Liberty Bancorp 10Q 2008 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

__	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

___________________

____________________

Commission File Number: 000-51992

LIBERTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Missouri		20-4447023
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

16 West Franklin Street, Liberty, Missouri		64068
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (816) 781-4822

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark 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. Yes X . No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ___ Accelerated filer ____ Non-accelerated filer (Do not check if a smaller reporting company.) ___ Smaller reporting company _X .

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ . No X .

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding August 14, 2008
Common Stock, par value $0.01 per share		3,944,876

LIBERTY BANCORP, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2008

INDEX

	PAGE NO.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	1

Consolidated Balance Sheets at June 30, 2008
and September 30, 2007 (unaudited)	1

Consolidated Statements of Earnings for the three and nine months
ended June 30, 2008 and 2007 (unaudited)	2

Consolidated Statements of Comprehensive Earnings for the three
and nine months ended June 30, 2008 and 2007 (unaudited)	3

Consolidated Statements of Cash Flows for the nine months ended
June 30, 2008 and 2007 (unaudited)	4

Notes to Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations	11

Item 3. Quantitative and Qualitative Disclosures about Market Risk	23

Item 4 (T). Controls and Procedures	23

PART II – OTHER INFORMATION	24

Item 1. Legal Proceedings	24

Item 1A. Risk Factors	24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3. Defaults Upon Senior Securities	25

Item 4. Submission of Matters to a Vote of Security Holders	25

Item 5. Other Information	25

Item 6. Exhibits	25

Signatures	26

Certifications	27

LIBERTY BANCORP, INC.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

(Unaudited)

	June 30,			September 30,
Assets	2008			2007
Cash and due from banks	$	4,709,651			6,502,289
Federal funds sold		4,881,000			2,540,000
Total cash and cash equivalents		9,590,651			9,042,289
Securities available for sale- taxable, at market value (amortized cost
of $24,320,237 and $34,950,041, respectively)		24,833,740			35,241,932
Securities available for sale - non-taxable, at market value (amortized
cost of $11,721,838 and $12,839,161, respectively)		11,707,409			12,740,587
Mortgage-backed securities - available for sale, at market value
(amortized cost of $15,083,033 and $19,620,825, respectively)		15,046,213			19,276,996
Stock in Federal Home Loan Bank of Des Moines		3,533,300			1,531,200
Loans receivable, net of allowance for loan losses
of $3,069,577 and $3,010,904, respectively		251,428,547			232,307,925
Loans held for sale		1,825,771			719,086
Premises and equipment, net		9,815,386			8,744,846
Bank-owned life insurance (BOLI)		8,428,403			8,101,192
Foreclosed real estate, net		2,668,698			1,675,871
Accrued interest receivable		1,808,990			2,055,814
Other assets		2,087,013			1,748,249
Total assets	$	342,774,121			333,185,987

Liabilities and Stockholders' Equity
Deposits	$	225,810,664			252,305,482
Accrued interest payable		305,072			601,285
Advances from FHLB		70,265,872			26,430,394
Securities sold under agreement to repurchase		1,205,144			1,221,184
Advances from borrowers for taxes and insurance		605,004			905,606
Other liabilities		1,027,108			1,439,195
Accrued income taxes		-			88,308
Total liabilities		299,218,864			282,991,454
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; shares issued and outstanding - none		-			-
Common stock, $0.01 par value; 20,000,000 shares authorized;
4,761,712 and 4,761,187 shares issued at June 30, 2008 and
September 30, 2007, respectively		47,617			47,612
Treasury stock, at cost, 809,336 shares at June 30, 2008		(8,498,110	)		-
Additional paid-in capital		32,234,310			31,923,289
Common stock acquired by ESOP		(531,302	)		(701,309	)
Accumulated other comprehensive earnings (loss), net		363,631			(12,619	)
Retained earnings - substantially restricted		19,939,111			18,937,560
Total stockholders' equity		43,555,257			50,194,533
Total liabilities and stockholders' equity	$	342,774,121			333,185,987

See accompanying notes to consolidated financial statements.

LIBERTY BANCORP, INC.

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Interest income:
Loans receivable	$	4,287,809		4,401,544		13,231,211		12,590,319
Mortgage-backed securities		166,731		228,017		550,423		719,685
Securities - taxable		339,555		447,515		1,169,574		1,253,177
Securities - non-taxable		132,275		80,116		403,763		220,980
Other interest-earning assets		21,930		86,461		127,108		245,780
Total interest income		4,948,300		5,243,653		15,482,079		15,029,941
Interest expense:
Deposits		1,503,786		2,315,102		5,901,424		6,411,426
Securities sold under agreement to repurchase		12,778		20,661		48,147		59,337
Advances from FHLB		506,935		356,878		1,498,554		990,313
Total interest expense		2,023,499		2,692,641		7,448,125		7,461,076
Net interest income		2,924,801		2,551,012		8,033,954		7,568,865
Provision for loan losses		1,173,000		267,105		1,623,175		465,307
Net interest income after
provision for loan losses		1,751,801		2,283,907		6,410,779		7,103,558
Noninterest income:
Loan service charges		13,236		20,450		53,282		70,173
Gain on sale of loans		105,238		73,875		239,674		180,440
Gain on sale of securities available for sale		-		-		45,597		-
Change in cash surrender value of BOLI		109,533		3,984		327,211		3,984
Deposit account and other service charges		312,154		264,918		865,268		748,689
Total noninterest income		540,161		363,227		1,531,032		1,003,286
Noninterest expense:
Compensation and benefits		1,008,015		1,147,174		3,340,846		3,319,374
Occupancy expense		163,555		145,724		496,799		466,488
Equipment and data processing expense		227,965		195,464		701,647		595,508
Operations from foreclosed real estate, net		20,282		106,292		173,717		275,932
FDIC premium expense		37,240		6,842		91,795		19,684
Professional and regulatory services		97,685		99,791		295,526		322,954
Advertising		48,813		66,358		180,309		218,035
Correspondent banking charges		70,409		65,183		202,824		192,139
Supplies		30,126		30,955		96,292		97,766
Other		182,083		169,353		593,834		546,884
Total noninterest expense		1,886,173		2,033,136		6,173,589		6,054,764
Earnings before income taxes		405,789		613,998		1,768,222		2,052,080
Income taxes		82,000		208,000		460,000		713,000
Net earnings	$	323,789		405,998		1,308,222		1,339,080
Basic and diluted earnings per share	$	0.09		0.09		0.32		0.29
Dividends per share	$	0.025		0.025		0.075		0.075

See accompanying notes to consolidated financial statements.

LIBERTY BANCORP, INC.

Statements of Comprehensive Earnings

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2008			2007			2008			2007

Net earnings	$	323,789			405,998			1,308,222			1,339,080
Other comprehensive earnings:
Reclassification adjustment for gain included in earnings, net of tax		-			-			(28,726	)		-
Unrealized gains (losses) arising during the period, net of tax		(499,085	)		(313,301	)		414,769			1,248
Amortization of unrecognized gain, net - SFAS No. 158		(3,264	)		-			(9,793	)		-
Comprehensive earnings (loss)	$	(178,560	)		92,697			1,684,472			1,340,328

See accompanying notes to consolidated financial statements.

LIBERTY BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	June 30,
	2008			2007
Cash flows from operating activities:
Net earnings	$	1,308,222			1,339,080
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation expense		430,331			343,051
ESOP expense		229,637			249,880
Stock option and incentive plan expense		246,060			147,318
Amortization of premiums (discounts) on investments, net		(20,531	)		(67,956	)
Amortization of deferred loan fees, net		(241,240	)		(229,213	)
Provision for loan losses		1,623,175			465,307
Loans held for sale - originated		(19,205,729	)		(15,557,751	)
Loans held for sale - proceeds from sale		18,338,718			14,797,188
Loss on foreclosed real estate, net		135,820			226,329
Gain on sale of securities available for sale		(45,597	)		-
Gain on sale of loans		(239,674	)		(180,440	)
Increase in cash surrender value of bank-owned life insurance		(327,211	)		(3,984	)
Decrease (increase) in:
Accrued interest receivable		246,824			(428,522	)
Other assets		(565,489	)		(138,296	)
Increase (decrease) in:
Accrued interest on deposits and other liabilities		(718,093	)		207,806
Accrued income taxes		(88,308	)		(160,727	)
Net cash provided by (used for) operating activities		1,106,915			1,009,070
Cash flows from investing activities:
Net change in loans receivable		(24,281,084	)		(32,103,953	)
Mortgage-backed securities:
Available for sale - principal collections		4,530,450			3,811,123
Securities available for sale:
Principal collections		41,180			-
Purchased		(448,061	)		(16,051,584	)
Proceeds from sales		7,292,478			-
Proceeds from maturity or call		4,935,000			4,350,000
Proceeds from foreclosed real estate, net		2,649,880			1,641,392
Purchase of stock in FHLB of Des Moines		(2,385,071	)		(1,300,100	)
Redemption of stock in FHLB of Des Moines		382,971			1,497,900
Purchase of premises and equipment		(1,500,869	)		(1,536,693	)
Purchase of bank-owned life insurance policy		-			(3,000,000	)
Net cash provided by (used for) investing activities	$	(8,783,126	)		(42,691,915	)

LIBERTY BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Continued)

	Nine Months Ended
	June 30,
	2008			2007

Cash flows from financing activities:
Net increase (decrease) in deposits	$	(26,494,818	)		44,674,074
Increase (decrease) in advances from
borrowers for taxes and insurance		(300,602	)		(222,849	)
Proceeds from advances from the FHLB		824,350,000			186,900,000
Repayment of advances from the FHLB		(780,514,522	)		(189,500,008	)
Securities sold under agreement to repurchase:
Proceeds		7,274,400			43,408,840
Repayments		(7,290,440	)		(44,087,538	)
Proceeds from exercise of stock options		4,347			8,695
Repurchase of common stock		(8,498,110	)		(1,399,608	)
Other contributed capital		989			-
Cash dividends		(306,671	)		(347,862	)
Net cash provided by (used for)
financing activities		8,224,573			39,433,744
Net increase (decrease) in cash and cash equivalents		548,362			(2,249,101	)
Cash and cash equivalents at beginning of period		9,042,289			13,403,701
Cash and cash equivalents at end of period	$	9,590,651			11,154,600


Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest on deposits	$	6,197,522			6,277,461
Interest on securities sold under agreement to repurchase		48,242			59,416
Interest on advances from FHLB of Des Moines		1,466,355			971,463
Income taxes		816,126			1,010,420
Real estate acquired in settlement of loans		3,778,527			4,044,067
Loans originated to finance the sale of foreclosed real estate		-			2,374,710

See accompanying notes to consolidated financial statements.

LIBERTY BANCORP, INC.

Notes to Consolidated Financial Statements

(1)	Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Such adjustments were of a normal recurring nature. The results of operations for the three-month and nine-month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the entire year or any other interim period. For additional information, refer to the consolidated financial statements and footnotes thereto of the Company for the year ended September 30, 2007 contained in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission on December 28, 2007.

In preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses and the fair values of financial instruments.

(2)	Organization

Liberty Bancorp, Inc. (the “Company” or “Liberty Bancorp”) a Missouri corporation, was formed on February 14, 2006 and became the holding company for BankLiberty (formerly Liberty Savings Bank, F.S.B., and referred to herein as the “Bank”) upon completion of the Bank’s conversion (the “Conversion”) from a mutual holding company form to a stock holding company structure on July 21, 2006. A total of 2,807,383 shares of common stock were sold in the stock offering at the price of $10.00 per share. In addition, a total of approximately 1,952,754 shares of common stock were issued to the minority shareholders of the former Liberty Savings Bank, F.S.B. representing an exchange ratio of 3.5004 shares of Company common stock for each share of Liberty Savings Bank, F.S.B. common stock. Fractional shares in the aggregate, or 36 shares, were redeemed for cash. Total shares outstanding after the stock offering and the exchange totaled 4,760,137 shares. Net proceeds of $25.6 million were raised in the stock offering, excluding $1.2 million which was loaned by the Company to a trust for the Bank’s Employee Stock Ownership Plan (the “ESOP”), enabling it to finance the purchase of 153,263 shares of common stock in the offering and exchange. Direct offering costs totaled approximately $1.3 million. In addition, as part of the second-step conversion and dissolution of Liberty Savings Mutual Holding Company, the Bank received $694,000 previously held by this entity.

LIBERTY BANCORP, INC.

Notes to Consolidated Financial Statements

(3)	Earnings Per Share

Following is a summary of basic and diluted earnings per common share for the Company for the three and nine months ended June 30, 2008 and 2007:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Net earnings	$	323,789		405,998		1,308,222		1,339,080


Weighted-average shares - Basic EPS		3,777,356		4,587,316		4,072,269		4,609,333
Stock options - treasury stock method		34,040		46,967		39,179		47,929
Weighted-average shares - Diluted EPS		3,811,396		4,634,283		4,111,448		4,657,262
Basic and diluted earnings per common share	$	0.09		0.09		0.32		0.29
Anti-dilutive shares		104,267		90,753		88,958		35,955

(4)	Retirement Benefits

The components of the net periodic cost for postretirement medical benefits are summarized as follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2008			2007			2008			2007

Service cost	$	1,670			1,671			5,011			5,013
Interest cost		3,678			4,576			11,033			13,728
Amortization of transition obligation		3,136			3,134			9,406			9,402
Amortization of prior service cost		(2,415	)		(2,416	)		(7,246	)		(7,248	)
Amortization of actuarial gain		(5,343	)		(3,050	)		(16,027	)		(9,150	)
Over (under) accrual		-			(15	)		-			(45	)
Net periodic cost	$	726			3,900			2,177			11,700

Directors’ retirement plan expense was $16,048 and $19,800 for the nine months ended June 30, 2008 and 2007, respectively. The expense consisted primarily of interest cost.

(5)	Stock Options

As authorized by the Company’s 2003 Incentive Equity and Deferred Compensation Plan (the “2003 Plan”), the Board of Directors granted 78,760 options to non-employee directors and 96,260 options to certain officers and employees during fiscal 2004. The Plan authorizes the award of up to 258,064 shares of common stock, subject to restrictions, to be issued to directors, officers and employees of the Bank. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock and unrestricted stock. Options expire ten years from the date of the grant. Stock options to directors were fully vested on the grant date of June 16, 2004. Options granted to the Bank’s CEO are vested over three years and three months and options granted to certain other officers and employees are vested over a five-year period. On January 27, 2005 the Board of Directors granted an additional 38,504 options to certain officers and employees. Options granted to the CEO are vested over a period of three years and eight months and options granted to certain officers and employees are vested over a five-year period. On November 23, 2005 the Board of Directors granted an additional 42,440 options to directors and officers. Options granted to the board, CEO, and certain officers, were vested over a ten-month period.

LIBERTY BANCORP, INC.

Notes to Consolidated Financial Statements

In connection with the completion of the Conversion in July 2006, the Company assumed the 2003 Plan and all outstanding options and shares were adjusted based upon the 3.5004 exchange ratio. The exercise prices were adjusted to reflect the proportional change in values that resulted from the exchange.

As authorized by the Liberty Bancorp, Inc. 2007 Equity Incentive Plan (the “2007 Plan”), the Board of Directors granted 25,150 options to non-employee directors and 65,500 options to certain officers and employees on February 27, 2007. The 2007 Plan authorizes the award of up to 100,691 options to purchase shares of common stock, subject to restrictions, to directors, officers and employees of the Bank. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock and unrestricted stock. Options expire ten years from the date of the grant. All 90,650 options granted are vested over a five-year period.

On October 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” using the modified prospective method. Under this method compensation expense is recognized based on the fair value of unvested stock awards at October 1, 2006 or, for new awards granted thereafter, which includes restricted stock and stock options, at the grant date and is recognized on a straight-line basis over the requisite service period.

The Company has estimated the fair value of awards granted during the nine months ended June 30, 2007 under its stock option plan utilizing the Black-Scholes pricing model to be $3.00. There were no awards granted during the three months ended June 30, 2008 and 2007 or the nine months ended June 30, 2008. The assumptions used in the Black-Scholes pricing model and fair value of awards were as follows:

	Nine Months Ended
	June 30,
	2008		2007
Expected dividend yield		-		2.00	%
Risk-free interest rate		-		4.53	%
Expected life of options		-	7.50 years
Expected volatility		-		21.70	%
Fair value of awards	$	-	$	3.00

Stock option compensation expense is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2008		2007		2008		2007

Pretax	$	18,906		21,107	$	61,120		46,446

After tax		17,979		13,509		58,339		29,726

Basic and diluted earnings per share	$	0.00		0.00	$	0.01		0.01

At June 30, 2008, the total unrecognized compensation expense related to nonvested stock options was approximately $158,000 and is expected to be recognized over the weighted-average period of 2.85 years.

LIBERTY BANCORP, INC.

Notes to Consolidated Financial Statements

A summary of the Company’s stock option activity under the Plan for the nine months ended June 30, 2008 is as follows:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
	Number			Exercise		Term in		Intrinsic
	of Shares			Price		Years		Value
Outstanding at October 1, 2007		323,063		$	8.40		7.75	$	797,568
Granted		-			-		-		-
Exercised		(525	)		8.28		-		-
Expired		-			-		-		-
Forfeited		(1,050	)		-		-		-
Outstanding at June 30, 2008		321,488			8.40		6.97		398,766
Exercisable at June 30, 2008		222,160			7.53		6.50		368,805
Vested and expected to vest at
June 30, 2008		222,160		$	7.53		6.50	$	368,805

A summary of the total value of options exercised, the amount of cash received from the exercise of stock options, and the total fair value of shares vested is as follows for the periods indicated:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2008		2007		2008		2007

Intrinsic value of options exercised	$	-		-		1,076		2,909

Cash received from the exercise of options		-		-		4,347		8,695

Fair value of shares vested		64,306		72,685		291,875		119,109

Restricted Stock Awards

On February 27, 2007, as authorized by the 2007 Plan, the Board of Directors granted 31,400 restricted stock awards to non-employee directors and 78,000 awards to certain officers and employees. The Plan authorized the award of up to 125,649 shares of common stock, which were repurchased by a trust to fund the restricted stock awards. All awards are vested over a five-year period. A summary of the Company’s restricted stock compensation expense is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2008		2007		2008		2007

Restricted Compensation Expense	$	61,647		66,325		184,941		100,872

At June 30, 2008, the total unrecognized expense was $904,000 and is expected to be recognized in 3.66 years.

LIBERTY BANCORP, INC.

Notes to Consolidated Financial Statements

A summary of the Company’s nonvested stock award activity for the nine months ended June 30, 2008 is as follows:

	Number			Weighted-
	of			Average
	Nonvested			Grant Date
	Shares			Fair Value
Nonvested at October 1, 2007		109,400		$	11.27
Granted		-			-
Vested		(21,880	)		11.27
Forfeited		-			-
Nonvested at June 30, 2008		87,520		$	11.27

(6)	Securities

Securities having a continuous unrealized loss position at June 30, 2008 are summarized as follows:

	Less than 12 Months					12 Months or Longer					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Available for sale- debt securities:
State and municipal obligations	$	980,010		(18,189	)		3,452,278		(52,188	)		4,432,288		(70,377	)
Available for sale- equity securities		499,689		(7,073	)		37,260		(427	)		536,949		(7,500	)
	$	1,479,699		(25,262	)		3,489,538		(52,615	)		4,969,237		(77,877	)

Mortgage-backed securities having a continuous unrealized loss position at June 30, 2008 are summarized as follows:

	Less than 12 Months				12 Months or Longer					Total
	Market		Unrealized		Market		Unrealized			Market		Unrealized
	Value		Loss		Value		Loss			Value		Loss
Available for sale:
FHLMC	$	-		-		4,520,781		(21,028	)		4,520,781		(21,028	)
FNMA		-		-		3,938,479		(51,054	)		3,938,479		(51,054	)
FNMA - CMO		-		-		120,774		(8,201	)		120,774		(8,201	)
GNMA - CMO		-		-		253,773		(1,588	)		253,773		(1,588	)
	$	-		-		8,833,807		(81,871	)		8,833,807		(81,871	)

Unrealized losses are related to changes in market interest rates and not the credit quality of the issuers.

(7)	Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), effective October 1, 2007. No adjustment was recognized for uncertain tax positions. The Company is subject to U.S. Federal income taxes, as well as State of Missouri income taxes. Tax years ending September 30, 2005 through September 30, 2007 remain open to examination by these jurisdictions. The Company recognizes interest and penalties related to tax positions in income tax expense. At June 30, 2008, there was no accrual for uncertain tax positions or related interest.

LIBERTY BANCORP, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the Company’s financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Financial Statements and footnotes appearing in Part I, Item 1 of this report.

Pending Acquisition

On March 31, 2008 Liberty Bancorp, Inc. entered into an Amended and Restated Acquisition Agreement and Plan of Merger to acquire KLT Bancshares, Inc. and its wholly owned subsidiary Farley State Bank, a Missouri bank for a cash purchase price. At March 31, 2008 Farley State Bank had assets of $39.5 million, liabilities of $36.2 million and capital of $3.3 million. A regulatory application was filed with the Office of Thrift Supervision (the “OTS”) on April 4, 2008 seeking approval of the proposed acquisition. On August 7, 2008 the Company received approval for this acquisition subject to certain conditions. It is currently expected that the transaction will close in the fourth calendar quarter of 2008.

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Liberty Bancorp and the Bank. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.

Liberty Bancorp and the Bank’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of Liberty Bancorp and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in Liberty Bancorp and the Bank’s market area, changes in real estate market values in the Bank’s market area, changes in relevant accounting principles and guidelines and inability of third party service providers to perform.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Liberty Bancorp does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

The Bank is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area. We attract deposits from the general public and use these funds to originate loans secured by real estate located in our market area. Our real estate loans include construction loans, commercial real estate loans and loans secured by single-family or multi-family properties. To a lesser extent, we originate consumer loans and commercial business loans. At June 30, 2008, we operated out of our main office in Liberty, Missouri and six additional retail banking facilities in the Kansas City metropolitan area. The Federal Deposit Insurance Corporation insures the Bank’s savings accounts up to the applicable legal limits. The Bank is a member of the Federal Home Loan Bank System.

LIBERTY BANCORP, INC.

Critical Accounting Policies

The accounting and reporting policies were prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and general practices accepted within the financial services industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management has identified the accounting policies described below as those that, due to the judgements, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements and management’s discussion and analysis.

Income Recognition

We recognize interest income by methods conforming to US GAAP that include general accounting practices within the financial services industry. Interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding, including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities.

In the event management believes collection of all or a portion of contractual interest on a loan has become doubtful, which generally occurs after the loan is 90 days past due, the accrual of interest is discontinued. In addition, previously accrued interest deemed uncollectible that was recognized in income is reversed. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured. A nonaccrual loan is restored to accrual status when it is brought current or has performed in accordance with contractual terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer doubtful.

Allowance for Loan Losses

Valuation allowances are established for impaired loans for the difference between the loan amount and the fair value of collateral less estimated selling costs. We consider a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement on a timely basis. The types of loans for which impairment is measured include nonaccrual income property loans (excluding those loans included in the homogenous portfolio which are collectively reviewed for impairment), large nonaccrual single-family loans and troubled debt restructurings. Such loans are generally placed on nonaccrual status at the point deemed uncollectible. Impairment losses are recognized through an increase in the allowance for loan losses. See also “Asset Quality.”

Allowances for loan losses are available to absorb losses incurred on loans and represent additions charged to expense, less net charge-offs. The allowances are evaluated on a regular basis by management and are based on management’s periodic review of the collectibility of loans, in light of historical experience, fair value of the underlying collateral, changes in the types and mix of loans originated and prevailing economic conditions.

Qualitative Disclosures of Market Risk

Our principal financial objective is to achieve long-term profitability while reducing our exposure to fluctuating interest rates. We have an exposure to interest rate risk. We have employed various strategies intended to minimize the adverse effect of interest rate risk on future operations by providing a better match between the interest rate sensitivity of our assets and liabilities.

In particular, our strategies are intended to stabilize net interest income for the long-term by protecting our interest rate spread against increases in interest rates. Such strategies include originating for portfolio adjustable-rate and short-term loans with greater interest rate sensitivities than long-term, fixed-rate residential mortgage loans. We sell fixed-rate mortgage loans in the secondary market.

LIBERTY BANCORP, INC.

Liquidity and Capital Resources

Our principal sources of funds are cash receipts from deposits, loan repayments by borrowers, proceeds from maturing securities, advances from the Federal Home Loan Bank (“FHLB”) and net earnings. We have an agreement with the FHLB of Des Moines to provide cash advances, should we need additional funds for loan originations or other purposes.

Commitments to originate loans are legally binding agreements to lend to our customers. Letters of credit are conditional commitments issued by us to guarantee the performance of the borrower to a third party. The following table sets forth information regarding off-balance sheet financial instruments as of June 30, 2008:

	Fixed-Rate		Adjustable-Rate
Off-balance sheet financial instruments:
Commitments to originate loans	$	8,010,376		6,961,100

Commitments for unused lines of credit	$	358,802		10,855,649

Commitments for undisbursed loans	$	6,950,806		13,753,488

Commitments for letters of credit	$	372,736		-

Financial Condition

Total assets increased from $333.2 million at September 30, 2007 to $342.8 million at June 30, 2008. Cash and cash equivalents increased $548,000 from September 30, 2007 to June 30, 2008. Securities available for sale decreased from $48.0 million at September 30, 2007 to $36.5 million at June 30, 2008 due to sales, maturities and calls of securities, partially offset by the purchase of two securities. Mortgage-backed securities available for sale decreased from $19.3 million at September 30, 2007 to $15.0 million at June 30, 2008 due to principal repayments and maturities. Stock in the Federal Home Loan Bank of Des Moines increased by $2.0 million due to stock purchase requirements as a result of a higher level of advances. Loans receivable increased by $19.1 million to $251.4 million at June 30, 2008 primarily due to increased activity in commercial real estate lending, partially offset primarily by a decrease in construction and development lending. Premises and equipment, net increased $1.1 million to $9.8 million at June 30, 2008 due to the purchase of land and expenditures relating to the construction of two new branches. The cash surrender value of bank-owned life insurance increased by $327,000 to $8.4 million as of June 30, 2008 as compared to $8.1 million as of September 30, 2007. Foreclosed real estate, net at June 30, 2008 totaled $2.7 million, an increase of $993,000 from $1.7 million at September 30, 2007. Foreclosed real estate, net consists of three single-family lots, ten spec construction properties, two single family homes and one residential development property. Other assets increased due to direct acquisition costs related to the pending acquisition of KLT Bancshares, Inc. and an increase in certain prepaid items.

Total liabilities increased $16.2 million to $299.2 million at June 30, 2008 compared to $283.0 million at September 30, 2007. Deposits decreased from $252.3 million at September 30, 2007 to $225.8 million at June 30, 2008 primarily due to a decrease in short-term certificate accounts, money market accounts and brokered certificates, partially offset primarily by an increase in noninterest and interest-bearing checking accounts and long-term certificates. Other liabilities decreased due primarily to a lower level of accrued payroll expense and accrued real estate taxes, both attributable to the timing of payments. Advances from the FHLB increased by $43.8 million to $70.3 million at June 30, 2008. Additional FHLB advances were used as a lower cost of funding source. Advances from borrowers for taxes and insurance decreased by $301,000 due to calendar year-end payment of real estate taxes on behalf of borrowers. Accrued interest payable decreased due primarily to a lower balance and weighted-average rate of deposits. Accrued income taxes decreased due to the timing of tax payments.

Stockholders’ equity decreased by $6.6 million from $50.2 million at September 30, 2007 to $43.6 million at June 30, 2008 due to the repurchase of common stock totalling $8.5 million and the payment of cash dividends, partially offset by net earnings of $1.3 million for the nine months ended June 30, 2008, amortization of ESOP and stock-based incentive awards and unrealized gains, net of taxes, on investments. During the nine months ended June 30, 2008 and 2007, the Company paid cash dividends of $306,671 and $347,862, respectively.

LIBERTY BANCORP, INC.

The Bank is required to maintain certain minimum capital requirements under OTS regulations. Failure by a savings institution to meet minimum capital requirements can result in certain mandatory and possible discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Bank's financial statements. Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to judgments by the regulators about components, risk-weightings and other factors.

The Bank's actual and required capital amounts and ratios at June 30, 2008 were as follows:

							Minimum Required
							for Capital					to be "Well
	Actual						Adequacy					Capitalized"
	Amount			Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
Stockholders' equity	$	38,141
Computer software costs		(136	)
Unrecognized gain, net - SFAS No. 158		(72	)
Unrealized gain on securities AFS, net		(296	)
Tangible capital	$	37,637			11.1	%	$	5,082		1.5	%
General valuation allowance		3,070

Total capital to risk-weighted assets	$	40,707			14.5	%	$	22,435		8.0	%	$	28,044		10.0	%

Tier 1 capital to risk-weighted assets	$	37,637			13.4	%	$	11,218		4.0	%	$	16,827		6.0	%

Tier 1 capital to total assets	$	37,637			11.1	%	$	13,551		4.0	%	$	16,939		5.0	%

LIBERTY BANCORP, INC.

Asset Quality

The following table sets forth information with respect to the Bank's impaired loans at the dates indicated:

	June 30,		September 30,
	2008		2007

Nonaccrual loans	$	3,434,408		3,422,257
Accruing loans past due 90 days or more		77,816		-
Total impaired loans	$	3,512,224		3,422,257

Allowance for losses on impaired loans	$	406,558		370,116

Impaired loans with no allowance for loan losses	$	124,681		-

On occasion, the Bank originates single-family loans with high loan to value ratios exceeding 90 percent. At June 30, 2008, these loans amounted to $6.9 million.

At June 30, 2008, all loans where known information about possible credit problems of borrowers which caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms have been disclosed as nonaccrual, 90 days past due, or restructured.

Under our internal review policy, loans classified as substandard increased from $3.8 million at September 30, 2007 to $6.4 million at June 30, 2008. Substandard loans were secured by eleven spec construction properties, six single family homes, one residential development and one commercial building. Special mention loans at June 30, 2008 totaled $3.3 million as compared to $1.4 million at September 30, 2007. Loans classified as special mention at June 30, 2008 were secured by fifteen spec construction properties and two 1-4 family rental properties. All special mention loans were to one borrower.

Following is a summary of activity in the allowance for loan losses:

	Nine Months Ended
	June 30,
	2008			2007
Balance at beginning of period	$	3,010,904		$	2,144,121
Charge-offs		(1,582,408	)		(48,442	)
Recoveries		17,906			22,080
Provision charged to expense		1,623,175			465,307
Balance at end of period	$	3,069,577		$	2,583,066

Results of Operations Overview

Our primary source of earnings before income taxes is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and securities, and interest expense, which is the interest that we pay on our deposits and borrowings. Other significant sources of earnings before income taxes are service charges on deposit accounts.

LIBERTY BANCORP, INC.

Results of Operations for the Three Months Ended June 30, 2008 and 2007

Selected Financial Data

	Three Months Ended
	June 30,
	2008			2007			% Change
Net earnings	$	323,789			405,998			(20.2	) %
Return on assets		0.38	%		0.52	%		(26.9	)
Return on average stockholders' equity		2.95	%		3.31	%		(10.9	)
Stockholders' equity-to-assets ratio		12.93	%		15.61	%		(17.2	)
Dividend payout ratio		29.90	%		28.56	%		4.7

Net Earnings

Net earnings decreased from $406,000 for the three months ended June 30, 2007 to $324,000 for the three months ended June 30, 2008. Net earnings decreased due to a higher provision for loan losses partially offset by higher net interest income, noninterest income and lower noninterest expense and income taxes. Basic and diluted earnings per share remained the same at $0.09 for the three months ended June 30, 2007 and 2008. The repurchase of common stock was offset by lower net earnings which resulted in no change in diluted earnings per share.

Net Interest Income

Net interest income increased from $2.6 million for three months ended June 30, 2007 to $2.9 million for the three months ended June 30, 2008. A higher interest rate spread was partially offset by a lower level of net interest-earning assets. Our interest rate spread improved by 61 basis points, when compared to the three months ended June 30, 2007, as a result of a significant decrease in the cost of deposits and FHLB advances, which more than offset a lower yield on interest-earning assets. Our interest rate spread was 2.95% for the three months ended June 30, 2007 and 3.56% for the three months ended June 30, 2008. The average yield on interest-earning assets decreased by 80 basis points and the average cost of interest-bearing liabilities also decreased by 141 basis points for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. Net interest-earning assets have decreased due to the purchase of bank-owned life insurance, the repurchase of common stock and an increase in premises and equipment due to the acquisition and construction of new retail branch facilities. We have funded loan growth since March 2008 primarily through an increase in deposits.

Interest income on loans receivable decreased from $4.4 million for the three months ended June 30, 2007 to $4.3 million for the comparable period in 2008. The decrease is attributable to a lower average yield, partially offset by a higher average balance. The lower average yield is due to a decrease in the prime rate which affects a significant amount of our commercial and construction loans. The higher average balance is due primarily to an increase in commercial real estate loans, partially offset primarily by a decrease in single-family construction loans. Interest income on mortgage-backed securities decreased due to a lower average balance. Interest income on securities decreased from $528,000 to $472,000 for the comparable three month periods due to a lower average balance and average yield.

Interest expense on deposits decreased by $811,000 for the three months ended June 30, 2008 compared to the same period in 2007, as a result of primarily a lower average rate. The weighted-average rate on deposits decreased from 4.05% for the three months ended June 30, 2007 to 2.70% for the comparable 2008 period. Interest expense on FHLB advances increased by $150,000 for the comparable three month periods due to a higher average balance, partially offset by a lower average rate.

LIBERTY BANCORP, INC.

Average Balances and Yields

The average balances and yields tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of these tables, average balances have been calculated using month-end balances and, to a lesser extent, daily balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented. No tax equivalent adjustments were made. Nonaccruing loans have been included in the tables as loans carrying a zero yield.

	Three Months Ended June 30,
	2008								2007
						Average								Average
	Average					Yield/			Average					Yield/
	Balance			Interest		Cost			Balance			Interest		Cost
	(Dollars in thousands)

Interest-earning assets:
Loans receivable	$	252,081		$	4,288		6.80	%	$	221,879		$	4,402		7.94	%
Mortgage-backed securities		15,963			166		4.16			21,719			228		4.20
Securities		40,672			472		4.64			45,103			528		4.68
Other interest-earning assets		5,109			22		1.72			6,357			86		5.41
Total interest-earning assets		313,825			4,948		6.31			295,058			5,244		7.11

Interest-bearing liabilities:
Deposits		222,929			1,504		2.70			228,802			2,315		4.05
FHLB advances		69,812			507		2.90			28,305			357		5.05
Securities sold under agreement
to repurchase		1,281			13		3.99			2,016			21		4.10
Total interest-bearing liabilities	$	294,022			2,024		2.75		$	259,123			2,693		4.16

Net interest income before
provision for loan losses				$	2,924							$	2,551

Interest rate spread							3.56	%							2.95	%

Net earning assets	$	19,803							$	35,935

Net yield on average
interest-earning assets							3.73	%							3.46	%

Ratio of average interest-earning
assets to average interest-
bearing liabilities		106.74	%							113.87	%

LIBERTY BANCORP, INC.

Provision for Loan Losses

The provision for loan losses is based upon management’s consideration of current economic conditions, the loan portfolio composition and historical loss experience used to estimate probable losses as well as the level of non-performing assets. Each month, management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. The Company and Bank are subject to periodic examination by regulatory agencies, which may require us to record increases in the allowances based on their evaluation.

The provision for loan losses was $1.2 million and $267,000 for the three months ended June 30, 2008 and 2007, respectively. For the three months ended June 30, 2008, the provision of $1.2 million was due to loan charge-offs, an increase in classified loans, and to a lesser extent, an increase in loans receivable. Charge-offs were primarily attributable to construction and development lending. The allowance for loan losses as a percentage of total gross loans decreased to 1.12% as of June 30, 2008, as compared to 1.13% as of March 31, 2008. Special mention and substandard loans increased by $1.8 million and $1.7 million, respectively, as of June 30, 2008 compared to March 31, 2008 due primarily to additional construction and development loans. The increase in special mention and substandard loans is due primarily to current local economic conditions in the housing and construction markets.

Noninterest income

	Three Months Ended
	June 30,
	2008		2007		% Change
Loan service charges	$	13,236		20,450		(35.3	) %
Gain on sale of loans		105,238		73,875		42.5
Change in cash surrender value of BOLI		109,533		3,984	NM
Deposit account and other service charges		312,154		264,918		17.8
	$	540,161		363,227		48.7

NM - - Not meaningful.

Noninterest income increased for 2008 due primarily to an increase in the cash surrender value of bank-owned life insurance.

During the three months ended June 30, 2008 and 2007, we originated loans for sale to secondary market investors of $9.2 million and $6.0 million, respectively. We do not anticipate significant gains on sale of loans in the immediate future due to current market conditions.

Noninterest Expense

	Three Months Ended
	June 30,
	2008		2007		% Change
Compensation and benefits	$	1,008,015		1,147,174		(12.1	) %
Occupancy expense		163,555		145,724		12.2
Equipment and data processing expense		227,965		195,464		16.6
Operations from foreclosed real estate, net		20,282		106,292		(80.9	)
FDIC premium expense		37,240		6,842		444.3
Professional and regulatory services		97,685		99,791		(2.1	)
Advertising		48,813		66,358		(26.4	)
Correspondent banking charges		70,409		65,183		8.0
Supplies		30,126		30,955		(2.7	)
Other		182,083		169,353		7.5
	$	1,886,173		2,033,136		(7.2	)

LIBERTY BANCORP, INC.

Noninterest expense decreased from $2.0 million for the three months ended June 30, 2007 to $1.9 million for the comparable period in 2008. Compensation and benefits expense decreased primarily due to lower compensation expense in the construction and commercial loan departments and lower expenses for incentive-based compensation, partially offset by the opening of a new branch office in Gladstone, Missouri and merit salary increases. Occupancy expense increased due primarily to higher building depreciation expense and real estate taxes on new branch offices and utility expense. Equipment and data processing expense increased due primarily to higher computer and furniture depreciation expense due to the Gladstone branch, higher data processing expense and an increase in repairs and maintenance expense, partially offset by lower website and office equipment depreciation expense. FDIC premium expense increased due to a higher assessment as a result of a risk-based assessment system which considers the supervisory rating and certain financial ratios of each financial institution and related expiring credits. Expenses from operations from foreclosed real estate, net decreased due primarily to lower losses on sale of foreclosed real estate and maintenance expense. Professional and regulatory services decreased primarily due to lower audit expenses, partially offset by higher legal expenses. Advertising expense decreased due to the elimination of direct mail advertising, partially offset primarily by an increase in television advertising costs. Other expenses increased due primarily to higher stock administration expense, liability insurance and miscellaneous expenses, partially offset by lower mortgage website administration expense and consumer loan expenses.

Income Taxes

Income taxes decreased for the three months ended June 30, 2008 due to a lower effective tax rate. The effective rate for the three months ended June 30, 2008 was 20.2%, compared to 33.9% for the three months ended June 30, 2007, due to an increase in non-taxable municipal bond income and an increase in the cash surrender value of bank-owned life insurance which is also non-taxable.

Results of Operations for the Nine Months Ended June 30, 2008 and 2007

Selected Financial Data

	Nine Months Ended
	June 30,
	2008			2007			% Change
Net earnings	$	1,308,222			1,339,080			(2.3	) %
Return on assets		0.52	%		0.59	%		(11.9	)
Return on average stockholders' equity		3.76	%		3.63	%		3.6
Stockholders' equity-to-assets ratio		13.74	%		16.25	%		(15.4	)
Dividend payout ratio		23.44	%		25.98	%		(9.8	)

Net Earnings

Net earnings remained virtually the same at $1.3 million for the nine months ended June 30, 2008 and 2007. Higher net interest and noninterest income and lower income tax expense was offset by a higher provision for loan losses and higher noninterest expense.

Net Interest Income

Net interest income increased from $7.6 million for the nine months ended June 30, 2007 to $8.0 million for the nine months ended June 30, 2008. Net interest income increased due to a higher interest rate spread, partially offset by a lower level of net interest-earning assets. Our interest rate spread increased for the nine months ended June 30, 2008 by 13 basis points when compared to the nine months ended June 30, 2007 primarily as a result of a significant decrease in the cost of deposits and FHLB advances, which more than offset a lower yield on interest-earning assets. Our interest rate spread was 3.04% for the nine months ended June 30, 2007 and 3.17% for the nine months ended June 30, 2008. The average yield on interest-earning assets and the average cost of interest-bearing liabilities decreased 46 and 59 basis points, respectively, for the nine months ended June 30, 2008 as compared to the nine months ended June 30, 2007. We have funded loan growth since March 2007 primarily through FHLB advances and through the sale, maturity and call of agency securities and principal reductions from mortgage-backed securities.

LIBERTY BANCORP, INC.

Interest income on loans receivable increased from $12.6 million for the nine months ended June 30, 2007 to $13.2 million for the comparable period in 2008. The increase is attributable to a higher average balance, partially offset by a lower average yield. Interest income on mortgage-backed securities decreased due to a lower average balance. Interest income on securities increased from $1.5 million to $1.6 million for the comparable nine month periods due to a higher average balance. Interest income on other interest-earning assets decreased due to a lower average balance and average yield.

Interest expense on deposits decreased by $510,000 for the nine months ended June 30, 2008 compared to the same period in 2007 as a result of a higher average balance, partially offset by a lower average rate. The weighted-average rate on deposits decreased from 3.94% for the nine months ended June 30, 2007 to 3.35% for the comparable 2008 period. The average balance on deposits increased from $216.9 million for the nine months ended June 30, 2007 to $234.7 million for the nine months ended June 30, 2008. Interest expense on FHLB advances increased due to a higher average balance, partially offset by a lower average rate.

Average Balances and Yields

LIBERTY BANCORP, INC.

	Nine Months Ended June 30,
	2008								2007
						Average								Average
	Average					Yield/			Average					Yield/
	Balance			Interest		Cost			Balance			Interest		Cost
	(Dollars in thousands)

Interest-earning assets:
Loans receivable	$	244,522		$	13,231		7.21	%	$	212,213		$	12,590		7.91	%
Mortgage-backed securities		17,558			551		4.18			22,874			720		4.20
Securities		45,158			1,573		4.64			42,167			1,474		4.66
Other interest-earning assets		5,484			127		3.09			6,622			246		4.95
Total interest-earning assets		312,722			15,482		6.60			283,876			15,030		7.06

Interest-bearing liabilities:
Deposits		234,667			5,901		3.35			216,901			6,412		3.94
FHLB advances		53,464			1,499		3.74			28,184			990		4.68
Securities sold under agreement
to repurchase		1,583			48		4.04			2,205			59		3.59
Total interest-bearing liabilities	$	289,714			7,448		3.43		$	247,290			7,461		4.02

Net interest income before
provision for loan losses				$	8,034							$	7,569

Interest rate spread							3.17	%							3.04	%

Net earning assets	$	23,008							$	36,586

Net yield on average
interest-earning assets							3.43%	%							3.56	%

Ratio of average interest-earning
assets to average interest-
bearing liabilities		107.94	%							114.79	%

Provision for Loan Losses

The provision for loan losses was $1.6 million and $465,000 for the nine months ended June 30, 2008 and 2007, respectively. For the nine months ended June 30, 2008, the provision of $1.6 million was primarily due to loan charge-offs, an increase in classified loans, and to a lesser extent, an increase in loans receivable. Charge-offs were primarily attributable to construction and development lending. The allowance for loan losses as a percentage of total gross loans decreased to 1.12% as of June 30, 2008 as compared to 1.13% at September 30, 2007. Special mention and substandard loans increased by $1.9 million and $2.6 million, respectively, as of June 30, 2008 compared to September 30, 2007 due primarily to additional construction and development loans. The increase in special mention and substandard loans is due primarily to current local economic conditions in the housing and construction markets.

LIBERTY BANCORP, INC.

Noninterest income

	Nine Months Ended
	June 30,
	2008		2007		% Change
Loan service charges	$	53,282		70,173		(24.1	) %
Gain on sale of loans		239,674		180,440		32.8
Gain on sale of securities		45,597		-	NM
Change in cash surrender value of BOLI		327,211		3,984	NM
Deposit account service charges		865,268		748,689		15.6
	$	1,531,032		1,003,286		52.6

NM - - Not meaningful.

Noninterest income increased for 2008 due primarily to an increase in the cash surrender value of bank-owned life insurance and an increase in deposit account service charges.

During the nine months ended June 30, 2008 and 2007, we originated loans for sale to secondary market investors of $19.2 million and $15.6 million, respectively. We do not anticipate significant gains on sale of loans in the immediate future due to current market conditions.

Noninterest Expense

	Nine Months Ended
	June 30,
	2008		2007		% Change
Compensation and benefits	$	3,340,846		3,319,374		0.6	%
Occupancy expense		496,799		466,488		6.5
Equipment and data processing expense		701,647		595,508		17.8
Operations from foreclosed real estate, net		173,717		275,932		(37.0	)
FDIC premium expense		91,795		19,684	NM
Professional and regulatory services		295,526		322,954		(8.5	)
Advertising		180,309		218,035		(17.3	)
Correspondent banking charges		202,824		192,139		5.6
Supplies		96,292		97,766		(1.5	)
Other		593,834		546,884		8.6
	$	6,173,589		6,054,764		2.0

Noninterest expense increased from $6.1 million for the nine months ended June 30, 2007 to $6.2 million for the comparable period in 2008. Compensation and benefits expense increased primarily due to the opening of a new branch office in Gladstone, Missouri during September 2007, merit salary increases and higher stock option and restricted stock award expense, partially offset by a decrease in compensation expense in the construction and commercial loan departments and lower expenses for incentive-based compensation. Occupancy expense increased primarily due to building depreciation costs related to the new branch, higher utility expenses, partially offset by lower real estate taxes on branch offices. Equipment and data processing expense increased primarily due to higher furniture and computer depreciation expense related to the new branch, higher data processing and service agreement expense, partially offset by lower office equipment depreciation expense and web site expenses. FDIC premium expense increased due to a higher assessment as a result of a risk-based assessment system which considers the supervisory rating and certain financial ratios of each financial institution and related expiring credits. Expenses from operations from foreclosed real estate, net decreased primarily due to a lower level of net losses recognized on the sale of foreclosed real estate, property insurance expense and maintenance expense. Professional and regulatory services decreased due primarily to lower audit expenses, partially offset by higher legal expenses. Advertising expense decreased primarily due to the elimination of direct mail advertising, partially offset by an increase in television advertising. Other expenses increased primarily due to an increase in seminars and travel expense, telephone expense and postage expense, partially offset primarily by lower stock registrar costs and consumer loan expenses.

LIBERTY BANCORP, INC.

Income Taxes

Income taxes decreased for the nine months ended June 30, 2008 due to an increase in non-taxable municipal bond income and an increase in the cash surrender value of bank-owned life insurance which is also non-taxable. The effective tax rate for the nine months ended June 30, 2008 was 26.0% compared to 34.7% for the nine months ended June 30, 2007.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We currently have no plans to engage in hedging activities in the future.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the possible chance of loss from unfavorable changes in market prices and rates. These changes may result in a reduction of current and future period net interest income, which is the favorable spread earned from the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities.

The Company considers interest rate risk to be its most significant market risk, which could potentially have the greatest impact on operating earnings. The structure of the Company’s loan and deposit portfolios is such that a significant change in interest rates may adversely impact net market values and net interest income.

Information as of June 30, 2008 concerning the Company’s exposure to market risk has not changed significantly from that disclosed under “Interest Rate Risk Management” in the Company's Form 10-K for the year ended September 30, 2007 filed with the Securities and Exchange Commission on December 28, 2007.

Item 4 (T). Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

LIBERTY BANCORP, INC.

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A – Risk Factors

For information regarding the Company’s risk factors see “Risk Factors,” in the Company’s Form 10-K for the fiscal year ended September 30, 2007 filed with the Securities and Exchange Commission on December 28, 2007. As of June 30, 2008, the risk factors of the Company have not changed materially from those reported in the Form 10-K.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding the Company’s purchases of its equity securities during the three months ended June 30, 2008.

ISSUER PURCHASES OF EQUITY SECURITIES

(a)

(b)

(c)

(d)

Total Number

Average Price

Total Number of

Maximum Number

of Shares

Paid per

Shares (or Units)

(or Approximate

(or Units)

Purchased as

Dollar Value) of

Purchased

(or unit)

Part of Publicly

Shares (or Units)

Announced Plans

That May Yet Be

or Programs

Purchased Under the

Period

Plans or Programs (1)

April 1, 2008

through April 30, 2008

18,650

10.05

18,650

330,501

May 1, 2008

through May 31, 2008

22,000

10.31

22,000

308,501

June 1, 2008

through June 30, 2008

11,500

10.05

11,500

297,001

Total

52,150

10.16

52,150

(1)

On August 6, 2007, the Company announced that its Board of Directors had approved a stock repurchase program to acquire up to 476,119 shares, or 10%, of the Company’s outstanding common stock. On December 20, 2007, a second stock repurchase program was approved to acquire up to 222,048 shares, or 5%, of the Company’s outstanding common stock. On February 22, 2008, a third stock repurchase program was approved to acquire up to 408,170, or 10%, of the Company’s outstanding stock. There are no expiration dates for the repurchase programs. Repurchased shares are held in treasury.

LIBERTY BANCORP, INC.

Item 3 - Defaults upon Senior Securities

Not applicable.

Item 4 – Submission of Matters to a Vote of Security Holders

None.

Item 5 - Other Information

None.

Item 6 – Exhibits

(a)Exhibits:

31.1: Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2: Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32: Section 1350 Certifications

LIBERTY BANCORP, INC.

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.
	(Registrant)

DATE: August 14, 2008	BY:	/s/ Brent M. Giles
		Brent M. Giles, President and Chief Executive Officer
		(Principal Executive Officer)



	BY:	/s/ Marc J. Weishaar
		Marc J. Weishaar, Senior Vice President and Chief
		Financial Officer
		(Principal Financial Officer)

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Liberty Bancorp (LIBC) Inactive 10-Q2008 Q3 Quarterly report

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