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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM
10-QSB

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

For the Quarterly Period Ended March 31,
2003

OR

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

For the Transition Period fromto

Commission file number
0-24113

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Liberty National Bancshares, Inc.

(Exact name ofSmallBusiness Issuer as specified in its charter)

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| | Georgia(State of Incorporation) |  | 58-2292563(I.R.S. Employer Identification No.) | 
| | ------------------------------- |  | ---------------------------------------------- | 

P.O. Box 82030Conyers, Georgia 30013(Address of principal
executive offices)

770-785-7880(Issuers Telephone Number, Including Area Code)

State the number of shares outstanding of each of theissuers classes of common equity, as of the latest practicable date:

1,472,399 Shares of Common stock, par value $.50 per shareoutstanding as of May 3, 2003.

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INDEX



|         |  |                       |  |                                                                                                               | Page No.
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------- | --------
|         |  |                       |  |                                                                                                               |         
|PART I   |  | FINANCIAL INFORMATION | 
|         |  |                       |  |                                                                                                               |         
|         |  | Item 1.               |  | Financial Statements                                                                                          |         
|         |  |                       |  |                                                                                                               |         
|         |  |                       |  | Consolidated Balance Sheet(Unaudited) at March 31, 2003                                                       | 3       
|         |  |                       |  |                                                                                                               |         
|         |  |                       |  | Consolidated Statements of Earnings(Unaudited) for the Three Months Ended March 31, 2003 and 2002             | 4       
|         |  |                       |  |                                                                                                               |         
|         |  |                       |  | Consolidated Statements of Cash Flows(Unaudited) for the Nine Months Ended March 31, 2003 and 2002            | 5       
|         |  |                       |  |                                                                                                               |         
|         |  |                       |  | Consolidated Statements of Comprehensive Income(Unaudited) for the Three Months Ended March 31, 2003 and 2002 | 6       
|         |  |                       |  |                                                                                                               |         
|         |  |                       |  | Notes to Consolidated Financial Statements(Unaudited)                                                         | 7       
|         |  |                       |  |                                                                                                               |         
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         | 9       
|         |  |                       |  |                                                                                                               |         
|         |  | Item 3.               |  | Controls and Procedures                                                                                       | 11      
|         |  |                       |  |                                                                                                               |         
|PART II. |  | OTHER INFORMATION     | 
|         |  |                       |  |                                                                                                               |         
|         |  | Item 1.               |  | Legal Proceedings                                                                                             | 13      
|         |  |                       |  |                                                                                                               |         
|         |  | Item 2.               |  | Changes in Securities and Use of Proceeds                                                                     | 13      
|         |  |                       |  |                                                                                                               |         
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                               | 13      
|         |  |                       |  |                                                                                                               |         
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                           | 13      
|         |  |                       |  |                                                                                                               |         
|         |  | Item 5.               |  | Other Information                                                                                             | 13      
|         |  |                       |  |                                                                                                               |         
|         |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                              | 13      

|SIGNATURES                                           | 14
|---------------------------------------------------- | --
|                                                     |   
|CertificationsPursuant to Sarbanes-Oxley Act of 2002 | 15





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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

LIBERTY NATIONAL BANCSHARES,
INC. AND SUBSIDIARY

Consolidated Balance Sheet

March 31, 2003(Unaudited)



|Assets                                                                                             |  |   |            
|-------------------------------------------------------------------------------------------------- |  | - | -----------
|Cash and due from banks                                                                            |  | $ | 5,564,742  
|Federal funds sold                                                                                 |  |   | 6,359,046  
|                                                                                                   |  |   |            
|Cash and cash equivalents                                                                          |  |   | 11,923,788 
|Investment securities available for sale                                                           |  |   | 13,081,426 
|Other investments                                                                                  |  |   | 392,568    
|Loans, net of allowance for loan losses of $1,454,467                                              |  |   | 103,930,181
|Premises and equipment, net                                                                        |  |   | 4,156,572  
|Accrued interest receivable                                                                        |  |   | 611,847    
|Other assets                                                                                       |  |   | 537,069    
|                                                                                                   |  |   |            
|Total assets                                                                                       |  | $ | 134,633,451
|                                                                                                   |  |   |            
|                                                                                                   |  |   |            
|Liabilities and Stockholders
Equity                                                               |  |   |            
|Deposits:                                                                                          |  |   |            
|Noninterest-bearing demand                                                                         |  | $ | 18,298,509 
|Interest-bearing demand and money market                                                           |  |   | 31,592,261 
|Savings                                                                                            |  |   | 3,193,658  
|Time deposits of $100,000 or more                                                                  |  |   | 19,486,828 
|Other time deposits                                                                                |  |   | 48,175,003 
|                                                                                                   |  |   |            
|Total deposits                                                                                     |  |   | 120,746,259
|Accrued interest payable                                                                           |  |   | 128,254    
|Other liabilities                                                                                  |  |   | 241,435    
|FHLB advances                                                                                      |  |   | 2,500,000  
|Other borrowings                                                                                   |  |   | 1,000,000  
|                                                                                                   |  |   |            
|Total liabilities                                                                                  |  |   | 124,615,948
|                                                                                                   |  |   |            
|Stockholders equity:                                                                              |  |   |            
|Common stock, $.50 par value; 10,000,000 shares authorized 1,468,066 shares issued and
outstanding |  |   | 734,033    
|Additional paid-in capital                                                                         |  |   | 6,944,054  
|Retained earnings                                                                                  |  |   | 2,076,871  
|Unrealized gain on investment securities available for sale, net of
tax                            |  |   | 262,545    
|                                                                                                   |  |   |            
|Total stockholders equity                                                                         |  |   | 10,017,503 
|                                                                                                   |  |   |            
|Total liabilities and stockholders equity                                                         |  | $ | 134,633,451
|                                                                                                   |  |   |            

See accompanying notes to unaudited consolidated
financial statements.





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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Earnings

For the Three Months Ended March 31, 2003 and 2002

(Unaudited)



|                                                    |  | 2003 |           | 2002 |          
|--------------------------------------------------- |  | ---- | --------- | ---- | ---------
|                                                    |  |      |           |      |          
|Interest and dividend income:                       |  |      |           |      |          
|Loans, including fees                               |  | $    | 1,840,702 |      | 1,497,853
|Investment securities:                              |  |      |           |      |          
|Taxable                                             |  |      | 116,738   |      | 110,698  
|Non-taxable                                         |  |      | 22,936    |      | 15,739   
|Federal funds sold                                  |  |      | 6,404     |      | 23,790   
|                                                    |  |      |           |      |          
|Total interest income                               |  |      | 1,986,780 |      | 1,648,080
|                                                    |  |      |           |      |          
|Interest expense:                                   |  |      |           |      |          
|Deposits                                            |  |      | 628,370   |      | 613,430  
|Federal Home Loan Bank advances                     |  |      | 42,416    |      | 42,188   
|Other borrowings                                    |  |      | 7,500     |      |         
|Federal funds purchased                             |  |      | 3,629     |      |         
|                                                    |  |      |           |      |          
|Total interest expense                              |  |      | 681,915   |      | 655,618  
|                                                    |  |      |           |      |          
|Net interest income                                 |  |      | 1,304,865 |      | 992,462  
|Provision for loan losses                           |  |      | 113,362   |      | 120,050  
|                                                    |  |      |           |      |          
|Net interest income after provision for loan losses |  |      | 1,191,503 |      | 872,412  
|                                                    |  |      |           |      |          
|Other income:                                       |  |      |           |      |          
|Service charges on deposit accounts                 |  |      | 278,875   |      | 176,750  
|Other income                                        |  |      | 123,392   |      | 73,125   
|                                                    |  |      |           |      |          
|Total other income                                  |  |      | 402,267   |      | 249,875  
|                                                    |  |      |           |      |          
|Other expenses:                                     |  |      |           |      |          
|Salaries and employee benefits                      |  |      | 549,559   |      | 489,379  
|Occupancy and equipment expense                     |  |      | 151,198   |      | 155,520  
|Professional and other outside services             |  |      | 120,136   |      | 122,290  
|Other                                               |  |      | 230,219   |      | 253,307  
|                                                    |  |      |           |      |          
|Total other expenses                                |  |      | 1,051,112 |      | 1,020,496
|                                                    |  |      |           |      |          
|Earnings before income tax expense                  |  |      | 542,658   |      | 101,791  
|Income tax expense                                  |  |      | 184,948   |      | 41,590   
|                                                    |  |      |           |      |          
|Net earnings                                        |  | $    | 357,710   |      | 60,201   
|                                                    |  |      |           |      |          
|Basic earnings per share                            |  | $    | .25       |      | .04      
|                                                    |  |      |           |      |          
|Diluted earnings per share                          |  | $    | .23       |      | .04      
|                                                    |  |      |           |      |          

See accompanying notes to unaudited consolidated
financial statements.





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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2003 and 2002

(Unaudited)



|                                                                                          |  | 2003 |            | 2002 |           
|----------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | ----------
|                                                                                          |  |      |            |      |           
|Cash flows from operating activities:                                                     |  |      |            |      |           
|Net earnings                                                                              |  | $    | 357,710    |      | 60,201    
|Adjustments to reconcile net earnings to net cash provided by
operating activities:       |  |      |            |      |           
|Net depreciation, amortization and accretion                                              |  |      | 85,703     |      | 79,556    
|Provision for loan losses                                                                 |  |      | 113,362    |      | 120,050   
|Net change in other assets and other liabilities                                          |  |      | 127,029    |      | (170,833  
|                                                                                          |  |      |            |      |           
|Net cash provided by operating activities                                                 |  |      | 683,804    |      | 88,974    
|                                                                                          |  |      |            |      |           
|Cash flows from investing activities:                                                     |  |      |            |      |           
|Calls of investment securities available for sale                                         |  |      | 500,000    |      |          
|Maturities and paydowns of investment securities available for sale                       |  |      | 104,794    |      | 45,789    
|Loans originated, net of principal repayments                                             |  |      | (9,017,743 | )    | (6,764,856
|Purchases of premises and equipment                                                       |  |      | (513,623   | )    | (33,647   
|                                                                                          |  |      |            |      |           
|Net cash used by investing activities                                                     |  |      | (8,926,572 | )    | (6,752,714
|                                                                                          |  |      |            |      |           
|Cash flows from financing activities:                                                     |  |      |            |      |           
|Change in deposits                                                                        |  |      | 13,031,819 |      | (2,576,631
|Increase in other borrowings                                                              |  |      |           |      | 500,000   
|Proceeds from private placement offering, net of offering costs of $12,685                |  |      | 431,315    |      |          
|Proceeds from exercise of stock options                                                   |  |      | 26,329     |      |          
|                                                                                          |  |      |            |      |           
|Net cash provided (used) by financing activities                                          |  |      | 13,489,463 |      | (2,076,631
|                                                                                          |  |      |            |      |           
|Net change in cash and cash equivalents                                                   |  |      | 5,246,695  |      | (8,740,371
|Cash and cash equivalents, beginning of period                                            |  |      | 6,677,093  |      | 18,050,304
|                                                                                          |  |      |            |      |           
|Cash and cash equivalents, end of period                                                  |  | $    | 11,923,788 |      | 9,309,933 
|                                                                                          |  |      |            |      |           
|Supplemental disclosure of cash flow information:                                         |  |      |            |      |           
|Cash paid for interest expense                                                            |  | $    | 652,346    |      | 659,174   
|Income taxes paid                                                                         |  | $    | 103,197    |      | 4,900     
|Change in unrealized gains/losses on investment securities available for sale, net of tax |  | $    | 33,644     |      | (14,717   

See accompanying notes to unaudited consolidated
financial statements.





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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2003 and 2002

(Unaudited)



|                                                                                                                                                     |  | 2003 |         | 2002 |        
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -------
|                                                                                                                                                     |  |      |         |      |        
|Net earnings                                                                                                                                         |  | $    | 357,710 |      | 60,201 
|Other comprehensive income consisting of:                                                                                                            |  |      |         |      |        
|Unrealized holding gains (losses) on investment securities available for sale
arising during the period, net of income taxes of $(17,331) and $7,587 |  |      | 33,644  |      | (14,717
|                                                                                                                                                     |  |      |         |      |        
|Total comprehensive income                                                                                                                           |  | $    | 391,354 |      | 45,484 
|                                                                                                                                                     |  |      |         |      |        

See accompanying notes to unaudited consolidated
financial statements.





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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

March 31, 2003

(Unaudited)

(1)

Basis of Presentation

The accompanying
unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-QSB. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended March 31, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the financial
statements and footnotes included in the Companys annual report on Form 10-KSB for the year ended December 31, 2002.

(2)

Earnings Per Share

Basic net earnings per
share is based on the weighted average number of common shares outstanding during the period. Diluted net earnings per share include the effects of potential common shares outstanding during the period. The average market price during the period is
used to compute equivalent shares. The reconciliation of the amounts used in the computation of both basic earnings per share and diluted earnings per share for the three-month periods ended March 31, 2003 and 2002, is as follows:



|                                     |  | NetEarnings |         | AverageSharesOutstanding |           | PerShareAmount |  
|------------------------------------ |  | ----------- | ------- | ------------------------ | --------- | -------------- | -
|                                     |  |             |         |                          |           |                |  
|For the period ended March 31, 2003: |  |             |         |                          |           |                |  
|Net earnings  basic                 |  | $           | 357,710 |                          | 1,435,349 |                | $
|                                     |  |             |         |                          |           |                |  
|Effect of dilutive stock options     |  |             |        |                          | 106,014   |                |  
|                                     |  |             |         |                          |           |                |  
|Net earnings  diluted               |  | $           | 357,710 |                          | 1,541,363 |                | $
|                                     |  |             |         |                          |           |                |  
|For the period ended March 31, 2002: |  |             |         |                          |           |                |  
|Net earnings  basic                 |  | $           | 60,201  |                          | 1,412,376 |                | $
|                                     |  |             |         |                          |           |                |  
|Effect of dilutive stock options     |  |             |        |                          | 51,760    |                |  
|                                     |  |             |         |                          |           |                |  
|Net earnings  diluted               |  | $           | 60,201  |                          | 1,464,136 |                | $
|                                     |  |             |         |                          |           |                |  

(3)

Stock Based Compensation

Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, encourages but does not require, entities to compute fair value of options at the date of grant and to recognize such costs as
compensation expense immediately if there is no vesting period or ratably over the vesting period of the options. The Company has chosen not to adopt the cost recognition principles of this statement and accounts for stock options under Accounting
Principles Board Opinion No. 25 and its related interpretations. Had compensation costs been determined based upon the fair value of the options at the time of the grant dates consistent with the method of SFAS No. 123, net earnings would have
reflected the proforma amounts in the following table:





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|                                                                                                     |  | For the Three Months EndedMarch 31, |        
|---------------------------------------------------------------------------------------------------- |  | ----------------------------------- | -------
|                                                                                                     |  |                                     |        
|                                                                                                     |  |                                     | 2003   
|                                                                                                     |  |                                     |        
|Net earnings, as reported                                                                            |  | $                                   | 357,710
|Proforma stock-based compensation cost adjustments associated with new grants, net of tax            |  |                                     | (2,590 
|                                                                                                     |  |                                     |        
|Proforma net earnings                                                                                |  | $                                   | 355,120
|                                                                                                     |  |                                     |        
|Basic earnings per share, as reported                                                                |  | $                                   | .25    
|Proforma stock-based compensation cost adjustments associated with new grants, net of tax, per
share |  |                                     |       
|                                                                                                     |  |                                     |        
|Basic proforma earnings, per share                                                                   |  | $                                   | .25    
|                                                                                                     |  |                                     |        
|                                                                                                     |  |                                     |        
|Diluted earnings per share, as reported                                                              |  | $                                   | .23    
|Proforma stock-based compensation cost adjustments associated with new grants, net of tax, per
share |  |                                     |       
|                                                                                                     |  |                                     |        
|Diluted proforma earnings, per share                                                                 |  | $                                   | .23    
|                                                                                                     |  |                                     |        

For the proforma disclosure purposes above, the
Company immediately recognized the expense associated with the option grants assuming that all awards will immediately vest. The fair value of the options on the grant date using the minimum value options pricing model, no dividend yield and an
expected life of 10 years and other information used to estimate the fair value is as follows:



|                                                         |  | 2003 |      | 2002 |     
|-------------------------------------------------------- |  | ---- | ---- | ---- | ----
|                                                         |  |      |      |      |     
|Weighted average fair value of options at the grant date |  | $    | 3.27 |      | 2.50
|Risk-free interest rates                                 |  |      | 3.96 | %    | 4.14





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Item 2.

Managements Discussion and Analysis of Financial Condition and Results of
Operations

Cautionary Note Regarding Forward-Looking Statements

The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Companys filings with the Securities and Exchange Commission (the Commission) and its reports to
shareholders. Such forward-looking statements are made based on managements belief as well as assumptions made by, and information currently available to, management pursuant to safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Companys actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels,
loan demand, loan collateral values, securities portfolio values and interest rate risk management; the effects of competition in the banking business from other commercial banks, savings and loan associations, mortgage banking firms, consumer
finance companies, credit unions, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Companys market area and elsewhere, including institutions operating through the
Internet; changes in government regulations relating to the banking industry, including regulations relating to branching and acquisitions; failure of assumptions underlying the establishment of allowances for loan losses, including the value of
collateral underlying delinquent loans, and other factors. The Company cautions that such factors are not exclusive. The Company does not undertake to update any forward-looking statements that may be made from time to time by, or on behalf of, the
Company.

Financial Condition

The Companys operations are conducted
through its sole subsidiary, Liberty National Bank (the Bank). Management continuously monitors the financial condition of the Bank in order to protect depositors, increase retained earnings and protect current and future earnings.
Further discussion of significant items affecting the Companys financial condition are discussed in detail below.

Total assetsincreased by $14,000,880 from $120,632,571 at December 31, 2002 to $134,633,451 at March 31, 2003. Net loans increased by $8,914,061 from $95,016,120 at December 31, 2002 to $103,930,181 at March 31, 2003. Federal Funds sold
increased by $5,397,000 from $962,046 at December 31, 2002 to $6,359,046 at March 31, 2003. Investment securities classified as available for sale decreased $578,803 from $13,660,229 at December 31, 2002 to $13,081,426 at March 31, 2003.

Deposits increased by $13,031,819 from $107,714,440 at December 31, 2002 to $120,746,259 at March 31, 2003. Non-interest bearing depositsincreased by $2,287,924 from $16,010,585 at December 31, 2002 to $18,298,509 at March 31, 2003. Interest bearing demand deposits and money market accounts decreased by $1,425,978 to $31,592,261 at March 31, 2003. Certificates
of deposits and IRAs increased $11,886,932 from $55,774,899 at December 31, 2002 to $67,661,831 at March 31, 2003, primarily due to managements decision to increase interest paid on new certificates of deposit as well as pursue
out-of-market deposits in order to grow deposits as a funding source for loan growth. It is managements opinion that the Bank maintains competitive deposit rates while exercising prudent strategies in competing with local financial
institutions.

The Banks net loans to deposit ratio increased from 88.21% at December 31, 2002 to 86.07% at March 31, 2003. Approximately 56.04% of the
Banks deposits were in IRAs and certificates of deposit at March 31, 2003. At December 31, 2002, IRAs and certificates of deposit were 51.78% of total deposits.

Asset Quality

A major key to long-term earnings growth is the maintenance of a high-quality loan portfolio. The Banks directive in this
regard is carried out through its policies and procedures for extending credit to the Banks customers. The goal and result of these policies and procedures is to provide a sound basis for new credit extensions and an early recognition of
problem assets to allow the most flexibility in their timely disposition.





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Additions to the allowance for loan losses will be made periodically to maintain the allowance at an appropriate level based upon
managements analysis of potential risk in the loan portfolio. The amount of the loan loss provision is determined by an evaluation of the level of loans outstanding, the level of non-performing loans, historical loan loss experience,
delinquency trends, the amount of actual losses charged to the allowance in a given period, lending staff experience and assessment of present and anticipated economic conditions.

At December 31, 2002, the allowance for loan losses amounted to $1,346,502. By March 31, 2003, the allowance had increased to $1,454,467. The allowance for loan losses, as a percentage of total gross loans, decreased
from 1.40% at December 31, 2001 to 1.38% of total gross loans at March 31, 2003. The Bank had no loans 90 or more days past due and no nonaccrual loans at March 31, 2003 or December 31, 2002. Management considers the allowance for loan losses to be
adequate and sufficient to absorb possible future losses; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions will not be required.

Liquidity and Sources of Capital

Liquidity is the Banks ability to meet all deposit
withdrawals immediately, while also providing for the credit needs of customers. Management believes that the financial statements, as of March 31, 2003, evidence a satisfactory liquidity position as total cash and cash equivalents amounted to $11.9
million, representing 8.86% of total assets. Investment securities amounted to $13.1 million, representing 9.72% of total assets as of March 31, 2003. Investment securities provide a secondary source of liquidity for the Bank since they can be
converted into cash in a timely manner. The Banks ability to maintain and expand its deposit base and borrowing capabilities is an additional source of liquidity. The Bank maintains federal funds lines totaling $6,800,000 with four regional
banks in an effort to support short-term liquidity. The Bank is a member of the Federal Home Loan Bank and is eligible to apply for term advances. Management closely monitors and maintains appropriate levels of interest earning assets and interest
bearing liabilities so that maturities of assets are such that adequate funds are provided to meet customer withdrawals and loan demands.

Management is
committed to maintaining capital at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements.

The table below illustrates the Banks and the Companys regulatory capital ratios at March 31, 2003:



|                               |  | March 31,2003 |   | Minimumregulatoryrequirement |  
|------------------------------ |  | ------------- | - | ---------------------------- | -
|                               |  |               |   |                              |  
|Consolidated                   |  |               |   |                              |  
|Tier 1 Capital                 |  | 8.42          | % | 4.0                          | %
|Tier 2 Capital                 |  | 1.25          | % |                             | %
|                               |  |               |   |                              |  
|Total risk-based capital ratio |  | 9.67          | % | 8.0                          | %
|                               |  |               |   |                              |  
|Leverage ratio                 |  | 7.74          | % | 4.0                          | %
|                               |  |               |   |                              |  
|Bank                           |  |               |   |                              |  
|Tier 1 Capital                 |  | 8.89          | % | 4.0                          | %
|Tier 2 Capital                 |  | 1.25          | % |                             | %
|                               |  |               |   |                              |  
|Total risk-based capital ratio |  | 10.14         | % | 8.0                          | %
|                               |  |               |   |                              |  
|Leverage ratio                 |  | 8.20          | % | 4.0                          | %
|                               |  |               |   |                              |  

The Company and the Bank currently meet the
regulatory criteria to be classified as well capitalized under the banking regulations.

The Company has entered into a credit facility with a
correspondent bank that provides for borrowings up to $2,500,000. The credit facility bears interest at the prime interest rate less 1⁄2% payable quarterly and matures on March 31, 2004. At maturity, the Company has the option to amortize the
balance over ten years. Borrowings





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under the facility are collateralized by the stock of the Bank. The Company is subject to certain covenants that include minimum tangible capital levels and
capital ratios, return on asset ratios, non-performing asset limits, and allowance for loan loss levels. At March 31, 2003, outstanding borrowings under this credit facility were $1,000,000 and the interest rate was 3.75%.

Results Of Operations

Net earnings for the three-month period ended March 31, 2003, amounted
to $357,710 or $.23 per diluted share, compared to $60,201 or $.04 per diluted share, for the three-month period ended March 31, 2002.

Net interest income
represents the difference between interest earned on interest bearing assets and interest paid on interest bearing liabilities. Net interest income increasedby $312,403, or 31.48%, from $992,462 for
the three months ended March 31, 2002, to $1,304,865 for the three months ended March 31, 2003. The increase in net interest income was the result of a 32.7% increase in average loans outstanding from the first quarter of 2002 to the first quarter
of 2003. Net yield on interest earning assets increased to 4.49% for the first quarter of 2003, compared to 4.27% for the first quarter of 2002.Net interest income increased primarily as a result of
volume increases. The higher loan volume was funded primarily by deposit growth of approximately $13,000,000 for the three months ended March 31, 2003.

Other
income for the three-month period ended March 31, 2003, amounted to $402,267 compared to $249,875 for the same period in 2002, a 60.99% increase. Of this increase, $102,125 related to increases in service charges on deposit accounts. That difference
was attributable to an increase in fees of $86,268 related to an overdraft privilege service that was introduced during the second quarter of 2002.Mortgage origination income increased by $37,408 to
$90,336 for the three month period ended March 31, 2003 compared to $52,928 for the same period in 2002.

Operating expenses for the three-month period ended
March 31, 2003, amounted to $1,051,112, compared to $1,020,496 for the same period in 2002, an increase of $30,616 or 3.00%.This minor increase resulted primarily from non-recurring costs incurred
during the first quarter of 2002. Salaries and employee benefits increased by $60,180, to $549,559 for the three-month period ended March 31, 2003 compared to $489,379 for the same period in 2002. The increase was attributable to staffing additions
necessary to support loan and deposit growth. Occupancy expense decreased $4,322. Changes in other operating expense for the three months ended March 31, 2003, compared to the same period of 2002 are as follows:



|                           |  | 2003 |         | 2002 |   | Change  |  | % Change |        
|-------------------------- |  | ---- | ------- | ---- | - | ------- |  | -------- | -------
|                           |  |      |         |      |   |         |  |          |        
|Office supplies and forms  |  | $    | 21,349  |      | $ | 34,942  |  | $        | (13,593
|Telecommunications         |  |      | 23,518  |      |   | 23,993  |  |          | (475   
|Postage and freight        |  |      | 28,490  |      |   | 27,231  |  |          | 1,259  
|Advertising and promotions |  |      | 21,858  |      |   | 14,092  |  |          | 7,766  
|Debit card expense         |  |      | 26,335  |      |   | 45,983  |  |          | (19,648
|Other operating losses     |  |      | 8,785   |      |   | 12,533  |  |          | (3,748 
|Miscellaneous              |  |      | 30,739  |      |   | 14,615  |  |          | 16,124 
|                           |  |      |         |      |   |         |  |          |        
|                           |  | $    | 161,074 |      | $ | 173,389 |  | $        | (12,315
|                           |  |      |         |      |   |         |  |          |        

Most of the above expenses decreased primarily due
to certain non recurring costs incurred during the first quarter of 2002. A change in the Company name and the opening of a new bank facility in Newton County were events causing excessive expenses that were not repeated in 2003. Debit card expenses
were higher in 2002 due to a change in pricing by the vendor associated with lost or stolen debit cards.The pricing has since been adjusted to a more appropriate level for the risk exposure of the
Bank.

The Company is not aware of any current recommendation by the regulatory authorities which, if they were to be implemented, would have a material effect
on the Companys liquidity, capital resources, or results of operations. As of March 31, 2003 and 2002, the most recent notification from the bank regulators categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action.





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##### Table of Contents

Item 3.

Controls and Procedures

Management of the Company has reviewed the disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) of the Company as of a date within 90 days prior to this quarterly
report (the Evaluation Date). Management believes that such disclosure controls and procedures as of the Evaluation Date are adequate to ensure that material information relating to the Company, including its consolidated subsidiary,
required to be disclosed in the Companys reports filed or submitted under the Exchange Act is made known to management by others within the company and its consolidated subsidiary so that such information may be recorded and reported within
the time periods specified in the Securities and Exchange Commission rules and Forms.

There have been no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the Evaluation Date.





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##### Table of Contents

Part II. Other Information

Item 1.

Legal Proceedings

None

Item 2.

Change in Securities and Use of Proceeds

On February 14, 2003, the Company issued 44,400 shares of its common stock to various investors, including a director of the Company, pursuant to a private placement of the Companys common stock. The Company
received$444,000 in consideration of these issuances. The issuance of the common stock was made in reliance upon the exception from registration provided by Rule 506 promulgated under the Securities
Act of 1933, as amended. All of the securities were acquired by the recipients thereof for investment and with no view toward the resale or distribution thereof. The offers and sales were made without any public solicitation, and the stock
certificates bear a restrictive legend. No underwriter was involved in these transactions and no commissions were paid.

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders

None

Item 5.

Other Information

None

Item6.

Exhibits and Reports on Form 8-K

a)

Exhibits. The following exhibit is filed with this
report.



|Exhibit No. | Description                                                                                   
|----------- | ----------------------------------------------------------------------------------------------
|            |                                                                                               
|10.1        | Employment Agreement dated March 18, 2003 between the Company, the Bank, and William L. Daniel
|            |                                                                                               
|99.1        | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                      

b)

Reports on Form 8-K.

On January 14, 2003 the Company filed a Report on Form 8-K with respect to its press release regarding its financial results for the year ended December 31, 2002





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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, 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 NATIONAL BANCSHARES, INC.
| |  | ---------------------------------
| |  | By:                              
| |  |                                  
| |  |                                  
| |  | Date: May 12, 2003               



| |  |                   
| |  | ------------------
| |  | By:               
| |  |                   
| |  |                   
| |  | Date: May 12, 2003





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##### Table of Contents

CERTIFICATION

I, William L. Daniel, President and Chief Executive Officer of the registrant, certify that:

(1)

I have reviewed this quarterly report on Form
10-QSB;

(2)

Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly
report;

(3)

Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;

(4)

The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which the report was being prepared;

(b)

evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and

(c)

presented in this quarterly report
our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5)

The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

(6)

The registrants other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



|May 12, 2003                                           |  |  | 
|------------------------------------------------------ |  |  | 
|/s/ WILLIAML.DANIEL                                    |  |  | 
|                                                       |  |  | 
|William L. DanielPresident and Chief Executive Officer |  |  | 





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##### Table of Contents

CERTIFICATION

I, Jesse R. Cheatham, Chief Financial Officer of the
registrant, certify that:

(1)

I have reviewed
this quarterly report on Form 10-QSB;

(2)

Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report;

(3)

Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

(4)

The registrants other certifying officer and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which the report was being prepared;

(b)

evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and

(c)

presented in this quarterly report
our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5)

The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

(6)

The registrants other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



|May 12, 2003                             |  |  | 
|---------------------------------------- |  |  | 
|/s/ JESSER.CHEATHAM                      |  |  | 
|                                         |  |  | 
|Jesse R. CheathamChief Financial Officer |  |  | 





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##### Table of Contents

EXHIBIT INDEX



|Exhibit No. | Description                                                                                   
|----------- | ----------------------------------------------------------------------------------------------
|            |                                                                                               
|10.1        | Employment Agreement dated March 18, 2003 between the Company, the Bank, and William L. Daniel
|            |                                                                                               
|99.1        | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002