============= ============= =============
BASIC EARNINGS PER SHARE $ .65 $ .28 $ 1.43 $ .60
============ ============= ============= =============
DILUTED EARNINGS PER SHARE $ .63 $ .28 $ 1.39 $ .59
============ ============= ============= =============
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,163,129 $ 292,607
Items not requiring (providing) cash:
Depreciation and amortization 103,377 46,389
Provision for loan losses 155,000 226,800
Amortization of premiums and discounts on securities 33,908 (3,339)
Deferred income taxes (8,232) (122,370)
Origination of loans held for sale (8,033,989) (7,693,600)
Proceeds from loans held for sale 8,532,042 7,894,872
Gain on sale of loans (142,878) (47,100)
Gain on sale of available-for-sale securities (36,803) --
Changes in:
Accrued interest receivable 56,893 (288,942)
Prepaid expenses and other (97,096) (39,801)
Accrued interest payable 84,271 136,769
Accounts payable and accrued expenses 164,692 (12,946)
Income taxes receivable (194,953) (26,540)
--------------- ---------------
Net cash provided by operating activities 1,779,361 456,999
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (24,256,609) (28,126,206)
Purchase of premises and equipment (1,802,491) (842,706)
Purchase of Sac River Valley Bank, net of cash acquired 7,010,469 --
Proceeds from sales of available-for sale securities 2,055,000 --
Proceeds from maturities of available-for-sale securities 9,995,000 1,900,000
Purchases of available-for-sale securities (5,256,524) (5,818,621)
--------------- ---------------
Net cash used in investing activities (12,255,155) (32,887,533)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market, NOW
and savings deposits (5,095,202) 7,395,264
Net increase in time deposits 16,394,272 18,515,139
Repayments of FHLB advances (32,194) --
Proceeds from note payable 1,350,000 1,625,000
Repayments of note payable (176,000) --
Proceeds from issuance of common stock -- 750,400
Net increase in federal funds purchased -- 1,488,567
Purchase of treasury stock (52,469) --
Net increase (decrease) in securities sold under agreements to repurchase (1,153,745) 1,281,440
--------------- ---------------
Net cash provided by financing activities 11,234,662 31,055,810
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 758,868 (1,468,924)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,407,346 13,146,166
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,166,214 $ 11,677,242
=============== ===============
</TABLE>
<PAGE> 5
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 six months ended June 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
========
LIABILITIES AND STOCKHOLDERS' EQUITY
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
----------
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
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 SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six
months months
ended ended
----- -----
<S> <C> <C>
INTEREST INCOME
Loans $ 3,074 $ 5,782
Available-for-sale securities 415 928
Held-to-maturity securities 75 164
Federal funds sold and securities purchased
under agreements to resell 136 320
Deposits with banks 11 24
---------- ----------
3,711 7,218
---------- ----------
INTEREST EXPENSE
Deposits 1,637 3,102
Federal funds purchased and securities sold
under agreements to repurchase 124 372
Notes payable and FHLB advances 195 360
---------- ----------
1,956 3,834
---------- ----------
NET INTEREST INCOME 1,755 3,384
PROVISION FOR LOAN LOSSES 177 227
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,578 3,157
---------- ----------
NONINTEREST INCOME
Service charges and fees 165 332
Other income 24 44
---------- ----------
189 376
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 632 1,106
Net occupancy expense 81 163
Deposit assessments and fees 112 158
Other operating expenses 220 553
---------- ----------
1,045 1,980
---------- ----------
INCOME BEFORE INCOME TAXES 722 1,553
PROVISION FOR INCOME TAXES 284 591
---------- ----------
NET INCOME $ 438 $ 962
========== ==========
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
BASIC EARNINGS PER SHARE $ .44 $ 1.14
========== ==========
DILUTED EARNINGS PER SHARE $ .43 $ 1.13
========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
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 June 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 June 30, 1999,
interim financial statements. The consolidated pro forma financial statements as
of June 30, 1998 and December 31, 1998, included in Note 3 have been prepared by
Bancshares without audit. The results of operations for the period indicated
June 30, 1999 and pro forma June 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 $250,604,000 at June 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
<PAGE> 8
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 of additional shares of Bancshares
common stock to former Sac River shareholders. At June 30, 1999, Bancshares had
total borrowing of $5,375,000 and $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 $250,604,000 at June 30, 1999, or 9.6%. 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 $198,143,000 at June 30, 1999, or 13.0%. Loan growth
consisted principally of increases in all major loan categories.
AVAILABLE-FOR-SALE SECURITIES
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
$7,138,000, or 24.0% from pro forma December 31, 1998 to June 30, 1999.
DEPOSITS
Deposits grew as a result of the Bank opening a new branch and its
marketing efforts. Total deposits at June 30, 1999, were $209,888,000, a
$22,258,000 or 11.9%, 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 $5,476,000 at June 30, 1999,
a 17.4% decline. The decrease was a result of fluctuations in customer accounts.
Borrowings under Bancshares' note payable decreased $176,000 from pro
forma December 31, 1998 to $5,375,000 at June 30, 1999. The reduction is a
result of the pay-off of Bancshares line of credit, due to excess funds
available following the completion of the merger and scheduled principal
amortization.
Advances from the Federal Home Loan Bank ("FHLB") decreased $32,000 due
to scheduled principal amortization from pro forma December 31, 1998 to
$11,868,000 at June 30, 1999.
<PAGE> 9
STOCKHOLDERS' EQUITY
Growth of retained earnings increased stockholders' equity by $976,000,
or 6.2%, from $15,741,000 at pro forma December 31, 1998, to $16,717,000 at June
30, 1999.
RESULTS OF OPERATIONS
NET INCOME
Net income for the six months and three months ended June 30, 1999, was
$1,163,000 and $533,000, compared to $962,000 and $438,000 for the pro forma
periods a year earlier, increasing 20.9% and 21.7%.
INTEREST INCOME
The Company's interest income has increased principally because of the
Bank's asset growth. Interest income for the six months and three months ended
June 30, 1999, was $8,653,000 and $4,444,000, increases of $1,435,000 and
$733,000, or 19.9% and 19.8%, 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 six months and three months ended
June 30, 1999 was $4,560,000 and $2,343,000, increases of $726,000 and $387,000,
or 18.9% and 19.8%, 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 $709,000 and $346,000 or 21.0% and 19.7%,
to $4,093,000 and $2,101,000 in the six months and three months ended June 30,
1999, compared to the pro forma periods in the prior year.
PROVISION FOR LOAN LOSSES
The provisions for loan losses for the six-month and three-month
periods ended June 30, 1999, were $155,000 and $85,000, as compared to
provisions of $227,000 and $177,000 during the pro forma periods in 1998. The
decrease in the provision is due to additional expense taken in prior years to
build the reserve 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 internal 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> 10
NONINTEREST INCOME
Noninterest income grew by 52.7% and 43.3% for the six months and three
months ended June 30, 1999, over the pro forma periods in the prior year. The
increases were due to gains recorded on the sale of loans held-for-sale, the
capitalization of mortgage servicing rights and the gains from the sale of
securities available-for-sale.
NONINTEREST EXPENSE
Noninterest expense includes the cost of operations, including overhead
and expenses associated with the opening of new branches and departments in the
Bank, including the costs of additional personnel. Noninterest expense was
$2,738,000 and $1,510,000 for the six months and three months ended June 30,
1999, increases of $758,000 and $465,000 or 38.3% and 44.5% over the $1,980,000
and $1,045,000 recorded in the pro forma periods in the prior year. These
increases are primarily attributable to locations opening during February and
May 1999 and the additional staffing costs to service the Bank's growth.
Salaries and employee benefits accounted for $322,000 and $142,000 of the
increases for the six 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 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 determined necessary
to retain CD's for liquidity purposes, the Bank 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 Bank's investment
securities are all classified as available-for- sale and could provide liquidity
sources to the extent they are not pledged for public funds.
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> 11
REGULATORY CAPITAL
At June 30, 1999, the Bank exceeded all regulatory capital requirements
to which it is subject. The Bank had Tier 1 Capital of $18,637,000 (7.6% of
average assets), Tier 1 Risk-Based Capital of $18,637,000 (9.9% of risk-weighted
assets) and Total Risk-Based Capital of $20,666,000 (11.0% 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
assessing customers readiness, among others.
As of June 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 beginning January 1, 2000. Plans are in place for a cellular
based modern communication
<PAGE> 12
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 will be conducted during August 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.
PART II. - OTHER INFORMATION AND SIGNATURES
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Title
2.1* Agreement and Plan of Merger
3.1 and 4.1* Articles of Incorporation, Liberty Bancshares, Inc.
<PAGE> 13
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
* 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> 14
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: August 13, 1999
<PAGE> 1
EXHIBIT 11.1 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
----------------------------------------- ---------------------------------------
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 818,060 489,190 811,276 811,276
Net income $ 532,796 $ 139,173 $ 1,163,129 $ 292,607
Per share amount $ .65 $ .28 $ 1.43 $ .60
Diluted:
Average shares outstanding 818,060 489,190 811,276 489,190
Net effect of dilutive stock options 23,745 3,270 23,745 3,270
----------------------------------------- ---------------------------------------
Diluted shares 841,805 492,460 835,021 492,460
Net income $ 532,796 $ 139,173 $ 1,163,129 $ 292,607
Per share amount $ .63 $ .28 $ 1.39 $ .59
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,824
<INT-BEARING-DEPOSITS> 1,493
<FED-FUNDS-SOLD> 4,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,542
<INVESTMENTS-CARRYING> 22,542
<INVESTMENTS-MARKET> 22,542
<LOANS> 198,143
<ALLOWANCE> 2,029
<TOTAL-ASSETS> 250,604
<DEPOSITS> 209,888
<SHORT-TERM> 6,036
<LIABILITIES-OTHER> 261
<LONG-TERM> 16,683
0
0
<COMMON> 820
<OTHER-SE> 15,897
<TOTAL-LIABILITIES-AND-EQUITY> 250,604
<INTEREST-LOAN> 7,835
<INTEREST-INVEST> 656
<INTEREST-OTHER> 163
<INTEREST-TOTAL> 8,653
<INTEREST-DEPOSIT> 3,913
<INTEREST-EXPENSE> 4,560
<INTEREST-INCOME-NET> 4,093
<LOAN-LOSSES> 155
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 2,738
<INCOME-PRETAX> 1,774
<INCOME-PRE-EXTRAORDINARY> 1,774
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,163
<EPS-BASIC> 1.43
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 4.10
<LOANS-NON> 103
<LOANS-PAST> 578
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,526
<ALLOWANCE-OPEN> 1,981
<CHARGE-OFFS> 201
<RECOVERIES> 94
<ALLOWANCE-CLOSE> 2,029
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17
</TABLE>
