<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996 Commission File No. 0-19525
------------- -------
Liberty Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3785878
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 North Lincoln Avenue, Chicago, IL 60659
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 334-1200
--------------
Indicate by check mark whether the registrant 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 has been subject to such filing requirements
for the past 90 days.
1. YES /X/ NO ___
Number of shares of Common Stock ($.01 par value) outstanding at the close of
business on August 1, 1996 was 2,477,022 shares.
-------------- ---------
1
<PAGE> 2
LIBERTY BANCORP, INC.
AND SUBSIDIARY
FORM 10-Q
INDEX
- --------------------------------------------------------------------------------
Page
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Statements of Earnings (Unaudited) for the
Three Months and Six Months ended June 30, 1996 and 1995 4
Statement of Changes in Stockholders' Equity (Unaudited) for
the Three Months and Six Months ended June 30, 1996 5
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Six Months ended June 30, 1996 and 1995 6-7
Notes to the (Unaudited) Consolidated Financial Statements 8-11
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 12-23
PART II. OTHER INFORMATION
- -------- -----------------
Items 1.-3. Non-Applicable 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26-27
Signature Page 28
2
<PAGE> 3
<TABLE>
<CAPTION>
LIBERTY BANCORP, INC.
CONSOLIDATED STATEMENTS of FINANCIAL CONDITION
(Dollars in thousands)
June 30, Dec 31,
------------------ -----------------
1996 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,954 $ 8,119
Interest-earning deposits 6,230 5,715
Federal funds sold 0 0
Commercial paper held-to-maturity 5,200 5,200
Investment securities available-for-sale, at fair value 66 56
Investment securities held-to-maturity
Market value (06/96 - $22,684; 12/95 - $25,492) 22,562 25,030
Federal Home Loan Bank of Chicago stock 5,410 5,011
Mortgage-backed securities available-for-sale, at fair value 108,364 98,138
Loans receivable, net 475,503 513,586
Accrued interest receivable 3,928 3,894
Real estate owned 0 0
Premises and equipment, net 3,461 3,277
Prepaid expenses and other assets 11,700 10,832
Deposit base intangible 163 174
Deferred federal and state income taxes 1,657 1,505
------------------ -----------------
TOTAL ASSETS $ 651,198 $ 680,537
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 508,644 $ 487,388
Borrowed funds 67,500 117,500
Advance payments by borrowers for taxes and insurance 4,000 3,972
Accrued expenses and other liabilities 7,037 7,000
------------------ -----------------
TOTAL LIABILITIES 587,181 615,860
------------------ -----------------
Preferred stock, $.01 par value. Authorized 1,000,000 shares;
none outstanding 0 0
Common stock, $.01 par value. Authorized 5,000,000 shares;
issued 3,306,250; outstanding 2,477,022 shares at
06/30/96 and 2,552,022 shares at 12/31/95 33 33
Additional paid-in-capital 31,625 31,611
Retained earnings, substantially restricted 52,120 50,981
Treasury stock, at cost (829,228 shares at 06/30/96 and
754,228 shares at 12/31/95) (18,491) (16,618)
Common stock purchased by:
Employee Stock ownership plan (945) (1,134)
Bank recognition and retention plans (177) (355)
Unrealized gain(loss) on securities available-for-sale,
net of taxes (148) 159
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY 64,017 64,677
------------------ -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 651,198 $ 680,537
=================== =================
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
LIBERTY BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands)
For three months ended For six months ended
June 30, June 30,
--------------- --------------- --------------- --------------
1996 1995 1996 1995
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest income on loans:
Mortgage loans $ 8,975 $ 8,454 $ 18,160 $ 16,756
Other loans 547 639 1,159 1,294
--------------- --------------- --------------- --------------
TOTAL INTEREST ON LOANS 9,522 9,093 19,319 18,050
Interest-earning deposits 96 83 192 175
Federal funds sold 18 1 49 1
Commercial paper 69 83 142 163
Investment securities 429 363 850 675
Mortgage-backed securities 1,630 615 3,197 1,168
--------------- --------------- --------------- --------------
TOTAL INTEREST INCOME 11,764 10,238 23,749 20,232
--------------- --------------- --------------- --------------
INTEREST EXPENSE:
Deposits 6,323 5,732 12,421 10,599
Borrowed funds 1,099 635 2,543 1,570
--------------- --------------- --------------- --------------
TOTAL INTEREST EXPENSE 7,422 6,367 14,964 12,169
--------------- --------------- --------------- --------------
NET INT INC BEFORE PROV FOR LN LOSS 4,342 3,871 8,785 8,063
Provision for (recovery of) loan losses 0 0 0 0
--------------- --------------- --------------- --------------
NET INT INC AFTER PROV FOR LN LOSS 4,342 3,871 8,785 8,063
--------------- --------------- --------------- --------------
NON-INTEREST INCOME:
Gain(Loss) on sale of:
Other Investments 0 (23) 0 (23)
Fees and service charges 33 33 66 68
Insurance commissions 128 116 179 248
Other 201 99 365 168
--------------- --------------- --------------- --------------
TOTAL NON-INTEREST INCOME 362 225 610 461
--------------- --------------- --------------- --------------
NON-INTEREST EXPENSE:
Compensation and benefits 1,904 1,469 3,362 2,913
Office occupancy and equipment 386 301 751 627
Federal deposit insurance premium 280 259 558 518
Data processing 177 131 350 265
Advertising and promotion 74 121 122 159
Other 550 554 1,208 982
--------------- --------------- --------------- --------------
TOTAL NON-INTEREST EXPENSE 3,371 2,835 6,351 5,464
--------------- --------------- --------------- --------------
INCOME BEFORE INCOME TAXES 1,333 1,261 3,044 3,060
Income taxes 506 478 1,157 1,163
--------------- --------------- --------------- --------------
NET INCOME $ 827 $ 783 $ 1,887 $ 1,897
=============== =============== =============== ==============
Primary earnings per share $ 0.31 $ 0.27 $ 0.71 $ 0.65
=============== =============== =============== ==============
Fully diluted earnings per share $ 0.31 $ 0.27 $ 0.71 $ 0.65
=============== =============== =============== ==============
Average shares common stock outstanding fully dilluted 2,649,669 2,868,211 2,668,638 2,935,293
=============== =============== =============== ==============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
LIBERTY BANCORP, INC.
Statement of changes in Stockholders' Equity
For period ended
June 30, 1996
(Unaudited)
(Dollars in thousands)
Common Common
Stock Stock Gain(Loss)
Common Additional Retained Treasury Purchased by Purchased by on Securities
Stock Paid-in-Capital Earnings Stock ESOP MRRP Avail-for-sale Total
-------- --------------- ---------- --------- ------------ ------------ -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $33 $31,611 $50,981 ($16,618) ($1,134) ($355) $159 $64,677
Net income for period ended
March 31, 1996 1,060 1,060
Dividends paid (377) (377)
Purchase of treasury stock (1,641) (1,641)
Tax effect ESOP 7 0 7
ESOP adjustment 95 95
MRRP adjustment 89 89
Unrealized gain(loss) on securities
available-for-sale, net of tax (92) (92)
-------- --------------- ---------- --------- ----------- ----------- ----------- --------
Balance at March 31, 1996 $33 $31,618 $51,664 ($18,259) ($1,039) ($266) $67 $63,818
Net income for period ended
June 30, 1996 828 828
Dividends paid (372) (372)
Purchase of treasury stock (232) (232)
Tax effect ESOP 7 7
Exercise of stock options &
reissuance of treasury shares 0 0 0
ESOP adjustment 94 94
MRRP adjustment 89 89
Unrealized gain(loss) on securities
available-for-sale, net of tax (215) (215)
--------- --------------- ---------- --------- ----------- ----------- ----------- --------
Balance at June 30, 1996 33 31,625 52,120 (18,491) (945) (177) (148) 64,017
========= =============== ========== ========= =========== =========== =========== ========
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
LIBERTY BANCORP, INC.
CONSOLIDATED STATEMENTS of CASH FLOWS
(Unaudited)
(Dollars in thousands)
For three months ended For six months ended
June 30, June 30,
------------ ------------ ------------ ------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 828 $ 783 $ 1,887 $ 1,897
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 123 112 269 237
Amortization of cost of stock benefit plans 183 183 367 367
Tax benefits related to vested MRRP stock, ESOP
dividends and stock options 7 14 14 51
Deferred income tax expense 43 129 46 264
Amortization of premiums, discounts, and deferred
loan fees 130 (176) (161) (432)
Additions (deletions) to (from) deferred income and
unearned discounts 141 (761) 114 (612)
(Gain) loss on sale of:
Other investments 0 23 0 23
(Increase) decrease in accrued interest receivable,
prepaid expenses, and other assets (30) (37) (891) (2,814)
Increase (decrease) in accrued expenses and other
liabilities (611) (431) (161) 205
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ 814 $ (161) $ 1,484 $ (814)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations $ (26,770) $ (6,694) $ (40,684) $ (13,253)
Principal repayments on:
Loans receivable 55,168 19,054 87,336 36,386
Mortgage-backed securities 6,661 1,135 12,662 1,983
Proceeds from maturities of investment securities 3,892 3,324 13,604 9,677
Proceeds from sale of:
Loans receivable 1,475 0 1,475 0
Mortgage-backed securities available-for-sale 4,661 0 4,661 0
Purchase of:
Loans receivable (6,915) (6,044) (9,838) (12,649)
Mortgage-backed securities available-for-sale (19,919) (27,118) (28,022) (27,118)
Investment securities held-to-maturity (3,832) (7,192) (11,140) (13,404)
Premises and equipment (103) (162) (453) (211)
Stock in the Federal Home Loan Bank of Chicago 0 (740) (399) (805)
------------ ------------ ------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 14,318 $ (24,437) $ 29,202 $ (19,394)
------------ ------------ ------------ -----------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
LIBERTY BANCORP, INC.
CONSOLIDATED STATEMENTS of CASH FLOWS
(Unaudited)
(Dollars in thousands)
For three months ended For six months ended
June 30, June 30,
------------ ------------ ------------ -----------
1996 1995 1996 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options $ 0 $ 100 $ 0 $ 100
Purchase of treasury stock (231) (874) (1,872) (4,939)
Dividends paid (372) (405) (748) (828)
Net increase (decrease) in deposits 5,764 19,727 21,256 26,306
Proceeds from borrowed funds 58,000 33,000 90,500 33,000
Repayment of borrowed funds (84,000) (31,000) (140,500) (35,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 1,700 1,381 28 302
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (19,139) 21,929 (31,336) 18,941
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,007) (2,669) (650) (1,267)
Cash and cash equivalents at beginning of year 22,391 18,502 19,034 17,100
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 18,384 $ 15,833 $ 18,384 $ 15,833
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 7,705 $ 2,522 $ 15,418 $ 8,382
Income taxes 957 613 957 613
Noncash investing activity - transfer of loans to REO 0 366 0 366
Loan origination - account loans 9 36 37 74
Purchase of loans receivable - commercial leases 4,923 8,149 7,715 11,977
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
7
<PAGE> 8
LIBERTY BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Liberty Bancorp, Inc. ("the Company")
and subsidiaries conform to generally accepted accounting principles and to
general practice within the savings and loan industry. The consolidated
statement of financial condition as of June 30, 1996 and the consolidated
statement of earnings for the three month and the six month periods ended June
30, 1996 and 1995 are unaudited but in the opinion of management reflect all
adjustments, consisting only of normal recurring items, necessary for fair
presentation. Results of operations for the interim period are not necessarily
indicative of the results that may be expected for the entire fiscal year:
The following is a description of the more significant policies which the
Company follows in preparing and presenting its consolidated financial
statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Liberty Bancorp,
Inc., Liberty Lincoln Service Corporation II and Liberty Federal Savings Bank
("the Savings Bank") as wholly owned subsidiaries of Liberty Bancorp, Inc. and
Liberty Lincoln Service Corporation, a wholly owned subsidiary of the Savings
Bank. All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding. The weighted average number of common stock and common stock
equivalents outstanding for the calculation of primary earnings per share for
the three months and six months ended June 30, 1996 were 2,643,836 and
2,666,108, respectively.
8
<PAGE> 9
(2) CLASSIFICATION OF ASSETS
The following table sets forth information, at the dates indicated, concerning
assets classified as problem assets under the Company's asset classification
policy.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------ ---------------------
(Unaudited)
(in thousands)
<S> <C> <C>
Substandard
- -----------
Loans delinquent 90 days or more and
non-accruing $ 382 $ 561
Real estate owned 0 0
Substandard Credit Enhancement
- ------------------------------
(Cash flow not sufficient to meet debt
service-owner supplements difference.
No delinquency in payments.)
2,000 2,000
Special Mention - Substandard * 457 502
- -----------------------------
*This loan is a 25.0% participating interest in a balloon loan on a commercial office building
totalling $457,000 which has been modified at maturity by extending the term for two years and
reducing the rate to current market. This loan is current as to principal and interest payments
and is carried as substandard in that expected receipts from the operation of the property do
not cover debt service. The shortfall in debt service is made up personally by the borrower.
</TABLE>
Non-accruing loans receivable delinquent three months or more are as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
---------------------------------------------- ------------------------------------------------
(unaudited)
(in thousands)
Accr Int Accr Int
Number of Not Number of Not
Loans Amount Rec'd Loans Amount Rec'd
----------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Loans 6 $ 377 $ 17 2 $ 184 $ 9
Leases 1 5 0 1 377 9
Autos 0 0 0 0 0 0
------- -------- ----- ------ --------- ------
7 $ 382 $ 17 3 $ 561 $ 18
======= ======== ===== ====== ========= ======
Percentage of Gross
Loans Receivable 0.08% 0.11%
======= =======
</TABLE>
Non-performing loans - All loans that are three months or more delinquent are
considered non-performing.
9
<PAGE> 10
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
(in thousands)
<S> <C> <C>
Loans $ 382 $ 561
Real Estate Owned 0 0
---------- ----------
$ 382 $ 561
========== ==========
</TABLE>
(3) BORROWED FUNDS
Borrowed funds consists of Federal Home Loan Bank of Chicago ("FHLB") Advances
totalling $15.0 million at June 30, 1996 and $64.0 million at December 31, 1995
and securities sold under agreements to repurchase of $52.5 million at June 30,
1996 as compared to $53.5 at December 31, 1995.
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------------- ----------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
-------- ------ -------- ------
(in thousands)
<S> <C> <C> <C> <C>
Secured advances from the FHLB-Chicago:
Open Line-Variable Rate 5.52% $ 15,000 6.02% $ 39,000
Maturing June 22,1996 --- --- 5.47% 25,000
Securities sold under agreements to repurchase:
Maturing January 19, 1996 --- --- 5.80% 11,000
Maturing February 20, 1996 --- --- 5.80% 4,500
Maturing March 19, 1996 --- --- 5.76% 8,000
Maturing April 19, 1996 --- --- 5.88% 8,000
Maturing May 17, 1996 --- --- 5.71% 6,000
Maturing July 18, 1996 5.50% 8,000 --- ---
Maturing August 19, 1996 5.50% 4,500 --- ---
Maturing September 17, 1996 5.50% 6,000 --- ---
Maturing October 21, 1996 5.53% 5,000 --- ---
Maturing November 18, 1996 5.70% 8,000 --- ---
Maturing November 19, 1996 5.67% 6,000 5.67% 6,000
Maturing February 20, 1997 4.96% 5,000 --- ---
Maturing June 23, 1997 5.67% 10,000 5.67% 10,000
------- --------
$67,500 $117,500
======= ========
Weighted average interest rate 5.53% 5.78%
===== =====
</TABLE>
10
<PAGE> 11
The Savings Bank has adopted a collateral pledge agreement whereby the Savings
Bank has agreed to at all times keep on hand, free of all other pledges, liens,
and encumbrances, first mortgages with unpaid principal balances aggregating no
less than 170.00% of the outstanding secured advances from the FHLB. All stock
in the FHLB is pledged as additional collateral for these advances.
The Savings Bank enters into sales of securities under an agreement to
repurchase (reverse repurchase agreements). Fixed-coupon reverse repurchase
agreements are treated as financings and the obligations to repurchase
securities sold are reflected as borrowed funds in the consolidated statements
of financial condition. The dollar amount of securities underlying the
agreements remains in the asset accounts. Securities sold under agreements to
repurchase consisted of mortgage-backed securities reported as
available-for-sale with an amortized cost of $56,725,000 and a fair value of
$56,300,000 at June 30, 1996. The securities underlying the agreements were
delivered to the dealers who arranged the transactions.
Information regarding borrowing under fixed-coupon reverse repurchase agreements
during the three months ended June 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at June 30, 1996 $52,500,000
Weighted average interest rate at
June 30, 1996 5.53%
Maximum amount outstanding at any
month-end during the period $52,500,000
Average amount outstanding during
the period $52,500,000
Weighted average interest rate during
the period 5.51%
</TABLE>
11
<PAGE> 12
LIBERTY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
Liberty Bancorp, Inc. ("the Company") is the holding company of Liberty
Federal Savings Bank ("the Savings Bank"), a federally chartered savings bank
which converted from mutual to stock form on December 23, 1991 and Liberty
Lincoln Service Corporation II ("Liberty Lincoln II") which was incorporated in
the State of Illinois on December 1, 1994. Liberty Lincoln Service Corporation
is a wholly owned subsidiary of Liberty Federal Savings Bank. Liberty Lincoln
II's primary business is to invest in real estate limited partnerships and joint
ventures related to real estate. As of June 30, 1996, Liberty Lincoln II had
outstanding borrowings of $1.8 million from the Company which is invested in two
real estate development projects located in Illinois.
The Company's results of operations are primarily dependent on the Savings
Bank. The Savings Bank's primary source of earnings is its net interest income,
which is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. The results of operations are
also affected, to a lesser extent, by non-interest income such as insurance
commissions, service charges and fees, and non-interest expenses such as
employee salaries and benefits, office occupancy and federal deposit insurance
premiums.
On January 12, 1996, the Company announced its sixth buy-back program of
5.0%, or 128,000 shares. As of June 30, 1996, 75,000 shares were purchased at an
average price of $24.97. Treasury stock amounted to 829,228 shares at an average
price of $22.30. The total number of shares outstanding as of close of period
were 2,477,022.
MARKET AREA
- -----------
The Savings Bank's deposit gathering base is concentrated in the
neighborhoods surrounding its offices in Chicago, Glenview, Norridge and Morton
Grove while its lending is throughout the Northwestern portion of Chicago to
suburban Cook, DuPage and Lake Counties. The Company's and Savings Bank's main
office is located at 5700 North Lincoln Avenue, Chicago, Illinois 60659; a
Walk-Up/Drive-Up facility is at 5650 North Lincoln Avenue, Chicago, Illinois
60659; its second Chicago office is located at 5240-C North Pulaski Road,
Chicago, Illinois 60630; its Glenview location is at 936 Harlem Avenue,
Glenview, Illinois 60025; its Norridge location is at 4147 North Harlem Avenue,
Norridge, Illinois 60634; and its Morton Grove branch is at 6014 Dempster
Street, Morton Grove, Illinois 60053.
12
<PAGE> 13
COMPETITION
- -----------
The Savings Bank has substantial competition for both deposits and loans
from a high density of financial institutions in the Chicago metropolitan and
suburban areas and, to a lesser extent, from insurance companies and the
securities industry. This competition is monitored through a series of regular
surveys and reacted to through pricing policy, quality of service and a variety
of both deposit and lending products.
LENDING ACTIVITY
- ----------------
During the quarter and six months ended June 30, 1996, the Company
originated or purchased the following loan products and mortgage-backed
securities:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
Amount Amount
------ ------
(in thousands)
<S> <C> <C>
Fixed Rate -
- ----------
Mortgage and Home Equity Loans
Originated $13,633 $19,501
Purchased 4,626 4,694
Construction 93 1,179
Auto Loans 186 261
Leases Purchased 4,923 7,715
Mortgage-backed Securities 19,919 28,022
Unsecured Term Loan 24 58
Bridge Loan 105 105
--------- ---------
Subtotal $43,509 $61,535
--------- ---------
Yield 7.58% 7.54%
--------- ---------
Adjustable Rate -
- ---------------
1-Year Originated $ 537 $ 1,256
2-5 Year Originated 4,772 5,383
Unsecured Line of Credit 29 38
Equity Line of Credit 1,382 2,974
Balloon Loans -
- -------------
3-5 Year Originated 2,639 5,881
7-10 Year Originated 713 1,389
Land Development Participation 23 87
--------- ---------
Subtotal $10,095 $17,008
--------- ---------
Yield 8.00% 8.17%
--------- ---------
TOTAL $53,604 $78,543
========= =========
YIELD 7.66% 7.68%
========= =========
</TABLE>
13
<PAGE> 14
The new loan activity during the three months and six months ended June
30, 1996 was $53.6 million and $78.5 million, respectively, at a yield of 7.66%
and 7.68%. Repayments during the same periods were $61.9 million and $100.0
million.
During the six month period, the Savings Bank has expanded its loan
products to offer floating rate, secured equity line of credit; auto loans at
competitive market rates; floating rate, unsecured line of credit and fixed rate
unsecured loans. The above secured loan products are written to a maximum of
$50,000 and five years in term and the unsecured to $10,000 and three years in
term.
Originations and purchases of multi-family and commercial real estate
mortgage loans has been expanded. These loans are on properties located
primarily within the local trade area, normally with terms of three to ten
years. The Savings Bank undertakes a program to sell participations, with
servicing retained, in these loans to other local financial institutions.
At June 30, 1996, loans receivable net and mortgage-backed securities
totalled $583.8 million as compared to $611.7 million at December 31, 1995, a
decrease of $27.8 million, or 4.55%. The average yield increased 38 basis points
to 7.45% from 7.07% between the six month periods in 1996 and 1995,
respectively.
CAPITAL
- -------
The Savings Bank exceeded all regulatory capital guidelines at June 30,
1996. Risk-based, tangible and leverage capital for Liberty Federal Savings Bank
was 17.50%, 8.30% and 8.30% of adjusted assets, respectively, compared to
regulatory requirements of 8.00%, 1.50% and 3.00% of adjusted assets,
respectively.
The following table presents the Savings Bank's capital position at June
30, 1996 relative to fully phased in regulatory requirements.
<TABLE>
<CAPTION>
Bank Regulatory Capital
-----------------------
Required Actual Required Actual Excess
Percentage Percentage Balance Balance Balance
------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
At June 30, 1996:
Regulatory Capital
Risk-based 8.00% 17.50% $26,037 $56,900 $30,863
Tangible 1.50 8.30 9,678 53,536 43,858
Leverage 3.00 8.30 19,355 53,536 34,181
</TABLE>
14
<PAGE> 15
The following table reconciles the Savings Bank's capital to its regulatory
capital at June 30, 1996.
<TABLE>
<CAPTION>
June 30, 1996
---------------
(in thousands)
<S> <C>
Liberty Federal Savings Bank Capital $54,553
Unrealized losses (gains) on certain
available-for-sale securities 160
Less:
Investment in Non-Includable Subsidiaries 1,014
Deposit Base Intangibles 163
---------
TOTAL TANGIBLE AND LEVERAGE CAPITAL $53,536
Plus:
Allowance for Loan Losses 3,364
---------
TOTAL RISK-BASED CAPITAL $56,900
=========
</TABLE>
The Office of Thrift Supervision ("OTS") issued final regulations which
set forth the methodology for calculating an interest rate risk component that
is being incorporated into the OTS regulatory capital rules. Under the new
regulations, only savings institutions with "above normal" interest rate risk
exposure are required to maintain additional capital. This additional capital
would increase a savings institution's otherwise required risk-based capital
requirement. The final rule became effective January 1, 1994 and implementation
will not begin until we are notified by the OTS. As of March 31, 1996, the OTS's
calculation of the Savings Bank's additional risk-based capital as a result of
the interest-rate risk capital component would be $179,000. The Savings Bank's
interest-rate risk capital component at March 31, 1996 is the lowest OTS
calculation from the previous three quarters.
RECAPITALIZATION OF SAIF AND ITS IMPACT ON SAIF PREMIUMS
- --------------------------------------------------------
Legislation that would mitigate the effect of the BIF/SAIF premium is
still being considered by Congress. The legislation would impose a special
assessment on the amount of deposits held by SAIF-member institutions, including
the Savings Bank, as of March 31, 1995, and is generally estimated at between 75
to 80 basis points. Any such legislation also may require that the BIF and the
SAIF be merged by January 1, 1998, provided that subsequent legislation is
enacted requiring savings associations to become banks. The payment of the
special assessment would have the effect of immediately reducing the capital of
SAIF-member institutions, net of any tax effect; however, it would not affect
the Savings Bank's compliance with its regulatory capital requirements.
Management cannot predict whether legislation imposing such an assessment will
be enacted, or, if enacted, the amount of any special assessment or when and
whether ongoing
15
<PAGE> 16
SAIF premiums will be reduced to a level equal to that of BIF premiums.
Management can also not predict whether or when the BIF and SAIF will merge.
The Savings Bank's assessment rate for fiscal 1996 is 23 basis points and
the premium accrued for the period ending June 30, 1996 was $558,000. A
significant increase in SAIF insurance premiums or a significant special
assessment to recapitalize the SAIF initially would likely have an adverse
effect on the operating expenses and results of operations of the Savings Bank,
but in the future, any reduction in premium would have a beneficial effect.
The legislation to eliminate the bad debt reserve deduction for financial
institutions and to recapture the reserve increases since 1987 has been passed
by Congress and sent to the President for signature.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Assets totalled $651.2 million at June 30, 1996 as compared to $680.5
million at December 31, 1995, a decrease of $29.3 million, or 4.31%. The primary
decrease in assets was attributable to loans receivable, net, of $38.1 million
and investment securities held-to-maturity of $2.5 million, partially offset by
an increase in mortgage-backed securities available-for-sale of $10.2 million.
The cash flow generated by the decrease in assets was used to repay borrowed
funds.
Cash and due from banks decreased $1.2 million, or 14.35%, to $7.0 million
at June 30, 1996 from $8.1 million at December 31, 1995. The decrease was the
result of timing differences of invested funds at the end of the respective
periods.
Investment securities held-to-maturity amounted to $22.6 million and $25.0
million at June 30, 1996 and December 31, 1995, respectively, a decrease of $2.5
million, or 9.86%. The Company reinvested maturities in other investment grade
assets which produce a higher yield.
Mortgage-backed securities available-for-sale amounted to $108.4 million
at June 30, 1996 as compared to $98.1 million at December 31, 1995, an increase
of $10.2 million, or 10.42%. The Company maintained over the six month period
reverse repurchase agreements amounting to $52.5 million which are categorized
as borrowings. These reverse repurchase agreements were used to partially fund
the purchase of mortgage-backed securities available-for-sale. Mortgage-backed
securities purchased during the six month period amounted to $28.0 million which
were partially offset by repayments and sales of $17.3 million. The use of
reverse repurchase agreements provide a spread of approximately 1.0% between the
cost of reserve repurchase agreements and the yield on the underlying
securities.
Loans receivable, net, amounted to $475.5 million and $513.6 at June 30,
1996 and December 31, 1995, respectively, a decrease of $38.1 million or, 7.42%.
Loan repayments and sales during the six month period amounted to $88.8 million,
which were partially offset by loan
16
<PAGE> 17
originations and purchases of $50.5 million. The net cash generated through the
repayment of loans was used to partially repay borrowed funds. The allowance for
loan losses at June 30, 1996 and December 31, 1995 was $3.5 million
respectively. At June 30, 1996, the loan loss allowance amounted to 0.74% of
total loans receivable as compared to 0.69% at December 31, 1995. The Company's
policy is to maintain a loan loss allowance between 0.75% and 1.00% of
risk-based assets. (Risk-based assets are defined as the value of assets after
they have been weighted according to regulatory standards and a value is then
placed on each category and the total of all categories is the basis for
calculating risk-based capital requirements.) At June 30, 1996 and December 31,
1995, the percentage of the loan loss allowance to risk-based assets was 1.03%
and 0.96%, respectively. Total non-performing loans amounted to $382,000 and
$561,000 at June 30, 1996 and December 31, 1995, respectively. There were no
impaired loans at the end of either period.
Prepaid expense and other assets amounted to $11.7 million at June 30,
1996 as compared to $10.8 million at December 31, 1995, an increase of $868,000,
or 8.01%. The major component of the increase were an increase in cash
investment in life insurance contracts of $293,000, or 3.68%, to $8.3 million
from $8.0 million at June 30, 1996 and December 31, 1995, respectively. Other
increases were prepaid deferred compensation and pension premiums of $324,000
and prepaid deposit insurance premiums of $827,000, partially offset by a
decrease in investments in limited real estate partnerships of $248,000.
Savings deposits amounted to $508.7 million at June 30, 1996 as compared
to $487.4 million at December 31, 1995, an increase of $21.3 million, or 4.36%.
The increase in savings deposits resulted from credits for accrued interest
payable of $12.5 million plus a net increase in savings deposits of $8.7
million.
Borrowed funds amounted to $67.5 million and $117.5 million at June 30,
1996 and December 31,1995, respectively, a decrease of $50.0 million, or 42.55%.
At the end of the period in 1996 and 1995, respectively, reverse repurchase
agreements, which are classified as borrowed funds, amounted to $52.5 million at
both June 30, 1996 and December 31, 1995.
Stockholders' equity totalled $64.0 million, or 9.83%, of assets at June
30, 1996, a decrease of $660,000, or 1.02%, from December 31, 1995. The decrease
resulted from the payment of dividends totalling $748,000, purchase of treasury
stock of $1.9 million and adjustment for unrealized losses on securities
available-for-sale of $307,000 partially offset by net income of $1.9 million
and credits from employee stock plans of $380,000.
RESULTS OF OPERATIONS -
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
- -------------------------------------------------------
The net income for the three months ended June 30, 1996 was $827,000 as
compared to $783,000 for the three months ended June 30, 1995, an increase of
$45,000, or 5.72%.
17
<PAGE> 18
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
- ----------------------------------------------------
Net interest income before provision for loan losses was $4.3 million and
$3.9 million for the three month period ended June 30, 1996 and 1995,
respectively, an increase of $471,000, or 12.17%. Total interest income
increased $1.5 million, or 14.91%, to $11.8 million from $10.2 million for the
three month period in 1996 and 1995, respectively. The average yield on
interest-earning assets increased 24 basis points between periods to 7.36% in
1996 as compared to 7.12% in 1995. Average interest-earning assets were $639.2
million as compared to $575.3 million in 1995, an increase of $63.9 million, or
11.12%. The major increases in interest income were interest on mortgage loans
of $522,000, or 6.17%, to $9.0 million from $8.5 million and interest on
mortgage-backed securities which increased $1.0 million, or 165.24% to $1.6
million in 1996 from $615,000 in 1995. A reverse repurchase program using
mortgage-backed securities was established in the fourth quarter of 1995 which
increased average balances in mortgage-backed securities for the second quarter
of 1996 to $102.6 million from $43.0 million in 1995.
Total interest expense increased $1.0 million, or 16.58% to $7.4 million
from $6.4 million for the three months ended June 30, 1996 and 1995,
respectively. The cost of interest-bearing liabilities increased nine basis
points to 5.08% for the 1996 quarter as compared to 4.99% for the comparable
period in 1995. Average interest-bearing liabilities for the second quarter of
1996 were $584.1 million as compared to $510.4 million, an increase of $73.7
million, or 14.43%.
Interest on deposits increased $591,000, or 10.31%, to $6.3 million from
$5.7 million for the three month period ended June 30, 1996 and 1995,
respectively. Between periods, average deposits increased $34.6 million, or
7.35%. Interest on borrowed funds increased $465,000, or 73.17%, to $1.1 million
for the three month period ended June 30, 1996 as compared to $635,000 for the
comparable period in 1995. Between periods, average borrowed funds increased
$39.1 million, or 97.62%. The increase in borrowed funds is directly
attributable to the liability on reverse repurchase agreements which is carried
as borrowed funds.
The interest rate spread for the second quarter of 1996 was 2.28% as
compared to 2.13% in 1995. Net interest margin was 2.72% as compared to 2.69%.
The ratio of interest-bearing assets to interest-bearing liabilities was 1.09x
for the June 1996 quarter as compared to 1.13x for the 1995 quarter.
PROVISION FOR LOAN LOSSES
- -------------------------
No additional provision was made for loan losses in the second quarter of
1996. The Savings Bank's policy is to maintain a minimum allowance for loan
losses equal to approximately 0.75% to 1.00% of risk-based assets. The current
percentage is 1.03%. Allowance for loan losses as a percentage of non-performing
assets was 921.25% and 486.70% at June 30, 1996 and 1995, respectively. At June
30, 1996 non-performing assets amounted to $382,000 as compared to $757,000 at
June 30, 1995.
18
<PAGE> 19
NON-INTEREST INCOME
- -------------------
Non-interest income amounted to $362,000 as compared to $225,000 for the
three month period ended June 30, 1996 and 1995, respectively, an increase of
$136,000 or 60.47%. The major components were the increase in fees and service
charged on deposit related activities which were included in other non-interest
income of $42,000, interest and return on equity in limited real estate
partnerships of $69,000, which was also included in other non-interest income
and no loss on sale of other investments which amounted to $23,000 in the three
month period ended June 30, 1996.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense amounted to $3.4 million for the three months ended
June 30, 1996 as compared to $2.8 million for the same period in 1995, an
increase of $535,000, or 18.86%. The major increases were compensation and
benefits of $435,000 and office occupancy and equipment of $85,000. The majority
of the above items were directly related to the opening of two branch offices,
one in December 1995 and the other in March 1996. The second quarter of 1996
reflected full operating costs of these two branches with no comparable cost in
1995. The balance is general compensation increases and other increases in
staff.
INCOME TAXES
- ------------
Federal and state income taxes amounted to $506,000 as compared to
$478,000 for the quarter ended June 30, 1996 and 1995, respectively, an increase
of $28,000, or 5.83%. The effective tax rates for the periods were 37.92% and
37.89%, respectively. The normal combined federal and state income tax rates
approximate 38.00%.
RESULTS OF OPERATIONS -
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- -----------------------------------------------------
Net income for the six month period ended June 30, 1996 and 1995 was $1.9
million for both periods.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
- ----------------------------------------------------
Net interest income before provision for loan losses was $8.8 million for
the six months ended June 30, 1996 as compared to $8.1 million for the same
period in 1995, an increase of $722,000, or 8.96%. Total interest income
amounted to $23.7 million for the six month period in 1996 as compared to $20.2
million for the same period in 1995, an increase of $3.5 million, or 17.39%. The
major increases were interest on mortgage loans which increased $1.4 million, or
8.38%, to $18.2 million from $16.7 million. During the six month period in 1996,
the average
19
<PAGE> 20
yield on mortgage loans was 7.69% as compared to 7.19%, an increase of 50 basis
points. Interest on mortgage-backed securities increased $2.0 million, or
173.71%, to $3.2 million from $1.2 million. During the period, average
mortgage-backed securities amounted to $100.4 million as compared to $40.5
million in 1995, an increase of $59.9 million, or 147.81%. The yield on
mortgage-backed securities increased to 6.37% from 5.77%, an increase of 60
basis points.
Total interest expense amounted to $15.0 million for the six months ended
June 30, 1996 as compared to $12.2 million in 1995, an increase of $2.8 million,
or 22.97%. The increase is directly related to increases in interest on deposits
of $1.8 million, or 17.9%, to $12.4 million in 1996 as compared to $10.6 million
in 1995. The increase in interest on deposits is directly related to an increase
in average deposits between periods of $36.9 million. The average cost of
deposits for the six month period ended June 30, 1996 was 4.99% as compared to
4.59% in 1995, an increase of 40 basis points. Interest on borrowed funds
increased $973,000, or 61.96% to $2.5 million for the period in 1996 as compared
to $1.6 million in 1995. The increase in interest on borrowed funds is directly
related to the increase in average borrowed funds between periods of $39.8
million due to the liability on reverse repurchase agreements which are carried
as borrowed funds. The average cost of borrowed funds was 5.63% for the six
month period in 1996 as compared to 6.21% in 1995, a decrease of 58 basis
points.
The interest rate spread for the first half of 1996 was 2.28% as compared
to 2.29% for the same period in 1995. Net interest margin was 2.72% as compared
to 2.80%. The ratio of interest-bearing assets to interest-bearing liabilities
was 1.10x for the six month ended June 30, 1996 as compared to 1.12x for the
same period in 1995.
PROVISION FOR LOAN LOSSES
- -------------------------
No additional provision was made for loan losses during the six months
ended June 30, 1996 or 1995, respectively. For statistics on allowance for loan
losses at June 30, 1996 and 1995, respectively, see the section PROVISION FOR
LOAN LOSSES for the quarter ended June 30, 1996.
NON-INTEREST INCOME
- -------------------
Non-interest income amounted to $610,000 for the six months ended June 30,
1996 as compared to $461,000 for the comparable period in 1995, an increase of
$149,000, or 32.36%. Major increases were interest and return on equity in
limited real estate partnerships of $115,000 and service charges on deposit
related products of $97,000. (The above items are included in other non-interest
income.) The above increases are partially offset by a decrease in insurance
commissions of $68,000.
20
<PAGE> 21
NON-INTEREST EXPENSE
- --------------------
Non-interest expense amounted to $6.4 million for the six month period
ended June 30, 1996 as compared to $5.5 million for the same period in 1995, an
increase of $887,000, or 16.23%. The major components of the increases are:
. Compensation and Benefits $449,000
. Office Occupancy and Equipment 124,000
. Federal Deposit Insurance Premium 85,000
. Other Non-Interest Expense 226,000
The majority of the above items were directly related to the opening of
two branch offices, one in December 1995 and the other in March 1996. The six
month period in 1996 reflects six months operating expenses on the branch opened
in December and three months on the branch opened in March. There were no
comparable costs in 1995.
INCOME TAXES
- ------------
Federal and state income taxes amounted to $1.2 million for the six month
period in both 1996 and 1995. The effective tax rate for both periods was 38.00%
which is the normal combined federal and state income tax rate.
ASSET/LIABILITY MANAGEMENT AND
INTEREST SENSITIVITY ANALYSIS
- -----------------------------
One of the ways the Company seeks to manage its assets and liabilities is
by examining the extent to which they are "interest rate sensitive" and by
monitoring its interest rate sensitivity "gap". If an asset or liability can be
repriced or will mature within a specific time period, it is said to be interest
rate sensitive within that time period. The interest rate sensitivity gap is the
difference between the anticipated amount of interest-earning assets, based upon
certain assumptions, which reprice or mature within a given time period, and the
anticipated amount of interest-bearing liabilities, based upon certain
assumptions, which reprice or mature within that same time period. An interest
rate sensitivity gap is considered positive when the amount of interest rate
sensitive assets exceeds the interest rate sensitive liabilities. It is
considered negative when the amount of interest rate sensitive liabilities
exceed the amount of interest rate sensitive assets. During periods of falling
interest rates, a negative gap would tend to increase interest income while a
positive gap would tend to decrease interest income. However, during periods of
rising interests, a negative gap would tend to adversely affect interest income
while a positive gap would tend to increase interest income. Management attempts
to absorb the impact of market interest rate fluctuations by shortening, where
possible, the asset maturities and repricing dates.
21
<PAGE> 22
At June 30, 1996, the Company had a positive cumulative one year gap of
$22.2 million, or 3.41%, of total assets. At December 31, 1995, the positive
cumulative one year gap was $78.9 million, or 11.60%, of total assets. The
Company manages its one year gap by emphasizing the matching of loan and
investment repayments and maturities with origination and purchase of loans and
securities with similar maturities. Fifty two point six percent (52.60%) of all
loans and mortgage-backed securities at June 30, 1996 are either one to three
year adjustable rate or fixed rate with a remaining term of three years or less.
Furthermore, management has engaged in new loan products which have short terms
and higher yields to improve its interest rate risk. Nonetheless, the Company
closely monitors its interest rate risk position with regard to overall interest
rates and credit policies.
The following table shows the amounts of interest-earning assets and
interest-bearing liabilities at June 30, 1996 and their maturity or repricing
periods as anticipated by the Company. These repricing periods are based on
contractual terms of the asset or liability, or, if a maturity or repricing date
is not in the contract, on certain assumptions of prepayment and decay rates.
The prepayment assumptions used were published by the Office of Thrift
Supervision ("OTS"), a securities firm and our own. They are updated quarterly.
The decay rate assumptions used are based on the Company's assumptions and
historical performance. Management believes that these assumptions approximate
actual experience and consider them reasonable. These assumptions may or may not
be indicative of actual prepayment and withdrawal experiences by the Company.
<TABLE>
<CAPTION>
At June 30, 1996
-------- ----------- ----------- ------------- ------------ ------------ ---------- -------
Three More Than More Than More Than More Than More Than
Months Three Mths One Year to Three Years Five Years Ten Years to More Than
or Less to One Year Three Years to Five Years to Ten Years 20 Years 20 Years Total
-------- ----------- ----------- ------------- ------------ ------------ ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $75,602 $142,520 $100,055 $74,474 $35,957 $19,743 $1,555 $449,906
Other loans (1) 4,938 9,983 13,704 2,116 74 56 3 30,874
Mortgage-backed securities 10,407 59,547 13,927 6,467 9,777 6,357 775 (107,257)
Interest-earning deposits 6,230 8,230
Federal funds sold 0 0
Commercial paper 3,500 1,700 5,200
Investment securities 9,733 9,060 2,995 6,000 250 0 0 28,038
-------- --------- --------- --------- ---------- ---------- -------- --------
Total interest-earning
assets 110,410 222,810 130,681 89,057 46,058 26,156 2,333 627,505
-------- --------- --------- --------- ---------- ---------- -------- --------
Less unearned discount and
deferred fees (226) 83 (297) (271) (46) (13) 3 (767)
Less allowance for loan
losses (590) (1,118) (853) (553) (257) (141) (11) (3,523)
-------- --------- --------- --------- ---------- ---------- -------- --------
Total net interest-earning
assets 109,594 221,775 129,531 88,233 45,755 26,002 2,325 623,215
-------- --------- ---------- --------- ---------- ---------- -------- --------
Interest-bearing liabilities:
Passbook and certificate
accounts 75,838 160,821 149,254 23,369 25,805 5,608 754 441,449
NOW, money market and
commercial checking
accounts 1,280 3,741 13,912 8,013 20,813 15,757 3,679 67,195
Borrowed funds 49,881 17,619 0 0 0 0 0 67,500
--------- --------- --------- --------- ---------- ---------- -------- --------
Total interest-bearing
liabilities 126,999 182,181 163,166 31,382 46,618 21,365 4,433 576,144
--------- --------- --------- --------- ---------- ---------- -------- --------
Interest sensitivity gap per
period ($17,405) $39,594 ($33,635) $56,851 ($863) $4,637 ($2,108) $47,071
========= ========= ========= ========= ========== ========== ======== ========
Cumulative interest
sensitivity gap ($17,405) $22,189 ($11,446) $45,405 $44,542 $49,179 $47,071
========= ========= ========= ========= ========== ========== ========
Cumulative interest sensitivity
gap as a percentage of total
assets (-2.67%) 3.41% -1.76% 6.97% 6.84% 7.55% 7.23%
Cumulative net interest-earning
assets as a percentage of net
interest-bearing liabilities 86.30% 107.18% 97.58% 109.01% 108.09% 108.60% 108.17%
(1) For purposes of the gap analysis, mortgage and other loans are reduced for non-performing loans. Non-performing loans
equal $377,000 for mortgage loans and $5,000 for other loans, for a total of $382,000.
</TABLE>
22
<PAGE> 23
LIQUIDITY
- ---------
Regulations of the Office of Thrift Supervision ("OTS") require the Savings Bank
to maintain a minimum average balance of liquid assets equal to 5.00% of the
Savings Bank's withdrawable deposits plus short-term borrowings calculated on a
monthly basis. The Savings Bank's average liquidity ratio during the first half
of 1996 ranged from 6.30% to 6.91% and was at 6.30% on June 30, 1996.
The Company's total funds provided during the first half of 1996 were
$233.0 million and were made up of loans and mortgage-backed securities
repayments of $100.0 million, borrowed funds $90.5 million, net savings deposits
$21.3 million, maturities of investments $13.6 million, net operational
activities $1.5 million and miscellaneous cash receipts $6.1 million. During the
same period in 1995 total funds provided were $107.7 million made up of loan and
mortgage-backed securities repayments of $38.4 million, borrowed funds $33.0
million, net savings deposits $26.3 million, maturities of investments $9.7
million and miscellaneous cash receipts $402,000.
Funds used during the first half of 1996 were $233.5 million consisting of
repayment of borrowings of $140.5 million, loan originations and purchases $50.5
million, purchase of mortgage-backed securities $28.0 million, purchase of
investment securities $11.1 million and general operating requirements $3.4
million. During the same period in 1995 funds used were $108.0 million,
consisting of repayment of borrowings $35.0 million, purchase of mortgage-backed
securities $27.1 million, purchase of investment securities $13.4 million, loan
originations and purchases $25.9 million, purchases of treasury stock $4.9
million, net operational activities $814,000 and general operating requirements
$900,000.
Borrowings for the first half of 1996 were from two different sources.
First the Federal Home Loan Bank of Chicago ("FHLB") provided funds to meet
short term needs in the amount of $26.5 million. As excess funds became
available, they were applied to reduce previously borrowed FHLB advances in the
amount of $75.5 million. These FHLB advances (totalling $15.0 million on June
30, 1996) are collateralized by the Company's holdings of capital stock of FHLB
and by certain of the Savings Bank's mortgage loans and mortgage-backed
securities. The second source of borrowings was reverse repurchase agreements
where mortgage-backed securities were acquired then sold with an agreement to
repurchase them at a later date. This arrangement is treated as additional
borrowing on the financial statements of the Company and the securities are
treated as assets. During the first half of 1996, $64.0 million was borrowed
under reverse repurchase agreements and $65.0 million was repaid.
RECENT DEVELOPMENTS
Liberty Bancorp, Inc. and Hinsdale Financial Corp. ("Hinsdale") announced
on August 2, 1996 an agreement to merge Liberty into Hinsdale under the name
"Alliance Bancorp" through an exchange of stock. Details of the merger are
contained under Part II, Item 5 of this Form 10-Q. The definitive agreement is
expected to be filed under cover of a Form 8-K in the near future.
23
<PAGE> 24
LIBERTY BANCORP, INC.
AND SUBSIDIARY
PART II. OTHER INFORMATION
- -------- ------------------
Item 1. Legal proceedings.
NONE
Item 2. Changes in securities.
NONE
Item 3. Defaults upon senior securities.
NONE
Item 4. Submission of matters to a vote of security holders.
(a) The Company held its Annual Meeting of Stockholders on
April 23, 1996.
(b) The names of each Director elected at the Annual Meeting are
as follows:
Edward J. Burns
Whit G. Hughes
The names of each of the Directors whose term of office
continued after the Annual Meeting are as follows:
H. Verne Loeppert
David D. Mill
Fredric G. Novy
William C. O'Donnell
Vernon B. Thomas, Jr.
24
<PAGE> 25
(c) The following matters were voted upon at the Annual Meeting
and the number of affirmative votes and negative votes cast
with respect to each matter is as follows:
(i) The election of two Directors for terms of three years
each:
<TABLE>
<CAPTION>
For Withheld
----------- --------
<S> <C> <C>
Edward J. Burns 2,185,091 25,961
Whit G. Hughes 2,186,653 24,399
</TABLE>
(ii) Ratification of the appointment of KPMG Peat Marwick as
the Company's independent auditors for the fiscal year
ending December 31, 1996:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
<C> <C> <C> <C>
2,200,951 4,985 5,116 0
</TABLE>
(d) A description of the terms of any settlement terminating any
solicitation, including the cost or anticipated cost to the
registrant.
NONE
Item 5. Other information.
On January 12, 1996, the Company announced a sixth stock
repurchase program of 5.00%, or 128,00 shares, of its
outstanding common stock. As of June 30, 1996, 75,000 shares
have been repurchased at an average price of $24.97 per share.
The Company has purchased a total of 881,384 shares at an
average price of $22.30 through June 30, 1996. A total of
41,756 shares have been issued from treasury stock upon the
exercise of stock options. Also, 10,400 shares have been
issued to the MRRP.
On April 23, 1996, the Company declared a quarterly cash
dividend of $0.15 per share to be paid on June 7, 1996 to
stockholders of record on May 24, 1996.
On August 2, 1996, Liberty Bancorp Inc. ("Liberty") and
Hinsdale Financial Corp. ("Hinsdale") announced an agreement
to merge Liberty into Hinsdale under the name "Alliance
Bancorp", with the banking subsidiary to be named Liberty
Federal Bank. Under the terms of the agreement, which is
being deemed a merger of equals, shareholders of Liberty will
receive 1.054 shares of Alliance Bancorp common stock for
each share that they own, and shareholders of Hinsdale will
receive one share of Alliance for each share that they own.
See the Press Release concerning the announcement of the
Merger which is filed as Exhibit 99 and incorporated herein
by reference
The transaction is subject to regulatory and shareholder
approvals.
25
<PAGE> 26
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(2) Plan of Acquisition, reorganization, arrangement, liquidation or
succession: N/A
(3) (i) Articles of Incorporation: Restated Certificate of
Incorporation of Liberty Bancorp, Inc. is incorporated by
reference into this document from the Exhibits to Form S-1,
Registration Statement, filed on September 30, 1991,
Registration No. 33-42656.
(ii) By -Laws: Bylaws of Liberty Bancorp, Inc. are incorporated
by reference into this document from the Exhibits to Form
S-1, Registration Statement, filed on September 30, 1991,
Registration No. 33-42656.
(4) Instruments defining the rights of security holders, including
indentures: Stock Certificate of Liberty Bancorp, Inc. is
incorporated by reference into this document from the Exhibits to
Form S-1, Registration Statement, filed on September 30, 1991,
Registration No. 33-42656.
(10) Material Contracts: N/A
26
<PAGE> 27
(15) Letter regarding unaudited interim financial information: N/A
(18) Letter regarding change in accounting principles: N/A
(19) Report furnished to security holders: N/A
(22) Published report regarding matters submitted to vote of security
holders: N/A
(23) Consent of experts and counsel: N/A
(24) Power of attorney: N/A
(27) Financial Data Schedule:
See Exhibit 27 following the Signature Page
(99) Press Release
See Exhibit 99 following the Signature Page
B. Reports on Form 8-K
NONE
27
<PAGE> 28
LIBERTY BANCORP, INC.
AND
SUBSIDIARY
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 5, 1996 By: /s/ Fredric G. Novy
-------------- -------------------------
Fredric G. Novy
Chief Executive Officer,
President
Date: August 5, 1996 By: /s/ Joseph W. Stachnik
-------------- -------------------------
Joseph W. Stachnik
Chief Financial Officer,
Vice President
28
<PAGE> 1
(11) Statement regarding computation of per share earnings:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ----- ---- ----
(in thousands
except per share data)
----------------------
<S> <C> <C> <C> <C>
Net Income $ 827 $ 783 $ 1,887 $ 1,897
====== ====== ======= =======
Weighted average common
shares outstanding 2,481 2,692 2,500 2,760
Common stock equivalents
due to dilutive effect
of stock options 163 170 166 168
------ ------ ------- -------
Total weighted average
common shares and
equivalents outstanding 2,644 2,862 2,666 2,928
====== ====== ======= =======
Primary earnings per
share $ .31 $ .27 $ .71 $ .65
====== ====== ======= =======
Total weighted average
common shares and equiva-
lent outstanding 2,644 2,862 2,666 2,928
Additional dilutive shares
using end of period
market value versus average
market value for the
period when utilizing the
treasury stock method
regarding stock options 6 6 3 7
------ ------ ------- -------
Total outstanding shares
for fully diluted earnings
per share computation 2,650 2,868 2,669 2,935
====== ====== ======= =======
Fully diluted earnings
per share $ .31 $ .27 $ .71 $ .65
====== ====== ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This legend contains summary information extracted from the FORM 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000879041
<NAME> LIBERTY BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 6,954
<INT-BEARING-DEPOSITS> 6,230
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,430
<INVESTMENTS-CARRYING> 33,172
<INVESTMENTS-MARKET> 33,294
<LOANS> 475,503
<ALLOWANCE> 3,524
<TOTAL-ASSETS> 651,198
<DEPOSITS> 508,644
<SHORT-TERM> 67,500
<LIABILITIES-OTHER> 11,037
<LONG-TERM> 0
0
0
<COMMON> 13,167
<OTHER-SE> 50,850
<TOTAL-LIABILITIES-AND-EQUITY> 651,198
<INTEREST-LOAN> 19,319
<INTEREST-INVEST> 4,430
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23,749
<INTEREST-DEPOSIT> 12,421
<INTEREST-EXPENSE> 14,964
<INTEREST-INCOME-NET> 8,785
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,351
<INCOME-PRETAX> 3,044
<INCOME-PRE-EXTRAORDINARY> 3,044
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,887
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 1.36
<LOANS-NON> 382
<LOANS-PAST> 0
<LOANS-TROUBLED> 457
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,527
<CHARGE-OFFS> 0<F1>
<RECOVERIES> 0<F1>
<ALLOWANCE-CLOSE> 3,524
<ALLOWANCE-DOMESTIC> 3,524
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>This information is not contained in Form 10-Q
</FN>
</TABLE>
<PAGE> 1
[LETTERHEAD]
THE FINANCIAL RELATIONS BOARD, INC.
Re: Hinsdale Financial Corp. Liberty Bancorp
One Grant Square 5700 N. Lincoln Ave.
Hinsdale, IL 60521 Chicago, IL 60659
Nasdaq: HNFC Nasdaq: LBCI
FOR FURTHER INFORMATION:
AT HINSDALE: AT LIBERTY: AT FRB:
Richard A. Hojnicki Frederic G. Novy Dennis Waite
Executive Vice President President/CEO (312) 640-6674
and Chief Financial Officer (312) 334-1200
(708) 323-1776
FOR IMMEDIATE RELEASE:
LIBERTY BANCORP, INC AND HINSDALE FINANCIAL CORP.
ANNOUNCE MERGER; CONSOLIDATION WOULD OCCUR
WITH EXCHANGE OF STOCK
New Company Plans 65-cents-per-share Cash Dividend
CHICAGO, AUGUST 2, 1996 - Liberty Bancorp,Inc. (Liberty) Nasdaq: LBCI,
parent of Liberty Federal Savings Bank, and Hinsdale Financial Corp. (Hinsdale)
[Nasdaq:HNFC], parent holding company of Hinsdale Federal Bank for Savings,
today announced an agreement to merge Liberty into Hinsdale under the name
"Alliance Bancorp" through an exchange of stock. Alliance Bancorp's banking
subsidiary will be named Liberty Federal Bank and will be headquartered in
Hinsdale, Illinois.
"This is a merger of equals and the many synergies created will result in
an improved earnings base and an accretion in earnings per share for each
company," said the top management of the banks, Frederic G. Novy, president and
chief executive officer of Liberty Bancorp, and Kenne P. Bristol, president and
chief executive officer of Hinsdale Financial.
"Our strategy as a consolidated company is to focus on consumer lending,
multifamily- residential financing, mortgage brokerage and investment services
for our customers. Our objective is to create greater value for shareholders,"
Novy and Bristol said.
<PAGE> 2
"The overall aim of the merger will be to enhance revenues through asset
generation and to increase fee income business. There also will be cost savings
due to economies of scale, but the business strategy will emphasize growth of
revenues and return on shareholders' equity," Novy and Bristol said. The
combined institutions would have total assets approximating $1.3 billion, total
deposits of approximately $975 million, and tangible capital of approximately
$115 million. The merger will be treated as a purchase accounting transaction.
The merger must be approved by shareholders of both companies and is
subject to regulatory review, including the Office of Thrift Supervision and SEC
(Securities and Exchange Commission). The respective companies' current boards
of directors will combine to form the board of Alliance Bancorp. The transaction
is expected to close in the first quarter of calendar 1997. Novy will serve as
chairman and Bristol as president and CEO of Alliance Bancorp.
CASH DIVIDEND
Novy and Bristol said the new company proposes to pay an annual cash
dividend of 65 cents per common share. At the present time, Liberty shareholders
receive 60 cents per share annually. Hinsdale does not currently pay a cash
dividend.
SHARE OWNERSHIP
Under the merger agreement, Liberty shareholders would receive 1.054
shares of common stock in Alliance Bancorp for every share of stock they
currently hold in Liberty. Hinsdale shareholders would maintain one share of
stock in Alliance for each share of stock of Hinsdale they own. Under this
exchange ratio, Liberty shareholders will receive a 49.3 percent ownership stake
in Alliance Bancorp. Liberty shareholders, as owners of Alliance Bancorp, will
also share in any recovery from Hinsdale's supervisory goodwill lawsuits.
"EXTREMELY COMPLEMENTARY FIT"
"Both institutions are located in solid, attractive markets," Bristol and
Novy noted, and "the strengths of both institutions combine to form a much
stronger company - Alliance Bancorp." Hinsdale's customer base is in far-western
Cook and DuPage counties, including its headquarters and bank in Hinsdale, along
with offices in West Chicago, Lisle, Clarendon Hills, Elmhurst, Forest Park,
Bensenville, Oak Park and Westmont. Hinsdale, in conjunction with its mortgage
brokerage subsidiary, Preferred Mortgage Associates, Ltd., is a strong asset
generator. Liberty's customer base is located in northwest Chicago, the near
northwest suburb of Norridge, and the north shore suburbs, including Glenview
and Morton Grove. Liberty's deposit franchise, coupled with its strong capital
position, will complement Hinsdale's asset- generating activities. In addition,
Hinsdale will be able to overlay its premier Invest Financial Services
operations on Liberty's branch structure to further enhance income.
<PAGE> 3
"This is an extremely complementary fit in geographic markets as well as
management and asset-generation skills. Management will leverage the strengths
of the two companies to create greater shareholder value," the executive said.
Liberty Bancorp, Inc., is the holding company for Liberty Federal Savings
Bank, a federally chartered savings bank. Total shares outstanding are
approximately 2.5 million.
Hinsdale Financial Corporation is the holding company for Hinsdale Federal
Bank. Total shares outstanding are approximately 2.7 million.
