Liberty Bancorp (LIBC) 10-Q 2009 Q1 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 December 31, 2008

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:  000-51992

LIBERTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Missouri	20-4447023
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
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 February 10, 2009
Common Stock, par value $0.01 per share	3,749,210

LIBERTY BANCORP, INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2008

INDEX

		PAGE NO.
PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements		1
	Consolidated Balance Sheets at December 31, 2008
	and September 30, 2008 (unaudited)	1
	Consolidated Statements of Earnings for the three months
	ended December 31, 2008 and 2007 (unaudited)	2
	Consolidated Statements of Comprehensive Earnings for the three
	months ended December 31, 2008 and 2007 (unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended
	December 31, 2008 and 2007 (unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations		15
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

LIBERTY BANCORP, INC.

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Consolidated Balance Sheets

(Unaudited)

	December 31,			September 30,
Assets	2008			2008
Cash and due from banks	$	7,580,792			5,274,603
Federal funds sold		7,571,000			2,810,000
Total cash and cash equivalents		15,151,792			8,084,603
Securities available for sale- taxable, at market value (amortized cost
of $18,681,446 and $13,966,593, respectively)		19,469,622			14,374,559
Securities available for sale - non-taxable, at market value (amortized
cost of $12,021,308 and $11,714,464, respectively)		12,042,252			11,678,861
Mortgage-backed securities - available for sale, at market value
(amortized cost of $14,339,311 and $14,007,011, respectively)		14,414,479			13,989,151
Stock in Federal Home Loan Bank of Des Moines		3,910,100			3,576,300
Loans receivable, net of allowance for loan losses
of $2,685,094 and $2,633,298, respectively		286,968,434			256,713,257
Loans held for sale		1,451,527			877,246
Premises and equipment, net		12,664,784			9,790,337
Bank-owned life insurance (BOLI)		8,648,108			8,538,528
Foreclosed real estate, net		7,719,133			4,936,355
Accrued interest receivable		1,899,597			1,640,478
Goodwill		1,180,347			-
Core deposit intangible		1,021,334			-
Other assets		1,168,677			1,985,219
Total assets	$	387,710,186			336,184,894
Liabilities and Stockholders' Equity
Deposits	$	266,471,913			219,763,837
Accrued interest payable		517,676			297,656
Advances from FHLB		75,215,868			69,240,870
Securities sold under agreement to repurchase		847,947			812,500
Advances from borrowers for taxes and insurance		99,297			864,268
Other liabilities		1,046,940			1,196,659
Total liabilities		344,199,641			292,175,790
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 shares issued		47,617			47,617
Treasury stock, at cost, 1,000,502 shares and 825,002 shares		(10,075,845	)		(8,632,753	)
Additional paid-in capital		32,396,549			32,320,258
Common stock acquired by ESOP		(423,176	)		(474,634	)
Accumulated other comprehensive earnings, net		598,687			292,484
Retained earnings - substantially restricted		20,966,713			20,456,132
Total stockholders' equity		43,510,545			44,009,104
Total liabilities and stockholders' equity	$	387,710,186			336,184,894
See accompanying notes to unaudited consolidated financial statements.

1

LIBERTY BANCORP, INC.

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended
	December 31,
	2008		2007
Interest income:
Loans receivable	$	4,308,606		4,626,916
Mortgage-backed securities		153,876		200,277
Securities - taxable		190,940		449,422
Securities - non-taxable		141,307		139,596
Other interest-earning assets		6,089		57,737
Total interest income		4,800,818		5,473,948
Interest expense:
Deposits		1,464,136		2,519,906
Securities sold under agreement to repurchase		9,000		22,270
Advances from FHLB		426,259		400,143
Total interest expense		1,899,395		2,942,319
Net interest income		2,901,423		2,531,629
Provision for loan losses		129,055		180,000
Net interest income after
provision for loan losses		2,772,368		2,351,629
Noninterest income:
Loan service charges		21,499		25,379
Gain on sale of loans		20,453		62,636
Gain on sale of securities available for sale		12,843		-
Change in cash surrender value of BOLI		109,580		108,750
Deposit account and other service charges		294,081		281,379
Total noninterest income		458,456		478,144
Noninterest expense:
Compensation and benefits		1,179,922		1,174,890
Occupancy expense		184,354		150,473
Equipment and data processing expense		283,430		242,607
Operations from foreclosed real estate, net		175,681		50,927
FDIC premium expense		62,000		7,395
Professional and regulatory services		119,937		108,265
Advertising		66,939		58,668
Correspondent banking charges		33,362		61,620
Supplies		58,107		33,670
Amortization of core deposit intangible		34,666		-
Other		190,827		183,585
Total noninterest expense		2,389,225		2,072,100
Earnings before income taxes		841,599		757,673
Income taxes		236,000		226,000
Net earnings	$	605,599		531,673
Basic and diluted earnings per share	$	0.16		0.12
Dividends per share	$	0.025		0.025
See accompanying notes to unaudited consolidated financial statements.

2

LIBERTY BANCORP, INC.

Statements of Comprehensive Earnings

(Unaudited)

	��	Three Months Ended
		December 31,
		2008			2007
Net earnings		$	605,599			531,673
Other comprehensive earnings:
Reclassification adjustment for gain in earnings, net of tax of $4,495			(8,348	)		-
Unrealized gains, net of tax of $166,819			317,815			327,685
Amortization of unrecognized gain, net - SFAS No. 158			(3,264	)		(3,265	)
Comprehensive earnings		$	911,802			856,093
See accompanying notes to unaudited consolidated financial statements.

3

LIBERTY BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	December 31,
	2008			2007
Cash flows from operating activities:
Net earnings	$	605,599			531,673
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation expense		155,719			145,415
Amortization of core deposit intangible		34,666			-
ESOP expense		51,874			78,808
Incentive Plan expense		75,874			82,754
Amortization of premiums (discounts) on investments, net		17,803			(23,345	)
Amortization of premium on loans		16,000			-
Amortization of deferred loan fees, net		(28,510	)		(111,390	)
Provision for loan losses		129,055			180,000
Loans held for sale - originated		(2,272,900	)		(3,970,654	)
Loans held for sale - proceeds from sale		1,719,072			4,128,278
Loss on foreclosed real estate, net		121,942			41,749
Gain on sale of securities available for sale		(12,843	)		-
Gain on sale of loans		(20,453	)		(62,636	)
Increase in cash surrender value of bank-owned life insurance		(109,580	)		(108,750	)
Decrease (increase) in:
Accrued interest receivable		(48,256	)		32,001
Other assets		592,378			(128,028	)
Deferred tax assets		(206,108	)		-
Increase (decrease) in:
Accrued interest on deposits and other liabilities		(301,026	)		(708,508	)
Accrued income taxes		-			215,304
Net cash provided by (used for) operating activities		520,306			322,671
Cash flows from investing activities:
Net change in loans receivable		(12,865,605	)		(5,470,744	)
Mortgage-backed available for sale:
Principal collections		1,003,930			1,149,551
Securities available for sale:
Principal collections		59,221			-
Purchased		-			(222,330	)
Proceeds from sales		2,937,611			-
Proceeds from maturity or call		260,000			2,300,000
Proceeds from foreclosed real estate, net		332,336			356,835
Purchase of stock in FHLB of Des Moines & MIB		(678,000	)		(1,234,600	)
Redemption of stock in FHLB of Des Moines		412,500			201,900
Purchase of premises and equipment		(255,039	)		(930,864	)
Cash paid in acquistion of KLT Bancshares, Inc., net		(1,041,494	)		-
Net cash provided by (used for) investing activities	$	(9,834,540	)		(3,850,252	)
				(Continued)

4

LIBERTY BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Continued)
	Three Months Ended
	December 31,
	2008			2007
Cash flows from financing activities:
Net increase (decrease) in deposits	$	12,743,955			(13,137,242	)
Increase (decrease) in advances from
borrowers for taxes and insurance		(834,867	)		(876,080	)
Proceeds from advances from the FHLB		277,000,000			132,850,000
Repayment of advances from the FHLB		(271,025,002	)		(109,630,518	)
Securities sold under agreement to repurchase:
Proceeds		1,861,426			2,548,666
Repayments		(1,825,979	)		(2,861,931	)
Repurchase of common stock		(1,443,092	)		(3,384,106	)
Cash dividends		(95,018	)		(110,803	)
Net cash provided by (used for)
financing activities		16,381,423			5,397,986
Net increase (decrease) in cash and cash equivalents		7,067,189			1,870,405
Cash and cash equivalents at beginning of period		8,084,603			9,042,289
Cash and cash equivalents at end of period	$	15,151,792			10,912,694
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest on deposits	$	1,459,949			2,797,228
Interest on securities sold under agreement to repurchase		9,000			22,375
Interest on advances from FHLB of Des Moines		413,258			392,849
Federal Income taxes		-			-
State Income taxes		-			11,969
Real estate acquired in settlement of loans		3,539,556			1,332,507
Loans originated to finance the sale of foreclosed real estate		302,500			-
Net cash paid in acquisition of KLT Bancshares, Inc.:
Cash paid to Farley State Bank shareholders	$	(4,500,000	)		-
Acquisition costs paid		(128,631	)		-
Total cash payments		(4,628,631	)		-
Cash and cash equivalents acquired		3,587,137			-
Net cash paid in acquistion	$	(1,041,494	)		-
See accompanying notes to unaudited consolidated financial statements.

5

LIBERTY BANCORP, INC.

Notes to Unaudited 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 period ended December 31, 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, 2008 contained in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission on December 29, 2008.

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 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.

(3)Business Combination

On November 7, 2008, the Company acquired KLT Bancshares, Inc., the parent company of Farley State Bank (“the acquisition”). Shareholders of Farley State Bank received total merger consideration of $4.5 million, consisting of entirely cash.  The Company incurred acquisition costs of approximately $240,000.  The acquisition was accounted for using the purchase method under Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations.”  Fair value adjustments on the assets acquired and liabilities assumed are depreciated or amortized as applicable, over the estimated useful lives of the related assets and liabilities.  The core deposit intangible of $1.1 million is amortized over 10.2 years using the double declining balance method.  The Company recorded fair value accounting adjustments of $422,000, net of income taxes of $247,000 and core deposit intangibles of $665,000, net of income taxes of $391,000.  Based upon Farley State Bank’s stockholders’ equity of $2.5 million, goodwill amounted to approximately $1.2 million at November 7, 2008.  The excess purchase price has been allocated to goodwill and identifiable intangible assets in accordance with current accounting literature.  Such amounts are subject to minor adjustments in the near future as additional analysis is performed or obtained from third parties.  As a result of the acquisition, the Bank will operate two additional full-service offices and expand its market area.

6

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

The following table summarizes the assets acquired and liabilities assumed at November 7, 2008, the date of acquisition:

Cash and due from banks	$	1,353,137
Federal funds sold		2,234,000
Securities available for sale		9,658,286
Federal Home Loan Bank stock		68,300
Loans, net		20,743,173
Property and equipment, net		2,775,127
Accrued interest receivable		210,863
Goodwill		1,180,347
Core deposit intangible		1,056,000
Other assets		389,946
Total assets acquired		39,669,179
Deposits		33,964,121
Accrued interest payable		215,834
Advances from borrowers for taxes and insurance		69,896
Other liabilities		40,860
Deferred tax liability		638,468
Total liabilities assumed		34,929,179
Purchase price, including acquisition costs	$	4,740,000

The statement of earnings for the three months ended December 31, 2008 include the results of operations of the acquired entity from November 8, 2008 through December 31, 2008.

The following pro forma information, including the effects of the purchase accounting adjustments, summarizes the results of operations for the three months ended December 31, 2008 and 2007 as though the acquisition had been completed as of the beginning of each period.

	Three Months Ended
	December 31,
	2008		2007
Total interest income	$	5,007,765		6,053,948
Total interest expense		1,962,985		3,189,319
Net interest income		3,044,780		2,864,629
Provision for loan losses		552,983		308,000
Total noninterest income		472,844		556,144
Total noninterest expense		2,614,338		2,448,100
Income before income taxes		350,303		664,673
Income taxes		149,158		226,000
Net earnings	$	201,145		438,673
Pro forma basic and diluted
earnings per share	$	0.05		0.10

7

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

The pro forma results of operations do not purport to be indicative of the results that would actually have been obtained had the acquisition occurred on the date indicated or which may be obtained in the future.

The gross carrying value and accumulated amortization of the core deposit intangible is presented below:

	December 31,
	2008
Core deposit intangible	$	1,056,000
Accumulated amortization		(34,666	)
	$	1,021,334

Amortization expense on core deposit intangible for the three months ended December 31, 2008 was $34,666.  There was no amortization expense of core deposit intangible for the three months ended December 31, 2007.

Estimated amortization expense on core deposit intangible for the nine months ended September 30, 2009 and each of the five succeeding fiscal years is as follows:

	Core Deposit
	Intangible
Nine months ended September 30, 2009	$	156,000
Year ended September 30, 2010		170,000
Year ended September 30, 2011		137,000
Year ended September 30, 2012		110,000
Year ended September 30, 2013		89,000
Year ended September 30, 2014		71,000

(4)  Earnings Per Share

Following is a summary of basic and diluted earnings per common share for the Company for the three months ended December 31, 2008 and 2007:

	Three Months Ended
	December 31,
	2008		2007
Net earnings	$	605,599		531,673
Weighted-average shares - Basic EPS		3,710,130		4,451,306
Stock options - treasury stock method		27,586		44,477
Weighted-average shares - Diluted EPS		3,737,716		4,495,783
Basic and diluted earnings per common share	$	0.16		0.12
Anti-dilutive shares		40,555		91,402

8

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(5)  Retirement Benefits

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

	Three Months Ended
	December 31,
	2008			2007
Service cost	$	1,671			1,671
Interest cost		3,678			3,677
Amortization of transition obligation		3,134			3,134
Amortization of prior service cost		(2,416	)		(2,416	)
Amortization of actuarial gain		(5,342	)		(5,341	)
Net periodic cost	$	725			725

Directors’ retirement plan expense was $5,349 and $5,350 for the three months ended December 31, 2008 and 2007, respectively.   The expense consisted primarily of interest cost.

(6)   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.

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.

9

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Stock option compensation expense is as follows:

	Three Months Ended
	December 31,
	2008		2007
Pretax	$	14,227		21,107
After tax		13,466		20,180
Basic and diluted earnings per share	$	0.00		0.00

At December 31, 2008, the total unrecognized compensation expense related to nonvested stock options was approximately $130,000 and is expected to be recognized over the weighted-average period of 2.77 years.

A summary of the Company’s stock option activity under the Plan for the three months ended December 31, 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, 2008		321,488	$	8.40		6.72	$	396,443
Granted		-		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Outstanding at December 31, 2008		321,488		8.40		6.47		90,871
Exercisable at December 31, 2008		236,162		7.58		6.00		86,945
Vested and expected to vest at
December 31, 2008		236,162	$	7.58		6.00	$	86,945

No options were granted, exercised or vested during the three months ended December 31, 2008 and December 31, 2007.

10

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

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
	December 31,
	2008		2007
Restricted Compensation Expense	$	61,647		61,647

At December 31, 2008, the total unrecognized expense was $781,000 and is expected to be recognized in 3.16 years.

A summary of the Company’s nonvested stock award activity for the three months ended December 31, 2008 is as follows:

	Number		Weighted-
	of		Average
	Nonvested		Grant Date
	Shares		Fair Value
Nonvested at October 1, 2008		87,520	$	11.27
Granted		-		-
Vested		-		-
Forfeited		-		-
Nonvested at December 31, 2008		87,520	$	11.27

(7)  Securities

Securities having a continuous unrealized loss position at December 31, 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	$	485,859		(6,172	)		2,940,293		(81,628	)		3,426,152		(87,800	)
Available for sale- equity securities		78,570		(35,607	)		293,823		(135,430	)		372,393		(171,037	)
	$	564,429		(41,779	)		3,234,116		(217,058	)		3,798,545		(258,837	)

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LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Mortgage-backed securities having a continuous unrealized loss position at December 31, 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	$	-		-			5,285,377		(16,126	)		5,285,377		(16,126	)
FNMA		-		-			3,416,468		(31,848	)		3,416,468		(31,848	)
GNMA		30,924		(426	)		-		-			30,924		(426	)
FNMA  -  CMO		-		-			120,001		(398	)		120,001		(398	)
GNMA  -  CMO		-		-			168,202		(321	)		168,202		(321	)
	$	30,924		(426	)		8,990,048		(48,693	)		9,020,972		(49,119	)

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

(8)  Fair Value Measurements

General

Effective October 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements,” for financial assets and liabilities.  In accordance with Financial Accounting Standards Board Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” the Company will delay application of SFAS No. 157 for non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements, until October 1, 2009.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy prioritizes the assumptions that market participants would use in pricing the assets or liabilities (the “inputs”) into three broad levels.

The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs in which little, if any, market activity exists, requiring entities to develop their own assumptions and data.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in market areas that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Valuation Techniques

Available for sale securities are carried at fair value utilizing Level 1, Level 2 and Level 3 inputs.  For equity securities, the Company obtains fair values for its common stock.

For Level 2 debt securities, the Company obtains fair value measurements from an independent pricing service.  Level 2 debt securities include Federal agency obligations, state and municipal obligations, mortgage-backed securities and collateralized mortgage obligations.  The fair value measurements consider observable data that may include dealer quotes, live trading levels, trade execution data, cash flows, market consensus prepayment speeds, market spreads, credit information and the U.S. Treasury yield curve.

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LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

The fair value of Level 3 debt securities are determined by the appraisal of the underlying collateral,  discounted cash flow analysis, and other internally developed estimates that incorporate market-based assumptions.

Impaired loans are carried at fair value utilizing Level 3 inputs, consisting of appraisals of underlying collateral and discounted cash flow analysis.  The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company 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.  Valuation allowances are established for impaired loans for the difference between the loan amount and the fair value of collateral and estimated selling costs.

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate, utilizing Level 2 inputs as determined based on expected proceeds from outstanding commitments from investors.

Assets Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets measured at fair value on a recurring basis at December 31, 2008, segregated by the level of the inputs within the hierarchy used to measure fair value:

	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
Assets	(Level 1)		(Level 2)		(Level 3)		Value
Available for sale securities:
Debt securities:
Federal agency obligations	$	-		19,097,229		-		19,097,229
State and municipal obligations		-		8,895,565		3,146,687		12,042,252
Mortgage-backed securities		-		14,126,275		-		14,126,275
Collateralized mortgage obligations		-		288,204		-		288,204
Equity securities		372,393		-		-		372,393
	$	372,393		42,407,273		3,146,687		45,926,353

Assets Measured at Fair Value on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis at December 31, 2008 include impaired loans of $5,348,487, utilizing Level 3 inputs and loans held for sale of $1,451,527, utilizing Level 2 inputs.  The impaired loans are collateral dependent and the allowance for losses on the impaired loans was $202,535 at December 31, 2008.  There was a provision for losses on these loans of $4,606 during the three months ended December 31, 2008.

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LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(9)  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 Missouri income taxes and special financial institution taxes.  Tax years ending September 30, 2006 through September 30, 2008 remain open to examination by these jurisdictions.  The Company recognizes interest and penalties related to tax positions in income tax expense.  At December 31, 2008, there was no accrual for uncertain tax positions or related interest.

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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.

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 December 31, 2008, we operated out of our main office in Liberty, Missouri and nine 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.

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.

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LIBERTY BANCORP, INC.

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.

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.

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LIBERTY BANCORP, INC.

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 December 31, 2008:

	Fixed-Rate		Adjustable-Rate
Off-balance sheet financial instruments:
Commitments to originate loans	$	1,467,689		1,792,398
Commitments for unused lines of credit	$	644,997		10,905,597
Commitments for undisbursed loans	$	6,117,917		9,260,481
Commitments for letters of credit	$	47,580		-

Financial Condition

Total assets increased from $336.2 million at September 30, 2008 to $387.7 million at December 31, 2008.  Cash and cash equivalents increased $7.1 million from September 30, 2008 to December 31, 2008.   Securities available for sale increased from $26.1 million at September 30, 2008 to $31.5 million at December 31, 2008 due to the acquisition of securities from KLT Bancshares, Inc., partially offset by sales and maturities.  Mortgage-backed securities available for sale increased from $14.0 million at September 30, 2008 to $14.4 million at December 31, 2008 due to the acquisition of mortgage-backed securities, partially offset by principal repayments.  Stock in the Federal Home Loan Bank of Des Moines increased by $334,000 due to stock purchase requirements as a result of a higher level of advances.  Loans receivable increased by $30.3 million to $287.0 million at December 31, 2008 due to loans received in the acquisition of $20.7 million and increased activity in commercial real estate lending.  Loans held for sale increased $575,000 due to an increase in mortgage lending activity related to a decrease in interest rates.  Premises and equipment, net increased $2.9 million to $12.7 million at December 31, 2008 due to the acquisition.  The premises and equipment acquired consisted primarily of three bank branch facilities.  The cash surrender value of bank-owned life insurance increased by $110,000 to $8.6 million as of December 31, 2008 as compared to $8.5 million as of September 30, 2008.  Foreclosed real estate, net at December 31, 2008 totaled $7.7 million, an increase of $2.8 million from $4.9 million at September 30, 2008. Foreclosed real estate, net consists of six single-family lots, 24 spec construction properties, eleven single-family homes, one multi-family property, one residential development property and one non-residential property.  Goodwill totaling $1.2 million and core deposit intangible totaling $1.0 million resulted from the acquisition of Farley State Bank.  Other assets decreased primarily due to lower deferred tax assets as a result of unrealized gains on securities and the acquisition.

Total liabilities increased $52.0 million to $344.2 million at December 31, 2008 compared to $292.2 million at September 30, 2008.  Deposits increased from $219.8 million at September 30, 2008 to $266.5 million at December 31, 2008 primarily due to the acquisition and an increase in short-term certificate accounts, money market accounts, interest bearing and noninterest bearing checking and brokered certificates. Accrued interest payable increased primarily as a result of deposits assumed in the acquisition.  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 $6.0 million to $75.2 million at December 31, 2008.  Additional FHLB advances were used as a lower cost of funding source.  Advances from borrowers for taxes and insurance decreased by $765,000 due to calendar year-end payment of real estate taxes on behalf of borrowers.

Stockholders’ equity decreased $499,000 from $44.0 million at September 30, 2008 to $43.5 million at December 31, 2008 due to the repurchase of common stock totalling $1.4 million and the payment of cash dividends, partially offset by net earnings of $606,000 for the three months ended December 31, 2008, amortization of ESOP and stock-based incentive awards and higher unrealized gains, net of taxes, on investments.  During the three months ended December 31, 2008 and 2007, the Company paid cash dividends of $95,018 and $110,803, respectively.

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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 December 31, 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	$	39,812
Computer software costs		(198	)
Goodwill and core deposit intangible		(1,572	)
Unrecognized gain, net - SFAS No. 158		(66	)
Unrealized gain on securities AFS, net		(641	)
Tangible capital	$	37,335			9.8	%	$	5,736		1.5	%
General valuation allowance		2,685
Total capital to risk-weighted assets	$	40,020			12.6	%	$	25,391		8.0	%	$	31,739		10.0	%
Tier 1 capital to risk-weighted assets	$	37,335			11.8	%	$	12,695		4.0	%	$	19,043		6.0	%
Tier 1 capital to total assets	$	37,335			9.8	%	$	15,295		4.0	%	$	19,118		5.0	%

Asset Quality

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

	December 31,		September 30,
	2008		2008
Nonaccrual loans	$	5,348,487		8,218,713
Accruing loans past due 90 days or more		-		-
Total impaired loans	$	5,348,487		8,218,713
Allowance for losses on impaired loans	$	202,535		437,523
Impaired loans with no allowance for loan losses	$	2,866		-

On occasion, the Bank originates single-family loans with high loan to value ratios exceeding 90 percent.  At December 31, 2008, these loans amounted to $4.7 million.

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LIBERTY BANCORP, INC.

At December 31, 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 decreased from $9.3 million at September 30, 2008 to $5.5 million at December 31, 2008.  Substandard loans were primarily secured by one commercial office building and one land development property.  Special mention loans remained the same at $2.9 million at December 31, 2008 and September 30, 2008 and consisted of two loans secured by land for the development of single-family lots and commercial real estate.

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

Balance at September 30, 2008	$	2,633,298
Charge-offs		(331,157	)
Recoveries		1,769
Allowance acquired by acquisition		252,129
Provision charged to expense		129,055
Balance at December 31, 2008	$	2,685,094

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.

Results of Operations for the Three Months Ended December 31, 2008 and 2007

Selected Financial Data

	Three Months Ended
	December 31,
	2008			2007			% Change
Net earnings	$	605,599			531,673			13.9	%
Return on assets		0.67	%		0.63	%		6.3
Return on average stockholders' equity		5.54	%		4.34	%		27.6
Stockholders' equity-to-assets ratio		12.09	%		14.56	%		(17.0	)
Dividend payout ratio		15.69	%		20.84	%		(24.7	)

Net Earnings

Net earnings increased from $532,000 for the three months ended December 31, 2007 to $606,000 for the three months ended December 31, 2008.  Net earnings increased due to higher net interest income and a lower provision for loan losses, partially offset by lower noninterest income, higher noninterest expense and higher income tax expense.  Basic and diluted earnings per share increased from $0.12 for the three months ended December 31, 2007 to $0.16 for the three months ended December 31, 2008.

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LIBERTY BANCORP, INC.

Net Interest Income

Net interest income increased from $2.5 million for three months ended December 31, 2007 to $2.9 million for the three months ended December 31, 2008.  A higher interest rate spread was partially offset by a lower level of net interest-earning assets.  Our interest rate spread improved by 54 basis points as compared to the three months ended December 31, 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 3.45% for the three months ended December 31, 2008 and 2.91% for the three months ended December 31, 2007. The average yield on interest-earning assets decreased by 115 basis points and the average cost of interest-bearing liabilities decreased by 169 basis points for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. Net interest-earning assets have decreased due to the repurchase of common stock and an increase in premises and equipment due to the construction of new retail branch facilities, the acquiring of premises and equipment of Farley State Bank and an increase in foreclosed real estate, net.  We have funded loan growth since December 2007 primarily through an increase in deposits and FHLB advances.

Interest income on loans receivable decreased from $4.6 million for the three months ended December 31, 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 and single family home loans, partially offset by a decrease in construction and development loans.  Interest income on mortgage-backed securities decreased due to a lower average balance, partially offset by a higher average yield.  Interest income on securities decreased from $589,000 to $332,000 due to a lower average balance and average yield.

Interest expense on deposits decreased by $1.1 million for the three months ended December 31, 2008 compared to the same period in 2007, primarily as a result of a lower average rate.  The weighted-average rate on deposits decreased from 4.04% for the three months ended December 31, 2007 to 2.44% for the comparable 2008 period. Interest expense on FHLB advances increased by $26,000 for the comparable three month periods due to a higher average balance, partially offset by a lower average rate.  In general, a 400 basis point decrease in the prime rate lead to a lower cost of funds.  The increase of $25.6 million in FHLB advances from December 31, 2007 to December 31, 2008 allowed us to fund operations with alternative sources of funds at a lower cost than deposits.

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.

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LIBERTY BANCORP, INC.

	Three Months Ended December 31,
	2008								2007
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	273,808		$	4,308		6.29	%	$	237,475		$	4,627		7.79	%
Mortgage-backed securities		14,164			154		4.35			19,049			200		4.20
Securities		32,224			332		4.12			49,317			589		4.78
Other interest-earning assets		6,212			6		0.39			5,411			58		4.29
Total interest-earning assets		326,408			4,800		5.88			311,252			5,474		7.03
Interest-bearing liabilities:
Deposits		240,186			1,464		2.44			249,242			2,520		4.04
FHLB advances		71,478			426		2.38			34,214			400		4.68
Securities sold under agreement
to repurchase		677			9		5.31			1,959			22		4.55
Total interest-bearing liabilities	$	312,341			1,899		2.43		$	285,415			2,942		4.12
Net interest income before
provision for loan losses				$	2,901							$	2,532
Interest rate spread							3.45	%							2.91	%
Net earning assets	$	14,067							$	25,837
Net yield on average
interest-earning assets							3.56	%							3.25	%
Ratio of average interest-earning
assets to average interest-
bearing liabilities		104.50	%							109.05	%

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 $129,000 and $180,000 for the three months ended December 31, 2008 and 2007, respectively.   For the three months ended December 31, 2008, the provision of $129,000 was due to loan charge-offs and an increase in loans receivable. Charge-offs were primarily attributable to single family construction loans.  The allowance for loan losses as a percentage of total gross loans decreased to .88% as of December 31, 2008, as compared to .94% as of September 30, 2008.  Substandard loans decreased by $3.8 million as of December 31, 2008 as compared to September 30, 2008 due primarily to the foreclosure on single family construction properties. Special mention loans remained unchanged for the three months ended December 31, 2008 and September 30, 2008.

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LIBERTY BANCORP, INC.

Noninterest income

	Three Months Ended
	December 31,
	2008		2007		% Change
Loan service charges	$	21,499		25,379		(15.3	) %
Gain on sale of loans		20,453		62,636		(67.3	)
Gain on sale of securities, available for sale		12,843		-	NM
Change in cash surrender value of BOLI		109,580		108,750		0.8
Deposit account and other service charges		294,081		281,379		4.5
	$	458,456		478,144		(4.1	)

NM - -  Not meaningful.

Noninterest income decreased for 2008 due primarily to a decrease in the gain on sale of loans which was partially offset by an increase in deposit account service charges and gain on sale of securities.

During the three months ended December 31, 2008 and 2007, we originated loans for sale to secondary market investors of $2.3 million and $4.0 million, respectively.

Noninterest Expense

	Three Months Ended
	December 31,
	2008		2007		% Change
Compensation and benefits	$	1,179,922		1,174,890		0.4	%
Occupancy expense		184,354		150,473		22.5
Equipment and data processing expense		283,430		242,607		16.8
Operations from foreclosed real estate, net		175,681		50,927		245.0
FDIC premium expense		62,000		7,395		738.4
Professional and regulatory services		119,937		108,265		10.8
Advertising		66,939		58,668		14.1
Correspondent banking charges		33,362		61,620		(45.9	)
Supplies		58,107		33,670		72.6
Other		190,827		183,585		3.9
Amortization of Core Deposit Intangible		34,666		-	NM
	$	2,389,225		2,072,100		15.3

NM – Not meaningful.

Noninterest expense increased from $2.0 million for the three months ended December 31, 2007 to $2.4 million for the comparable period in 2008.  Compensation and benefits expense increased primarily due to higher salary levels and health insurance expense, partially offset by lower ESOP expense and stock option and restricted stock award expense.  Occupancy expense increased due primarily to higher building depreciation expense, higher real estate and personal property tax expense on new branch offices and higher utility expense.  Equipment and data processing expense increased due primarily to higher computer depreciation and data processing expense related to the acquisition, higher internet bill pay expense, higher service agreement expense and higher repairs expense, partially offset by lower furniture and automobile depreciation expense and automobile maintenance 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 increased due primarily to higher losses on sale of foreclosed real estate and higher maintenance expenses.   Professional and regulatory services increased primarily due to higher audit expenses, partially offset by lower legal expenses. Advertising expense increased due to television and mortgage lending related advertising.  

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LIBERTY BANCORP, INC.

Correspondent banking expense decreased due to the renegotiation of contracts with vendors. Other expenses increased due to higher postage, data line and retail operations expense,  partially offset by lower mortgage loan department expenses.

Income Taxes

Income taxes increased for the three months ended December 31, 2008 due to a higher earnings partially offset by a lower effective tax rate.  The effective rate for the three months ended December 31, 2008 was 28.0%, compared to 29.8% for the three months ended December 31, 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 December 31, 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, 2008 filed with the Securities and Exchange Commission on December 29, 2008.

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.

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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, 2008 filed with the Securities and Exchange Commission on December 29, 2008.  As of December 31, 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 December 31, 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)		Share		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)
October 1, 2008
through October 31, 2008		24,500	$	8.72		24,500		256,835
November 1, 2008
through November 30, 2008		50,000	$	8.35		50,000		206,835
December 1, 2008
through December 31, 2008		101,000	$	8.02		101,000		105,835
Total		175,500	$	8.22		175,500

(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.

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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:

10.1:	Amended and Restated Liberty Bancorp, Inc./BankLiberty Three-Year Employment
	Agreement with Brent Giles, dated December 17, 2008 * (1)
10.2:	Amended and Restated BankLiberty Two-Year Change in Control Agreement with
	Mark E. Hecker, dated December 17, 2008 * (1)
10.3:	Amended and Restated BankLiberty Two-Year Change in Control Agreement with
	Marc J. Weishaar, dated December 17, 2008 * (1)
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
*	Management contract or compensatory plan, contract or arrangement.
(1)	Amended during the quarter ending December 31,2008 to comply with Section 409A of the Internal Revenue
	Code of 1986, as amended (the “Code”) and the regulations and guidance issued with respect to Section
	9A of the Code.

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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: February 13, 2009	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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