-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JZVlOtOnmHREGcwdo4BZhOo6S9E8Zk2LjeCGXN6bxTFQEkRzb8b4Ei0iYTgsR5+o z40pzovmTttzZEc4qN4aGA== 0001005477-99-004999.txt : 19991109 0001005477-99-004999.hdr.sgml : 19991109 ACCESSION NUMBER: 0001005477-99-004999 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY BANCORP INC /NJ/ CENTRAL INDEX KEY: 0001057570 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24519 FILM NUMBER: 99742889 BUSINESS ADDRESS: STREET 1: 1410 ST GEORGES AVENUE CITY: AVENEL STATE: NJ ZIP: 07001 BUSINESS PHONE: 7324997200 FORMER COMPANY: FORMER CONFORMED NAME: AXIA BANCORP INC DATE OF NAME CHANGE: 19980311 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-QSB (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _________________________ Commission File Number 0-24519 LIBERTY BANCORP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) UNITED STATES OF AMERICA 22-3593532 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1410 St. Georges Avenue, Avenel, New Jersey 07001 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 732-499-7200 Indicate by check X whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes |X| No |_| (2) Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of October 15, 1999, 3,626,329 common shares, $1.00 par value, were outstanding. LIBERTY BANCORP, INC. INDEX Page Number ------ PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of September 30, 1999 and December 31, 1998 (Unaudited) 1 Consolidated Statements of Income for the Nine and Three Months Ended September 30, 1999 and 1998 (Unaudited) 2 Consolidated Statements of Comprehensive Income for the Nine and Three Months Ended September 30, 1999 and 1998 (Unaudited) 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (Unaudited) 4 - 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 - 14 PART II OTHER INFORMATION 15 SIGNATURES 16 LIBERTY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
September 30, December 31, 1999 1998 ------------- ------------- Assets Cash and amounts due from depository institutions $ 1,283,193 $ 1,474,529 Interest-bearing deposits in other banks 2,085,490 12,349,621 ------------- ------------- Total cash and cash equivalents 3,368,683 13,824,150 Securities held to maturity 19,454,648 -- Securities available for sale 53,168,080 62,734,597 Loans receivable 196,901,596 177,876,607 Premises and equipment 4,764,895 2,132,110 Foreclosed real estate -- 105,620 Federal Home Loan Bank of New York stock 2,355,100 2,007,500 Interest receivable 1,707,138 1,315,997 Other assets 452,420 450,231 ------------- ------------- Total assets $ 282,172,560 $ 260,446,812 ============= ============= Liabilities and stockholders' equity Liabilities Deposits $ 223,937,098 $ 223,270,284 Advance payments by borrowers for taxes and insurance 2,065,681 1,910,748 Advances from Federal Home Loan Bank of New York 20,600,000 -- Other liabilities 3,683,837 832,722 ------------- ------------- Total liabilities 250,286,616 226,013,754 ------------- ------------- Stockholders' equity Preferred stock; $1.00 par value, 10,000,000 shares authorized; issued and outstanding - none -- -- Common stock; $1.00 par value, 20,000,000 shares authorized; 3,901,375 shares issued and 3,626,329 and 3,901,375 shares outstanding at September 30, 1999 and December 31, 1998, respectively 3,901,375 3,901,375 Paid-in-capital 13,827,017 13,827,420 Retained earnings - substantially restricted 18,355,999 17,512,659 Unearned Employee Stock Ownership Plan ("ESOP") shares (1,283,546) (1,393,565) Treasury stock, at cost; 275,046 shares at September 30, 1999 (2,817,228) -- Accumulated other comprehensive income - unrealized (loss) gain on securities available for sale, net (97,673) 585,169 ------------- ------------- Total stockholders' equity 31,885,944 34,433,058 ------------- ------------- Total liabilities and stockholders' equity $ 282,172,560 $ 260,446,812 ============= =============
See notes to consolidated financial statements. -1- LIBERTY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, ------------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Interest income: Loans $ 10,023,561 $ 9,048,829 $ 3,474,465 $ 3,281,098 Securities held to maturity 611,122 -- 312,803 -- Securities available for sale 2,576,170 2,113,997 829,112 698,815 Other interest-earning assets 280,633 702,715 59,844 221,307 ------------ ------------ ------------ ------------ Total interest income 13,491,486 11,865,541 4,676,224 4,201,220 ------------ ------------ ------------ ------------ Interest expense: Deposits 7,502,904 7,204,475 2,485,594 2,447,848 Advances 469,370 -- 250,615 -- Capitalized lease obligations 156,592 -- 67,123 -- ------------ ------------ ------------ ------------ Total interest expense 8,128,866 7,204,475 2,803,332 2,447,848 ------------ ------------ ------------ ------------ Net interest income 5,362,620 4,661,066 1,872,892 1,753,372 Provision for loan losses 45,000 45,000 15,000 15,000 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 5,317,620 4,616,066 1,857,892 1,738,372 ------------ ------------ ------------ ------------ Non-interest income: Fees and service charges on deposits 141,794 129,999 47,157 44,013 Fees and service charges on loans 71,136 125,468 31,948 23,221 Gain on sale of loans -- 511 -- -- Gain on sale of assets 15,625 -- -- -- Miscellaneous 86,309 75,265 32,656 25,960 ------------ ------------ ------------ ------------ Total non-interest income 314,864 331,243 111,761 93,194 ------------ ------------ ------------ ------------ Non-interest expenses: Salaries and employee benefits 1,845,988 1,635,858 654,373 625,234 Net occupancy expense of premises 464,954 367,163 163,467 139,454 Equipment 423,319 280,126 148,939 77,904 Directors' fees 137,088 126,783 43,588 38,550 Legal expenses 101,102 59,734 18,852 24,883 Advertising 251,892 177,250 95,642 60,125 Federal insurance premium 97,548 92,744 32,531 31,416 (Income) loss from foreclosed real estate (8,265) -- -- -- Miscellaneous 766,438 593,190 247,842 195,734 ------------ ------------ ------------ ------------ Total non-interest expenses 4,080,064 3,332,848 1,405,234 1,193,300 ------------ ------------ ------------ ------------ Income before income taxes 1,552,420 1,614,461 564,419 638,266 Income taxes 571,841 578,967 194,595 221,295 ------------ ------------ ------------ ------------ Net income $ 980,579 $ 1,035,494 $ 369,824 $ 416,971 ============ ============ ============ ============ Net income per common share - basic/diluted $ 0.27 N/A (1) $ 0.11 $ 0.11 ============ ============ ============ ============ Weighted average number of common shares outstanding - basic/diluted 3,584,719 N/A (1) 3,496,738 3,756,683 ============ ============ ============ ============
(1) Liberty Bancorp, Inc. issued stock on June 30, 1998. See notes to consolidated financial statements. -2- LIBERTY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, -------------------------- ------------------------ 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net income $ 980,579 $1,035,494 $ 369,824 $ 416,971 ---------- ---------- ---------- ---------- Other comprehensive (loss) income - unrealized holding (loss) gain on securities available for sale, net of income taxes (benefit) (682,842) 301,277 31,669 253,116 ---------- ---------- ---------- ---------- Total other comprehensive (loss) income (682,842) 301,277 31,669 253,116 ---------- ---------- ---------- ---------- Comprehensive (loss) income $ 297,737 $1,336,771 $ 401,493 $ 670,087 ========== ========== ========== ==========
See notes to consolidated financial statements. -3- LIBERTY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Net income $ 980,579 $ 1,035,494 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 281,558 138,335 Amortization of premiums and accretion of discounts, net 284,723 254,670 Amortization of deferred loan fees, net 29,188 9,862 Provision for loan losses 45,000 45,000 Loss on sale of real estate owned (8,265) -- Gain on sale of student loans -- (511) (Increase) decrease in accrued interest receivable (391,142) (213,073) Decrease (increase) in other assets 55,174 (63,350) Amortization of unearned ESOP shares 109,616 36,673 Increase (decrease) in other liabilities 597,527 (9,477) ------------ ------------ Net cash provided by operating activities 1,983,958 1,233,623 ------------ ------------ Cash flows from investing activities: Purchases of securities held to maturity (19,421,865) -- Purchases of securities available for sale (18,984,641) (20,913,823) Principal repayments on securities available for sale 27,149,775 23,620,847 Proceeds from sale of student loans -- 68,055 Net (increase) decrease in loans receivable (19,099,177) (19,185,234) Proceeds from sale of real estate owned 113,885 -- Net additions to premises and equipment (2,914,343) (118,015) Purchase of Federal Home Loan Bank of New York stock (347,600) (203,400) ------------ ------------ Net cash (used in) investment activities (33,503,966) (16,731,570) ------------ ------------ Cash flows from financing activities: Net increase in deposits 666,814 2,639,278 Advances from Federal Home Loan Bank of New York 20,600,000 -- Increase in advance payments by borrowers for taxes and insurance 154,933 35,239 Capitalized lease obligations 2,600,000 -- Repayment of capitalized lease obligations (2,740) -- Net proceeds from issuance of common stock -- 16,315,524 Proceeds from stock subscriptions -- 10,480,862 Cash dividends paid (137,238) -- Purchase of treasury stock (2,817,228) -- ------------ ------------ Net cash provided by financing activities 21,064,541 29,470,903 ------------ ------------ Net (decrease) increase in cash and cash equivalents (10,455,467) 13,972,956 Cash and cash equivalents - beginning 13,824,150 5,930,891 ------------ ------------ Cash and cash equivalents - ending $ 3,368,683 $ 19,903,847 ============ ============
See notes to consolidated financial statements. -4- LIBERTY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------------- 1999 1998 ---------- ---------- Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $7,727,467 $7,199,578 ========== ========== Income taxes $ 623,523 $ 803,036 ========== ========== Supplemental disclosure of noncash activities: Net change in unrealized (loss) gain on securities available for sale $1,083,877 $ 488,582 Deferred income taxes 401,035 187,305 ---------- ---------- $ 682,842 $ 301,277 ========== ==========
See notes to consolidated financial statements. -5- LIBERTY BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited financial statements were prepared in accordance with instructions for Form 10-QSB and regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles ("GAAP"). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three and nine months ended September 30, 1999, are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. MUTUAL HOLDING COMPANY REORGANIZATION On October 15, 1997, the Board of Directors of Axia Federal Savings Bank, (the "Bank") unanimously adopted the Plan of Reorganization from a Mutual Savings Association to a Mutual Holding Company and Stock Issuance (the "Plan") which was amended on April 15, 1998 and May 13, 1998. Pursuant to the Plan, the Bank converted from a federal mutual savings bank to a federal stock savings bank, changed its name to "Liberty Bank" and became a wholly owned subsidiary of Liberty Bancorp, Inc. (the "Company"). The Plan was approved by the Office of Thrift Supervision ("OTS"), the Bank's depositors of record as of April 30, 1998, and borrowers with outstanding loans as of December 10, 1986, which remained outstanding as of April 30, 1998 (the "Members"). On June 30, 1998, the Bank completed the above-noted transaction and the Company sold 1,833,646 shares, or 47% of its to be outstanding shares of common stock, in an initial public offering at $10 per share to the Bank's members and the Bank's Employee Stock Ownership Plan ("ESOP"). In addition, the Company issued 2,067,729 shares to Liberty Bancorp, MHC (the "Mutual Holding Company"). Costs of approximately $603,000 incurred in connection with the offering were recorded as a reduction of the proceeds from the offering. 3. NET INCOME PER COMMON SHARE Basic net income per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding, adjusted for the unallocated portion of shares held by the ESOP in accordance with the American Institute of Certified Public Accountants' Statement of Position 93-6. Diluted net income per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of stock options, if dilutive, using the treasury stock method. -6- LIBERTY BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Discussion of Forward-Looking Statements When used or incorporated by reference in disclosure documents, the words "anticipate", "estimate", "expect", "target", "goal" and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These forward-looking statements speak only as of the date of the document. The Company expressly disclaims any obligation or undertaking to publicly release any update or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectation with regard thereto or any change in events, conditions or circumstances on which such statement is based. Comparison of Financial Condition at September 30, 1999 and December 31, 1998 The Company's assets at September 30, 1999 totaled $282.1 million, which represents an increase of $21.7 million or 8.3% as compared with $260.4 million at December 31, 1998. Such increase was largely due to $20.6 million in advances from the Federal Home Loan Bank of New York (FHLB) which were utilized to purchase investment securities and fund loan originations. Cash and cash equivalents decreased by $10.4 million or 75.3% to $3.4 million at September 30, 1999 from $13.8 million at December 31, 1998, as a result of increased loan originations and the purchase of investment securities held to maturity. Securities available for sale at September 30, 1999 decreased by $9.6 million, or 15.3% to $53.1 million from $62.7 million at December 31, 1998. The decrease during the nine months ended September 30, 1999, resulted from principal repayments of $27.5 million which were partially offset by purchases of such securities in the amount of $19.0 million and a decrease in unrealized gain on such securities of $1.1 million. Securities held to maturity increased by $19.5 million during the period. At December 31, 1998 the Company had no securities classified as held to maturity. Net loans increased $19 million or 10.7% to $194.9 million at September 30, 1999 from $177.9 million at December 31, 1998. The increase during the nine months ended September 30, 1999 resulted primarily from loan originations exceeding loan principal repayments. Foreclosed real estate amounting to $106,000 at December 31, 1998, consisting of one property, which was sold during the nine months ended September 30, 1999 for a profit of approximately $8,000. There was no foreclosed real estate of September 30, 1999. Deposits at September 30, 1999 increased $700,000 or 0.3% to $223.9 million when compared with $223.2 million at December 31, 1998. The increase in deposits resulted from interest credited of $7.5 million offset by withdrawals of $6.8 million. Stockholders' equity totaled $31.8 million and $34.4 million at September 30, 1999 and December 31, 1998, respectively. Such decrease was largely due to the repurchase of 275,046 shares of common stock at an average price of $10.24 totaling $2.8 million. -7- LIBERTY BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Operating Results for the Three Months Ended September 30, 1999 and 1998 Net income decreased $47,000 or 11.3% to $370,000 for the three months ended September 30, 1999 compared with $417,000 for the same period in 1998. The decrease in net income during the 1999 period resulted from increases in non-interest expenses that were partially offset by an increase in net interest income and non-interest income. Interest income on loans increased by $193,000 or 5.9% to $3.5 million during the three months ended September 30, 1999 from $3.3 million during the same period in 1998. The increase during the 1999 period resulted from an increase of $24.3 million in the average balances of loans outstanding, partially offset by a decrease of 57 basis points in the yield earned on the loan portfolio. Interest on securities available for sale, consisting of adjustable rate mortgage-backed securities and Collateralized Mortgage Obligations, increased by $130,000 to $829,000 during the three months ended September 30, 1999 from $699,000 for the same period in 1998. The increase during the 1999 period resulted from an increase of 100 basis points in the yield earned offset by a $536,000 decrease in the average balance. Interest income on securities held to maturity, consisting of short-term government agency bonds, was $313,000 on an average balance of $19.4 million with a yield of 6.43%. There were no securities held to maturity during the same period in 1998. Interest income on other interest-earning assets decreased by $161,000 during the three months ended September 30,1999 when compared to same period in 1998. The decrease during the 1999 period resulted from an $11.2 million decrease in the average balance partially offset by a 63 basis point increase in the yield on this portfolio. Interest expense on deposits increased by $38,000 or 1.5% to $2.49 million during the three months ended September 30, 1999 when compared to $2.45 million for the same period in 1998. Such increase during the 1999 period was attributable to $13.8 million or 6.7% increase in average balances of interest bearing deposits outstanding coupled with a decrease of 23 basis points in cost of funds. Interest expense on FHLB advances and capitalized lease obligations during the quarter ended September 30, 1999 amounted to $318,000 on an average balance of $22.1 million with an average cost of 5.75%. There were no such liabilities during the same period in 1998. Net interest income increased $120,000 or 6.85% to $1.87 million during the three months ended September 30, 1999 when compared with $1.75 million for the same period in 1998. Such increase was due to an increase in total interest income of $ 475,000 partially offset by an increase in total interest expense of $355,000. The Bank's net interest rate spread remained static at 2.23% for the three months ended September 30, 1999. Although the yield on interest earning assets decreased by 12 basis points, there was a similar decrease in the cost of interest bearing liabilities. During the three months ended September 30, 1999 and 1998, the Bank provided $15,000 each for provision for loan losses. The allowance for loan losses is based on management's evaluation of the risks inherent in its portfolio given due consideration to changes in general market conditions and the nature and volume of the Bank's loan activity. The Bank intends to continue to provide for loan losses as needed based on its periodic review of the loan portfolio and general market conditions. At September 30, 1999 and 1998, the Bank's non-performing loans, which were delinquent ninety days or more totaled $667,000 or 0.24% of total assets and $763,000 or 0.31% of total assets, respectively; all these loans were on non-accrual status. -8- LIBERTY BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Operating Results for the Three Months Ended September 30, 1999 and 1998 (Cont'd.) Non-interest income increased by $19,000 or 20.4% to $112,000 during the three months ended September 30,1999 when compared to $93,000 during the same period in 1998. The increase during the three months ended September 30, 1999 resulted from increases in fees and service charges on deposits of $3,000, an increase in loan fees and service charges of $9,000, and an increase in miscellaneous income of $7,000. Non-interest expenses increased by $212,000 or 17.8% to $1.4 million during the three months ended September 30, 1999 when compared to the same period in 1998. During 1999 period salaries and employee benefits expense, occupancy expense, equipment, director's fees, advertising, federal insurance premium and miscellaneous expenses increased by $29,000, $24,000, $71,000, $5,000, $35,500, $1,000, and $52,000 respectively. Most of these increases are related to the stock institution and branch expansion of activities. During the same period legal expense decreased by $6,000. Income taxes totaled $195,000 and $221,000 for the three months ended September 30, 1999 and 1998 respectively. Comparison of Operating Results for the Nine Months Ended September 30, 1999 and 1998. Net income decreased by $55,000 or 5.3% to $981,000 for nine months ended September 30,1999 compared with net income of $1,035,000 for the same period in 1998. The decrease in net income during the 1999 period resulted from increases in non-interest expense and decreases in non-interest income offset by increases in net interest income. Interest income on loans increased by $975,000 or 10.8% to $10 million during the nine months ended September 30, 1999 when compared with $9 million during the same 1998 period. The increase during the 1999 period resulted from an increase of $25.6 million in the average balance of loans outstanding which was partially offset by a decrease of 33 basis points in the yield earned on the loan portfolio. Interest on securities available for sale increased $462,000 or 21.8% to $2.6 million during the nine months ended September 30, 1998 when compared with $2.1 million for the same period in 1998. The increase during the 1999 period resulted from an increase of $7.4 million in the average balance of securities available for sale and an increase of 37 basis points in the yield earned. Interest earned on investment securities held to maturity during the nine months ended September 30, 1999 was $611,000 on an average portfolio balance of $12.8 million with a yield of 6.34%. There were no investment securities held to maturity during the 1998 period. Interest earned on other interest-earning assets decreased by $422,000 or 60% to $281,000 during the nine months ended September 30, 1999, when compared with $703,000 for the same period in 1998. The decrease during the 1999 period resulted from a decrease of $10.9 million in the average balance of other interest-earning assets outstanding which offset an increase of 107 basis points in the yield earned on such portfolio. Interest expense on deposits increased $298,000 or 4.14% to $7.5 million during the nine months ended September 30, 1999 when compared to $7.2 million during the same period in 1998. Such increase during the 1999 period was attributable to a decrease of 16 basis points in the cost of interest-bearing deposits offset by an increase of $15.8 million in the average balance of interest-bearing deposits outstanding. Interest on advances and other borrowings amounted to $626,000 during the nine months ended September 30, 1999. During the 1998 period, the Bank had no advances and borrowings outstanding. -9- LIBERTY BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Operating Results for the Nine Months Ended September 30, 1999 and 1998 (Cont'd.) Net interest income increased $702,000 or 15.0% to $5.4 million during the nine months ended September 30, 1999 when compared with $4.7 million during the same 1998 period. Such increase was due to an increase in total interest income of $1.63 million partially offset by an increase in total interest expense of $924,000. The Bank's net interest rate spread remained stable at 2.13%. The interest rate spread was affected by an eight basis point decrease in both the yield on interest earning assets and the cost of interest bearing liabilities. During the nine months ended September 30, 1999 and 1998, the Bank provided $45,000 each as provision for loan losses. Non-interest income during the nine months ended September 30, 1999, decreased by $16,000 or 4.8% to $315,000 when compared to $331,000 for the same 1998 period. The decreases during the 1999 period resulted from increase of fees and service charges on deposits of $12,000, gain on sale of fixed assets of $15,000 and miscellaneous income of $11,000 offset by a decrease in fees and service charges on loans of $54,000. Non-interest expenses increased by $747,000 or 22.4% to $4.1 million during the nine months ended September 30, 1998 when compared with $3.3 million during the same 1998 period. The increases during the 1999 period resulted primarily from the increases in salaries and employee benefits, occupancy expense, equipment, director's fees, legal expenses, advertising, federal insurance premium, and miscellaneous expenses partially offset by decrease in loss from foreclosed real estate. The increase in non-interest operating expenses are related in large part to costs associated with opening a new branch office in June of 1999 and other expenses related to planning three other new offices. Income taxes totaled $572,000 and $579,000 during the nine months ended September 30, 1999 and 1998, respectively. Liquidity and Capital Resources The Bank is required to maintain minimum levels of liquid assets as defined by OTS regulations. The requirement, which the OTS may vary from time to time, depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The required ratio currently is 4.0%. The Bank's liquidity averaged 30.35% during the month of September 1999. The Bank adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Bank also adjusts its liquidity level as appropriate to meet its asset/liability objectives. The Bank's primary sources of funds are deposits, amortization and prepayments of loans and mortgage-backed securities principal, maturities of investment securities and funds provided by operations. While scheduled loan and mortgage-backed securities amortization and maturing term deposits and investment securities are relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition. The levels of these assets are dependent on the Bank's operating, financing, lending and investing activities during any given period. The Bank has other sources of liquidity if a need for additional funds arises, including advances from the FHLB. At September 30, 1999, the Bank had short-term outstanding advances of $20,600,000 from the FHLB. -10- LIBERTY BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources (Cont'd.) The Bank anticipates that it will have sufficient funds available to meet its current loan commitments. At September 30, 1999, the Bank has outstanding commitments to originate loans of $6.3 million. Certificates of deposits scheduled to mature in one year or less at September 30, 1999, totaled $124.4 million. Management believes that, based upon its experience and the Bank's deposit flow history, a significant portion of such deposits will remain with the Bank. Under OTS regulations, each savings institution must maintain tangible capital equal to at least 1.5% of its total adjusted assets, core capital equal to at least 4.0% of its total adjusted assets and total capital equal to at least 8.0% of its risk-weighted assets. The following table sets forth the Bank's capital position at September 30, 1999 as compared to the minimum regulatory capital requirements:
To Be Well Capitalized Under Prompt Minimum Capital Corrective Actual Requirements Actions Provisions -------------------- --------------------- -------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- Total Capital (to risk-weighted assets) $26,842 22.13% $ 9,703 8.00% $12,129 10.00% Tier I Capital (to risk-weighted assets) 26,059 21.48% -- -- 7,277 6.00% Core (Tier 1) Capital (to adjusted total assets) 26,059 9.35% 11,152 4.00% 13,940 5.00% Tangible Capital (to adjusted total assets) 26,059 9.35% 4,182 1.50% -- --
-11- Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000 Like many financial institutions the Bank relies upon computers for the daily conduct of its business and for data processing generally. The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Bank's computer programs that would have date-sensitive software may recognize a date ending "00" as the year 1900 rather than the year 2000. This could result in a systems failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Bank recognized that a comprehensive and coordinated plan of action was needed to ensure complete readiness to perform Year 2000 processing. Year 2000 compliance responsibility has been assigned to initiate and implement the Year 2000 project, policies, document readiness of the Bank to accommodate Year 2000 processing, and to track and test progress towards full compliance. The Bank generally relies on independent third parties to provide data processing service to the Bank, and has been advised by its data processing service center that the issue is being addressed. The Bank is also in the process of ensuring that external vendors and additional services are adequately addressing the system and software issues related to the Year 2000. The Bank has actively participated in a proxy testing process with other users of the data processing service center. This process involved developing, implementing and validating scripts which tested the software of the independent third party vendor. The results of these tests were satisfactory. The Bank continues to actively monitor all external vendors to ensure that they are adequately addressing the system and software issues related to the Year 2000. The Bank has installed and tested vendor provided software updates or replacements for all of its systems including; loan processing and closing, investment accounting, accounts payable, fixed assets and ATM software. The Bank has completed an end-to-end testing process with the Bank's data processing service center. This testing was designed to ensure that the hardware and communications software can properly function in a Year 2000 date environment. The Bank has invested approximately $100,000 in the effort to upgrade its computer systems. The Bank does not anticipate future expenses related to system remediation. Future expenses are expected to be related to testing the business resumption contingency plan (the "Contingency Plan") and should be nominal. The Bank has developed a Contingency Plan that will be utilized in the event of a failure of one or more systems. This plan assigns responsibility, identifies the core business processes, establishes an event timeline and analyzes the risks in each core business process. The Bank has tested the effectiveness of the contingency plan. That plan includes training employees and simulating a disaster. The Bank engaged independent auditors to validate the effectiveness of the contingent procedures. Thrift Rechartering Legislation Proposed legislation regarding elimination of the thrift charter and related issues remains pending before Congress. The Bank, whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), and the Company, are unable to predict whether such legislation would be enacted, the extent to which the legislation would restrict or disrupt its operations or whether the Bank Insurance Fund or SAIF funds will eventually merge. Supervisory Examination The Bank's financial statements are periodically examined by the OTS and the Federal Deposit Insurance Corporation ("FDIC") as part of their regulatory oversight of the thrift industry. As a result of these examinations, the regulators can direct that the Bank make adjustments to its financial statements based on their findings. -12- LIBERTY BANCORP, INC. AND SUBSIDIARIES QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK General As with other savings institutions, the Bank's most significant form of market risk is interest rate risk. The Bank's assets, consisting primarily of mortgage loans, have longer maturities than its liabilities, consisting primarily of deposits. As a result, a principal part of the Bank's business strategy is to manage interest rate risk and manage the exposure of the Bank's net interest income to changes in market interest rates. Accordingly, the Board of Directors has established an Asset/Liability Management Committee which is responsible for evaluating the interest rate risk inherent in the Bank's assets and liabilities, determining the level of risk that is appropriate given the Bank's business strategy, operating environment, capital, liquidity and performance objectives, and managing this risk consistent with the guidelines approved by the Board of Directors. The Asset/Liability Management Committee consists of senior management operating under a policy adopted by the Board of Directors and meets at least quarterly to review the Bank's asset/liability polices and interest rate risk position. The Bank has pursued the following strategies to manage interest rate risk: (1) originating one-to-four family adjustable rate mortgage loans, (2) purchasing adjustable rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or GNMA, (3) increasing adjustable rate home equity lending and fixed-rate home equity lending with maturities of five years or less, and (4) investing in shorter-term securities which generally have lower yields compared to longer term investments, but which better position the Bank to reinvest its assets if market interest rates increase. The Bank's current investment strategy is to maintain a securities portfolio that provides a source of liquidity and that contributes to the Bank's overall profitability and asset mix within given quality and maturity considerations. The securities portfolio consists primarily of U.S. Treasury, Federal Government and government sponsored corporation securities. Much of the Bank's investment securities and mortgage-backed securities are classified as available for sale to provide management with the flexibility to make adjustments to the portfolio in the event of changes in interest rates, to fulfill unanticipated liquidity needs, or to take advantage of alternative investment opportunities. At September 30, 1999, the Bank had adjustable mortgage loans of $73.9 million, or 37.5% of total loans and $40.7 million or 92.9% of securities available for sale in adjustable rate mortgage-backed securities. Net Portfolio Value The Bank's interest rate sensitivity is monitored by management through the use of the OTS model which estimates the change in the Bank's net portfolio value (NPV") over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The OTS produces its analysis based upon data submitted on the Bank's quarterly Thrift Financial Reports. -13- LIBERTY BANCORP, INC. AND SUBSIDIARIES QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKED RISK Net Portfolio Value (Cont'd.) The following table presents the Bank's NPV at June 30, 1999, the latest information available, as calculated by the OTS, which is based upon quarterly information that the Bank provided voluntarily to the OTS. In the opinion of management, there have been no material changes to the Bank's NPV since June 30, 1999. Percentage Change in Net Portfolio Value ------------------------------------------------------------------- Changes Board in Market Projected Policy Estimated Amount of Interest Rates Change Guidelines NPV Change -------------- --------- ---------- --------- --------- (basis points) (Dollars in Thousands) 300 (67.00)% (50.0)% 9,205 (18,811) 200 (43.00)% (38.0)% 15,975 (12,041) 100 (20.00)% (19.0)% 22,470 (5,546) -- -- -- 28,016 -- (100) 14.00 % 15.0 % 32,057 4,041 (200) 25.00 % 25.0 % 34,963 6,947 (300) 33.00 % 50.0 % 37,363 9,347 Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in NPV requires making certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV table presented assumes that the composition of the Bank's interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the NPV table provides an indication of the Bank's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Bank's net interest income, and will differ from actual results. Additionally, the guidelines established by the Board of Directors is to limit projected NPV changes within the Board's guidelines, the Bank will not necessarily limit projected changes in NPV if the required action would present disproportionate risk to the Bank's continued profitability. -14- LIBERTY BANCORP, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts which in the aggregate are believed by management to be immaterial to the financial condition or operations of the Company. ITEM 2. Changes in Securities Not applicable. ITEM 3. Defaults Upon Senior Securities Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable ITEM 5. Other Information On July 21, 1999 the Company declared a quarterly cash dividend of $0.02 per share, paid on August 18, 1999, to stockholders of record on August 4, 1999. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: 16. Computation of earnings per common share. 27. EDGAR Financial Data Schedule (b) Reports on Form 8-K: None -15- 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: November 8, 1999 By /s/ John R. Bowen ----------------------------- ------------------------------------- John R. Bowen President and Chief Executive Officer Date: November 8, 1999 By: /s/ Michael J. Widmer ----------------------------- ------------------------------------- Michael J. Widmer Executive Vice President and Chief Financial Officer -16- EX-16 2 COMPUTATION OF EARNINGS Exhibit 1 LIBERTY BANCORP, INC. COMPUTATION OF EARNINGS PER SHARE
Nine Months Three Months Ended Ended September 30, 1999 September 30, 1999 ------------------ ------------------ Net income $ 980,578 $ 369,825 ---------- ---------- Weighted average common shares outstanding 3,669,225 3,626,329 Common stock equivalents due to dilution effect of stock options None None ---------- ---------- Total weighted average common shares and equivalents outstanding 3,669,225 3,626,329 ---------- ---------- Basic earnings per common share $ 0.27 $ 0.10 ========== ========== Diluted earnings per common share $ 0.27 $ 0.10 ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1999 SEP-30-1999 1,283 2,085 0 0 53,168 19,454 0 196,902 783 282,173 223,937 20,600 5,750 0 0 0 3,901 27,985 282,173 10,024 3,187 280 13,491 7,503 8,129 5,362 45 0 4,088 1,552 1,552 0 0 981 .27 .27 6.76 667 0 0 0 768 0 0 783 649 0 134
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