##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the Quarterly Period Ended June 30, 2004



OR



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



For the Transition Period from  to



Commission file number 0-24113



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Liberty National Bancshares, Inc.

(Exact name of registrant as specified in its charter)



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



P.O. Box 82030

Conyers, Georgia 30013

(Address of principal executive offices)



770-785-7880

(Telephone Number, including Area Code)



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State the number of shares outstanding of each of the

issuers classes of common equity, as of the latest
practicable date:



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Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ̈



As of August 9, 2004 there were 1,583,399 shares of the Registrants common stock, par value $.50 per share, outstanding.



Transitional Small Business Disclosure
Format.    YES ̈NO  x



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



INDEX



|           |  |                                                                                                                                  |  |         
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | --------
|           |  |                                                                                                                                  |  | Page No.
|PART I     |  | FINANCIAL INFORMATION                                                                                                            |  |         
|           |  |                                                                                                                                 
|Item 1.    |  | Financial Statements                                                                                                             |  |         
|           |  |                                                                                                                                 
|           |  | Consolidated Balance Sheet (Unaudited) at June 30, 2004                                                                          |  | 3       
|           |  |                                                                                                                                 
|           |  | Consolidated Statements of Earnings (Unaudited) for the Three Months and the Six Months Ended June 30, 2004 and 2003             |  | 4       
|           |  |                                                                                                                                 
|           |  | Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and the Six Months Ended June 30, 2004 and 2003 |  | 5       
|           |  |                                                                                                                                 
|           |  | Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2004 and 2003                                |  | 6       
|           |  |                                                                                                                                 
|           |  | Notes to Consolidated Financial Statements (Unaudited)                                                                           |  | 7       
|           |  |                                                                                                                                 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition And Results of Operations                                            |  | 11      
|           |  |                                                                                                                                 
|Item 3.    |  | Controls and Procedures                                                                                                          |  | 15      
|           |  |                                                                                                                                 
|PART II.   |  | OTHER INFORMATION                                                                                                                |  |         
|           |  |                                                                                                                                 
|Item 1.    |  | Legal Proceedings                                                                                                                |  | 16      
|           |  |                                                                                                                                 
|Item 2.    |  | Changes in Securities and Repurchases of Equity Securities                                                                       |  | 16      
|           |  |                                                                                                                                 
|Item 3.    |  | Defaults Upon Senior Securities                                                                                                  |  | 16      
|           |  |                                                                                                                                 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                              |  | 16      
|           |  |                                                                                                                                 
|Item 5.    |  | Other Information                                                                                                                |  | 16      
|           |  |                                                                                                                                 
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                                 |  | 16      
|           | 
|SIGNATURES |  | 17                                                                                                                              
|           | 
|Exhibits   |  |                                                                                                                                 



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Balance Sheet



June 30, 2004

(Unaudited)



|                                                                                                                          |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Assets                                                                                                                    |  |   |             |  
|Cash and due from banks                                                                                                   |  | $ | 8,022,566   |  
|Federal funds sold                                                                                                        |  |   | 9,446,000   |  
|                                                                                                                          |  |   |             |  
|Cash and cash equivalents                                                                                                 |  |   | 17,468,566  |  
|                                                                                                                          | 
|Investment securities available for sale                                                                                  |  |   | 16,343,018  |  
|Other investments                                                                                                         |  |   | 468,518     |  
|Loans, net of allowance for loan losses of $1,922,870                                                                     |  |   | 138,848,253 |  
|Premises and equipment, net                                                                                               |  |   | 4,777,992   |  
|Accrued interest receivable                                                                                               |  |   | 624,137     |  
|Other assets                                                                                                              |  |   | 831,062     |  
|                                                                                                                          |  |   |             |  
|Total assets                                                                                                              |  | $ | 179,361,546 |  
|                                                                                                                          |  |   |             |  
|Liabilities and Stockholders Equity                                                                                      |  |   |             |  
|Liabilities:                                                                                                              |  |   |             |  
|Deposits:                                                                                                                 |  |   |             |  
|Demand                                                                                                                    |  | $ | 26,109,369  |  
|Interest-bearing demand and money market                                                                                  |  |   | 47,770,127  |  
|Savings                                                                                                                   |  |   | 3,929,484   |  
|Time deposits of $100,000 or more                                                                                         |  |   | 20,398,466  |  
|Time                                                                                                                      |  |   | 63,284,779  |  
|                                                                                                                          |  |   |             |  
|Total deposits                                                                                                            |  |   | 161,492,225 |  
|                                                                                                                          | 
|Accrued interest payable                                                                                                  |  |   | 142,156     |  
|Other liabilities                                                                                                         |  |   | 493,387     |  
|FHLB advances                                                                                                             |  |   | 2,500,000   |  
|Other borrowings                                                                                                          |  |   | 2,500,000   |  
|                                                                                                                          |  |   |             |  
|Total liabilities                                                                                                         |  |   | 167,127,768 |  
|                                                                                                                          |  |   |             |  
|Stockholders equity: Common stock, $.50 par value; authorized 10,000,000 shares; 1,568,399 shares issued and outstanding |  |   | 784,200     |  
|Additional paid-in capital                                                                                                |  |   | 7,480,838   |  
|Retained earnings                                                                                                         |  |   | 4,071,757   |  
|Accumulated other comprehensive income(loss)                                                                              |  |   | (103,017    | )
|                                                                                                                          |  |   |             |  
|Total stockholders equity                                                                                                |  |   | 12,233,778  |  
|                                                                                                                          |  |   |             |  
|Total liabilities and stockholders equity                                                                                |  | $ | 179,361,546 |  
|                                                                                                                          |  |   |             |  



See accompanying notes to unaudited
consolidated financial statements.



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Earnings



For the Three Months and the Six Months Ended June 30, 2004 and 2003

(Unaudited)



|                                                    |  |                    |           |                  |           |      |           |      |          
|--------------------------------------------------- |  | ------------------ | --------- | ---------------- | --------- | ---- | --------- | ---- | ---------
|                                                    |  | Three Months Ended |           | Six Months Ended
|                                                    |  | 2004               |           | 2003             |           | 2004 |           | 2003
|Interest and dividend income:                       |  |                    |           |                  |           |      |           |      |          
|Loans, including fees                               |  | $                  | 2,181,021 |                  | 1,912,703 |      | 4,351,465 |      | 3,753,405
|Investment securities:                              |  |                    |           |                  |           |      |           |      |          
|Taxable                                             |  |                    | 136,762   |                  | 102,657   |      | 231,551   |      | 217,893  
|Tax exempt                                          |  |                    | 16,587    |                  | 12,460    |      | 29,672    |      | 35,396   
|Federal funds sold                                  |  |                    | 24,972    |                  | 19,560    |      | 31,872    |      | 25,964   
|Interest on deposit with other banks                |  |                    | 246       |                  | 1,183     |      | 851       |      | 1,371    
|                                                    |  |                    |           |                  |           |      |           |      |          
|Total interest income                               |  |                    | 2,359,588 |                  | 2,048,563 |      | 4,645,411 |      | 4,034,029
|                                                    |  |                    |           |                  |           |      |           |      |          
|Interest expense:                                   |  |                    |           |                  |           |      |           |      |          
|Deposits                                            |  |                    | 710,551   |                  | 686,993   |      | 1,367,162 |      | 1,315,363
|Federal Home Loan Bank advances                     |  |                    | 43,125    |                  | 42,897    |      | 85,781    |      | 85,313   
|Notes payable                                       |  |                    | 26,171    |                  | 9,625     |      | 45,839    |      | 17,125   
|Federal funds purchased                             |  |                    |          |                  | 119       |      | 253       |      | 3,748    
|                                                    |  |                    |           |                  |           |      |           |      |          
|Total interest expense                              |  |                    | 779,847   |                  | 739,634   |      | 1,499,035 |      | 1,421,549
|                                                    |  |                    |           |                  |           |      |           |      |          
|Net interest income                                 |  |                    | 1,579,741 |                  | 1,308,929 |      | 3,146,376 |      | 2,612,480
|                                                    |  |                    |           |                 
|Provision for loan losses                           |  |                    | 136,251   |                  | 172,578   |      | 230,193   |      | 285,940  
|                                                    |  |                    |           |                  |           |      |           |      |          
|Net interest income after provision for loan losses |  |                    | 1,443,490 |                  | 1,136,351 |      | 2,916,183 |      | 2,326,540
|                                                    |  |                    |           |                  |           |      |           |      |          
|Other operating income:                             |  |                    |           |                  |           |      |           |      |          
|Service charges on deposit accounts                 |  |                    | 349,223   |                  | 309,401   |      | 651,047   |      | 588,276  
|Other operating income                              |  |                    | 111,482   |                  | 191,748   |      | 274,553   |      | 316,454  
|                                                    |  |                    |           |                  |           |      |           |      |          
|Total other operating income                        |  |                    | 460,705   |                  | 501,149   |      | 925,600   |      | 904,730  
|                                                    |  |                    |           |                  |           |      |           |      |          
|Other operating expense:                            |  |                    |           |                  |           |      |           |      |          
|Salaries and other personnel expense                |  |                    | 651,788   |                  | 636,070   |      | 1,318,851 |      | 1,185,629
|Net occupancy and equipment expense                 |  |                    | 171,335   |                  | 151,332   |      | 352,190   |      | 301,601  
|Professional and other outside services             |  |                    | 224,387   |                  | 201,913   |      | 396,735   |      | 357,245  
|Other operating expense                             |  |                    | 213,056   |                  | 200,944   |      | 422,242   |      | 396,896  
|                                                    |  |                    |           |                  |           |      |           |      |          
|Total other operating expense                       |  |                    | 1,260,566 |                  | 1,190,259 |      | 2,490,018 |      | 2,241,371
|                                                    |  |                    |           |                  |           |      |           |      |          
|Earnings before income taxes                        |  |                    | 643,629   |                  | 447,241   |      | 1,351,765 |      | 989,899  
|                                                    |  |                    |           |                 
|Income tax expense                                  |  |                    | 231,303   |                  | 154,501   |      | 487,886   |      | 339,449  
|                                                    |  |                    |           |                  |           |      |           |      |          
|Net earnings                                        |  | $                  | 412,326   |                  | 292,740   |      | 863,879   |      | 650,450  
|                                                    |  |                    |           |                  |           |      |           |      |          
|Basic net earnings per share                        |  | $                  | .27       |                  | .20       |      | .57       |      | .45      
|                                                    |  |                    |           |                  |           |      |           |      |          
|Diluted net earnings per share                      |  | $                  | .26       |                  | .18       |      | .54       |      | .42      
|                                                    |  |                    |           |                  |           |      |           |      |          



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 and the Six Months Ended June 30, 2004 and 2003

(Unaudited)



|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ---------------- | ------- | - | ---- | -------- | - | ---- | ------- | -
|                                                                                                        |  | Three Months Ended |          |   | Six Months Ended |        
|                                                                                                        |  | 2004               |          |   | 2003             |         |   | 2004 |          |   | 2003 |        
|Net earnings                                                                                            |  | $                  | 412,326  |   |                  | 292,740 |   |      | 863,879  |   |      | 650,450 |  
|                                                                                                        |  |                    |          |  
|Other comprehensive income (loss), net of tax:                                                          |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Unrealized holding gains (losses) on investment securities available for sale arising during the period |  |                    | (382,953 | ) |                  | 45,922  |   |      | (375,509 | ) |      | 96,897  |  
|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Total other comprehensive income (loss), before tax                                                     |  |                    | (382,953 | ) |                  | 45,922  |   |      | (375,509 | ) |      | 96,897  |  
|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Income taxes related to other comprehensive income:                                                     |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Unrealized holding gains (losses) on investment securities available for sale arising during the period |  |                    | 130,204  |   |                  | (15,614 | ) |      | 127,674  |   |      | (32,945 | )
|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Total income taxes related to other comprehensive income (loss)                                         |  |                    | 130,204  |   |                  | (15,614 | ) |      | 127,674  |   |      | (32,945 | )
|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Total other comprehensive income, net of tax                                                            |  |                    | (252,749 | ) |                  | 30,308  |   |      | (247,835 | ) |      | 63,952  |  
|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  
|Comprehensive income                                                                                    |  | $                  | 159,577  |   |                  | 323,048 |   |      | 616,044  |   |      | 714,402 |  
|                                                                                                        |  |                    |          |   |                  |         |   |      |          |   |      |         |  



See accompanying notes to unaudited
consolidated financial statements.



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Cash Flows



For the Six Months Ended June 30, 2004 and 2003

(Unaudited)

|                                                                                       |  |                           |             |   |      |             |  
|-------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---- | ----------- | -
|                                                                                       |  | Six Months Ended June 30, |            
|                                                                                       |  | 2004                      |             |   | 2003 |            
|Cash flows from operating activities:                                                  |  |                           |             |   |      |             |  
|Net earnings                                                                           |  | $                         | 863,879     |   |      | 650,450     |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:    |  |                           |             |   |      |             |  
|Provision for loan losses                                                              |  |                           | 230,193     |   |      | 285,940     |  
|Gain on sale of other real estate owned                                                |  |                           | (18,770     | ) |      |            |  
|Depreciation, amortization and accretion                                               |  |                           | 203,013     |   |      | 184,976     |  
|Change in assets and liabilities:                                                      |  |                           |             |   |      |             |  
|Net change in other assets and other liabilities                                       |  |                           | (41,477     | ) |      | 75,197      |  
|                                                                                       |  |                           |             |   |      |             |  
|Net cash provided by operating activities                                              |  |                           | 1,236,838   |   |      | 1,196,563   |  
|                                                                                       |  |                           |             |   |      |             |  
|Cash flows from investing activities:                                                  |  |                           |             |   |      |             |  
|Purchases of investment securities                                                     |  |                           | (8,647,120  | ) |      |            |  
|Proceeds from calls of investment securities                                           |  |                           | 750,000     |   |      | 1,000,000   |  
|Proceeds from maturities and paydowns of investment securities available for sale      |  |                           | 3,834,461   |   |      | 255,148     |  
|Net change in loans                                                                    |  |                           | (10,332,991 | ) |      | (18,692,918 | )
|Proceeds from the sale of other real estate                                            |  |                           | 252,144     |   |      |            |  
|Purchases of premises and equipment                                                    |  |                           | (66,875     | ) |      | (954,015    | )
|                                                                                       |  |                           |             |   |      |             |  
|Net cash used by investing activities                                                  |  |                           | (14,210,381 | ) |      | (18,391,785 | )
|                                                                                       |  |                           |             |   |      |             |  
|Cash flows from financing activities:                                                  |  |                           |             |   |      |             |  
|Net change in deposits                                                                 |  |                           | 20,911,724  |   |      | 18,507,871  |  
|Notes payable advances                                                                 |  |                           | 400,000     |   |      | 500,000     |  
|Repayment of notes payable                                                             |  |                           | (400,000    | ) |      |            |  
|Proceeds from private placement offering, net of offering costs of $12,685             |  |                           |            |   |      | 431,315     |  
|Proceeds from the exercise of stock options                                            |  |                           | 523,750     |   |      | 52,827      |  
|                                                                                       |  |                           |             |   |      |             |  
|Net cash provided by financing activities                                              |  |                           | 21,435,474  |   |      | 19,492,013  |  
|                                                                                       |  |                           |             |   |      |             |  
|Net change in cash and cash equivalents                                                |  |                           | 8,461,931   |   |      | 2,296,791   |  
|                                                                                       |  |                          
|Cash and cash equivalents at beginning of period                                       |  |                           | 9,006,635   |   |      | 6,677,093   |  
|                                                                                       |  |                           |             |   |      |             |  
|Cash and cash equivalents at end of period                                             |  | $                         | 17,468,566  |   |      | 8,973,884   |  
|                                                                                       |  |                           |             |   |      |             |  
|Supplemental cash flow information:                                                    |  |                           |             |   |      |             |  
|Cash paid for income taxes                                                             |  | $                         | 577,000     |   |      | 537,715     |  
|Cash paid for interest                                                                 |  | $                         | 1,415,715   |   |      | 1,414,570   |  
|Change in net unrealized gains on investment securities available for sale, net of tax |  | $                         | (247,835    | ) |      | 63,952      |  



See accompanying notes to unaudited
consolidated financial statements.



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements

(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 June 30, 2004, and the six-month period ending June 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.



Reclassifications of certain amounts in
the 2003 consolidated financial statements have been made to conform with the financial statement presentation for 2004. The reclassifications have no effect on net earnings or shareholders equity as previously reported.



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, continued

(Unaudited)



|(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- and six- month
periods ended June 30, 2004 and 2003, is as follows:



|                                          |  |             |         |                            |           |                |   |    
|----------------------------------------- |  | ----------- | ------- | -------------------------- | --------- | -------------- | - | ---
|                                          |  | NetEarnings |         | Average Shares Outstanding |           | PerShareAmount
|For the three months ended June 30, 2004: |  |             |         |                            |           |                |   |    
|Net earnings  basic                      |  | $           | 412,326 |                            | 1,531,839 |                | $ | .27
|                                          |  |             |         |                            |           |                |   |    
|Effect of dilutive stock options          |  |             |        |                            | 77,250    |                |   |    
|                                          |  |             |         |                            |           |                |   |    
|Net earnings  diluted                    |  | $           | 412,326 |                            | 1,609,089 |                | $ | .26
|                                          |  |             |         |                            |           |                |   |    
|For the three months ended June 30, 2003: |  |             |         |                            |           |                |   |    
|Net earnings  basic                      |  | $           | 292,740 |                            | 1,470,875 |                | $ | .20
|                                          |  |             |         |                            |           |                |   |    
|Effect of dilutive stock options          |  |             |        |                            | 116,994   |                |   |    
|                                          |  |             |         |                            |           |                |   |    
|Net earnings  diluted                    |  | $           | 292,740 |                            | 1,587,869 |                | $ | .18
|                                          |  |             |         |                            |           |                |   |    



|                                        |  |             |         |                            |           |                |   |    
|--------------------------------------- |  | ----------- | ------- | -------------------------- | --------- | -------------- | - | ---
|                                        |  | NetEarnings |         | Average Shares Outstanding |           | PerShareAmount
|For the six months ended June 30, 2004: |  |             |         |                            |           |                |   |    
|Net earnings  basic                    |  | $           | 863,879 |                            | 1,503,119 |                | $ | .57
|                                        |  |             |         |                            |           |                |   |    
|Effect of dilutive stock options        |  |             |        |                            | 88,852    |                |   |    
|                                        |  |             |         |                            |           |                |   |    
|Net earnings  diluted                  |  | $           | 863,879 |                            | 1,591,971 |                | $ | .54
|                                        |  |             |         |                            |           |                |   |    
|For the six months ended June 30, 2003: |  |             |         |                            |           |                |   |    
|Net earnings  basic                    |  | $           | 650,450 |                            | 1,453,211 |                | $ | .45
|                                        |  |             |         |                            |           |                |   |    
|Effect of dilutive stock options        |  |             |        |                            | 111,874   |                |   |    
|                                        |  |             |         |                            |           |                |   |    
|Net earnings  diluted                  |  | $           | 650,450 |                            | 1,565,085 |                | $ | .42
|                                        |  |             |         |                            |           |                |   |    



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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, continued

(Unaudited)



|(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:



For the Six Months Ended:



|                                                                                                                      |  |          |         |   |      |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- | - | ---- | ------- | -
|                                                                                                                      |  | June 30, |        
|                                                                                                                      |  | 2004     |         |   | 2003 |        
|Net earnings, as reported                                                                                             |  | $        | 863,879 |   |      | 650,450 |  
|Pro forma stock-based compensation cost adjustments associated with new grants of 4,500 and 1,200 options, net of tax |  |          | (13,220 | ) |      | (2,590  | )
|                                                                                                                      |  |          |         |   |      |         |  
|Pro forma net earnings                                                                                                |  | $        | 850,659 |   |      | 647,860 |  
|                                                                                                                      |  |          |         |   |      |         |  
|Basic earnings per share, as reported                                                                                 |  | $        | .57     |   |      | .45     |  
|                                                                                                                      |  |         
|Pro forma stock-based compensation cost adjustments associated with new grants , net of tax, per share                |  |          | (.01    | ) |      |        |  
|                                                                                                                      |  |          |         |   |      |         |  
|Basic pro forma earnings, per share                                                                                   |  | $        | .56     |   |      | .45     |  
|                                                                                                                      |  |          |         |   |      |         |  
|Diluted earnings per share, as reported                                                                               |  | $        | .54     |   |      | .42     |  
|                                                                                                                      |  |         
|Pro forma stock-based compensation cost adjustments associated with new grants, net of tax, per share                 |  |          | (.01    | ) |      |        |  
|                                                                                                                      |  |          |         |   |      |         |  
|Diluted pro forma earnings, per share                                                                                 |  | $        | .53     |   |      | .42     |  
|                                                                                                                      |  |          |         |   |      |         |  



For the pro forma
disclosure purposes above, the Company immediately recognized the expense associated with the option grants assuming that all awards are vested.



|(4) | Note Payable
|--- | ------------



In March 2002, the Company entered into a credit facility with a correspondent bank that provided for borrowings of up to $2,500,000. During March of
2004, the facility was renegotiated to allow borrowings of up to $4,500,000. The credit facility bears interest at the prime interest rate less 1⁄2%, is payable quarterly and matures on March 24, 2006. At maturity, the Company has the option to
amortize the balance over ten years. Borrowings 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 June 30, 2004, outstanding borrowings under this credit facility were $2,500,000, with an interest rate of 3.50%. The rate of interest increased to 3.75% on July 1, 2004 as a result
of the increase in the prime rate.



|(5) | Subsequent Event
|--- | ----------------



Subsequent to June 30, 2004, options to purchase 15,000 shares of the Companys common stock were exercised by certain directors and those exercises
yielded proceeds of $82,750.



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##### Table of Contents

|(6) | Stock Options
|--- | -------------



The Company maintains a stock option plan, which allows for a total of 200,000 common stock options to be granted to members of the Board of Directors.
The exercise price for each option shall be the average market price of a share of stock on the date of grant.



Options outstanding and activity for the six-month period ended June 30, 2004 under this plan, consisted of the following:



|                    |  |                                |   |  |                             |     
|------------------- |  | ------------------------------ | - |  | --------------------------- | ----
|                    |  | Six Months Ended June 30, 2004
|                    |  | Shares                         |   |  | WeightedAvg. Exercise Price
|Beginning of period |  | 124,000                        |   |  | $                           | 5.56
|Granted             |  |                               |   |  |                             |    
|Exercised           |  | (94,000                        | ) |  |                             | 5.57
|Cancelled           |  |                               |   |  |                             |    
|                    |  |                                |   |  |                             |     
|End of period       |  | 30,000                         |   |  | $                           | 5.52
|                    |  |                                |   |  |                             |     



The Company maintains
a stock option plan, which allows for a total of 200,000 common stock options to be granted to eligible directors, officers and key employees. Stock options granted under this plan may be incentive stock options or nonqualified stock options. The
Board of Directors may grant incentive stock options or nonqualified stock options to any director, officer, or other employee, including an employee who is a director of the Company. Such shares may be treasury, or authorized, but unissued, shares
of common stock. The options granted vest ratably over a three-year period.



The exercise price for options granted as either an incentive stock option or as a nonqualified stock option must be equal to 100 percent of the market price on the day the option is granted, as determined by the
Board of Directors. The exercise price under an incentive stock option granted to a person owning stock representing more than 10 percent of the Companys common stock must equal at least 110 percent of the fair market value at the date of the
grant, but in no case less than par value, and such option must not be exercisable until five years from the date the incentive stock option is granted.



Options outstanding and activity for the six-month period ended June 30, 2004 under this plan, consisted of the following:



|                    |  |                                |  |                             |      
|------------------- |  | ------------------------------ |  | --------------------------- | -----
|                    |  | Six Months Ended June 30, 2004
|                    |  | Shares                         |  | WeightedAvg. Exercise Price
|Beginning of period |  | 94,534                         |  | $                           | 6.37 
|Granted             |  | 4,500                          |  |                             | 12.33
|Exercised           |  |                               |  |                             |     
|Cancelled           |  |                               |  |                             |     
|                    |  |                                |  |                             |      
|End of period       |  | 99,034                         |  | $                           | 6.63 
|                    |  |                                |  |                             |      



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##### Table of Contents

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



Liberty National Bancshares, Inc. (the Company) was incorporated under the laws of the State of Georgia in February 1997 to operate as a bank
holding company pursuant to the Federal Bank Holding Company Act of 1956, as amended. The Company is a one-bank holding company that owns all of the issued and outstanding stock of Liberty National Bank (the Bank), which conducts
business in Rockdale and Newton Counties, Georgia.



The Bank is
a full-service financial institution that offers a wide range of commercial and retail banking products and services. The bank has two branches in Conyers, Georgia and one branch in Covington, Georgia.



Critical Accounting Policy



The accounting and financial reporting policies of the Company and the Bank
conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The Company has determined that its policy regarding the determination of its allowance for loan losses is a
critical accounting policy in that it requires significant judgments and involves complex estimates and the application of the policy has a significant impact on the Companys financial statements.



The allowance for loan losses is an estimate of the losses that may be
sustained in the Banks portfolio. The allowance is based on two basic principles of accounting: (1) Statement of Financial Accounting Standards (SFAS) No. 5 Accounting for Contingencies, which requires that losses be
accrued when they are probable of occurring and estimable, and (2) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present
value of future cash flows or values that are observable in the secondary market and the loan balance. The use of these values is inherently subjective and the Banks actual losses could be greater or less than the estimates.



The Banks allowance for loan losses has two basic components: (1)
specific loss estimates for individually classified and impaired loans, and (2) general loss estimates on loans for which no impairment has been identified and large groups of smaller balance homogeneous loans. Specific loss estimates on individual
loans include subjective evaluations related to secondary sources of repayment for the loan which are principally collateral liquidation. The general loss allocations use historical loss ratio experience which may not be indicative of the actual
losses present in the loan portfolio at a given point in time.



While the basic methodology of the Banks loan loss allowance estimation process has not changed, management continuously re-evaluates the use of historical loss factors, national and local economic trends, credit concentrations and
other relevant factors in determining the adequacy of the allowance for loan loss.



This estimation process associated with the allowance for loan losses can have significant effects in the estimated loan loss expense of a given period. Generally, the allowance for loan losses increases as the
outstanding balance of loans increase or the level of classified or impaired loans increases. Loans or portions of loans that are deemed uncollectible are charged against and reduce the allowance.



Forward-Looking Statements



This discussion may contain forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although the Company believes the assumptions underlying any forward-looking statements contained in this discussion are reasonable, any of the assumptions could be
inaccurate, and therefore, no assurance can be made that any of the forward-looking statements included in this discussion will be accurate. Factors that could cause actual results to differ from results discussed in forward-looking statements
include, but are not limited to: economic conditions (both generally



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and in the markets where the Company operates); competition from other providers of financial services offered by the
Company; government regulation and legislation; changes in interest rates; and material unforeseen changes in the financial stability and liquidity of the Companys credit customers; all of which are difficult to predict and which may be beyond
the control of the Company. The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.



Financial Condition



Total assets at June 30, 2004 were $179,361,546, representing a $22,218,254 (14.1%) increase from December 31, 2003.
Deposits increased $20,911,724 (14.9%) from December 31, 2003 as the Company remained competitive in deposit acquisition in order to fund loan growth. Gross loans increased $10,326,507 (7.9%) from December 31, 2003. The allowance for loan losses at
June 30, 2004 totaled $1,922,870, representing 1.37% of total loans compared to the December 31, 2003, total of $1,699,162 representing 1.30% of total loans. Cash and cash equivalents increased $8,461,931 from December 31, 2003.



The Company is not aware of any current recommendation by its regulatory
authorities, which, if implemented, would have a material effect on the Companys liquidity, capital resources, or results of operations.



Results of Operations



For the six months ended June 30, 2003, the Company reported net earnings of $863,879, or $.54 per diluted share, compared to $650,450, or $.42 per
diluted share, for the same period in 2003. Net earnings for the three months ended June 30, 2004, increased $119,586, or 40.9%, compared to the same period in 2003.



Net interest income increased $533,896 (20.4%) for the first six months of 2004 compared to the same period for 2003.
Interest income for the first six months of 2004 was $4,645,411, representing an increase of $611,382 (15.2%) over the same period in 2003. Interest expense for the first six months of 2004 increased $77,486 (5.5%) compared to the same period in
2003. The primary reason for the increase in net interest income for the six-month period ended June 30, 2004 versus the same period in 2003 was the increase in the amount of loans outstanding. The net interest margin decreased by 32 basis points
from 4.25% in the first six months of 2003 to 3.93% in the same period in 2004. The net interest margin decreased as result of earning assets re-pricing at lower levels faster that funding sources. Additionally, the Bank remained competitive for
time deposits in its local market to preserve liquidity and to provide stable funding sources for additional anticipated loan growth.



The provision for loan losses for the first six months of 2004 decreased $55,747 compared to the same period for 2003 due to charge-offs being
substantially lower than anticipated as a result of rigorous credit standards. Net loan charge-offs for the six months ended June 30, 2004 were $6,484, compared to $22,362 for the same period in 2003. Management believes that the allowance for loan
losses is adequate to absorb probable losses in the portfolio.



Other operating income increased for the six months ended June 30, 2004 by $20,870, or 2.3%, compared to the same period in 2003, primarily due to the continued success of the overdraft privilege service and service charges on new deposit
accounts. Mortgage origination income has declined during 2004 compared to 2003 because of a general flattening of the refinance market and fewer mortgage applications from customers.



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Additional increases in business activity generated increases in service charge revenue. The following
table details the changes in other operating income for the first six months of 2004 compared to the first six months of 2003:



|                             |  |      |         |      |   |         |  |   |                   |   |  |       |  
|---------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | ----------------- | - |  | ----- | -
|                             |  | 2004 |         | 2003 |   | Change  |  |   | Percentage Change |  
|Monthly deposit service fees |  | $    | 77,883  |      | $ | 58,396  |  | $ | 19,487            |   |  | 33.4  |  
|NSF charges                  |  |      | 494,741 |      |   | 464,430 |  |   | 30,311            |   |  | 6.5   |  
|Mortgage origination income  |  |      | 195,627 |      |   | 239,501 |  |   | (43,874           | ) |  | (18.3 | )
|Miscellaneous                |  |      | 157,349 |      |   | 142,403 |  |   | 14,946            |   |  | 10.5  |  
|                             |  |      |         |      |   |         |  |   |                   |   |  |       |  
|                             |  | $    | 925,600 |      | $ | 904,730 |  | $ | 20,870            |   |  | 2.3   |  
|                             |  |      |         |      |   |         |  |   |                   |   |  |       |  



Other operating expenses for the first
six months of 2004 increased $248,647 (11.1%) compared to the first six months in 2003. The following table details the changes in other operating expenses for the first six months of 2004 compared to the first six months of 2003:



|                                        |  |      |           |      |   |           |  |   |                   |   |  |      |  
|--------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ----------------- | - |  | ---- | -
|                                        |  | 2004 |           | 2003 |   | Change    |  |   | Percentage Change |  
|Salaries and other personnel expense    |  | $    | 1,318,851 |      | $ | 1,185,629 |  | $ | 133,222           |   |  | 11.2 |  
|Net occupancy and equipment expense     |  |      | 352,190   |      |   | 301,601   |  |   | 50,589            |   |  | 16.8 |  
|Data processing expense                 |  |      | 284,960   |      |   | 254,229   |  |   | 30,731            |   |  | 12.1 |  
|Telecommunications                      |  |      | 22,209    |      |   | 24,499    |  |   | (2,290            | ) |  | (9.4 | )
|Legal, audit and other outside services |  |      | 138,091   |      |   | 103,016   |  |   | 35,075            |   |  | 34.1 |  
|Postage, freight and supplies           |  |      | 116,944   |      |   | 100,173   |  |   | 16,771            |   |  | 16.7 |  
|Miscellaneous                           |  |      | 256,773   |      |   | 272,224   |  |   | (15,451           | ) |  | (5.7 | )
|                                        |  |      |           |      |   |           |  |   |                   |   |  |      |  
|                                        |  | $    | 2,490,018 |      | $ | 2,241,371 |  | $ | 248,647           |   |  | 11.1 |  
|                                        |  |      |           |      |   |           |  |   |                   |   |  |      |  



Most of the expenses
noted in the table above increased primarily due to the staffing and data processing expenses associated with greater business volume.



Income tax expense expressed as a percentage of earnings before taxes increased to 36% in 2004 from 34% in 2003 due to a decrease in tax exempt income
relative to earnings before income taxes.



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 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.



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, 2003, the allowance for loan losses amounted to $1,699,162. At June 30, 2004, the allowance was $1,922,870. The allowance for loan losses,
as a percentage of total gross loans, increased from 1.30% at December 31, 2003 to 1.37% at June 30, 2004. 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.



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Nonperforming loans include nonaccruing loans, loans on which foreclosure proceedings have commenced and
loans for which payments are more than 90 days past due. On June 30, 2004 there was a loan totaling $592,504 on a non-accrual status. The loan was made to finance a real estate development project that is partially completed. The property, at
partial completion, has an appraised value of $568,910. The Bank is pursuing resolution of the issue and does not believe there is a material exposure to loss on the project. There were no related party loans which were considered nonperforming at
June 30, 2004.



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 June 30, 2004 evidence a satisfactory liquidity position as total cash and cash equivalents totaled approximately $17.5
million, representing 9.7% of total assets. Investment securities totaled approximately $16.3 million, representing 9.1% of total assets as of June 30, 2004. 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 $9,100,000 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 short and intermediate 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 June 30, 2004:



|                               |  |               |   |  |                              |  
|------------------------------ |  | ------------- | - |  | ---------------------------- | -
|                               |  | June 30, 2004 |   |  | MinimumRegulatoryRequirement |  
|Consolidated                   |  |               |   |  |                              |  
|Tier 1 Capital                 |  | 8.05          | % |  | 4.0                          | %
|Tier 2 Capital                 |  | 1.25          | % |  |                             |  
|                               |  |               |   |  |                              |  
|Total risk-based capital ratio |  | 9.30          | % |  | 8.0                          | %
|                               |  |               |   |  |                              |  
|Leverage ratio                 |  | 6.96          | % |  | 4.0                          | %
|                               |  |               |   |  |                              |  
|Bank                           |  |               |   |  |                              |  
|Tier 1 Capital                 |  | 9.34          | % |  | 4.0                          | %
|Tier 2 Capital                 |  | 1.25          | % |  |                             |  
|                               |  |               |   |  |                              |  
|Total risk-based capital ratio |  | 10.59         | % |  | 8.0                          | %
|                               |  |               |   |  |                              |  
|Leverage ratio                 |  | 8.12          | % |  | 4.0                          | %
|                               |  |               |   |  |                              |  



Off-Balance Sheet Arrangements



In the ordinary course of business, the Bank may enter
into off-balance sheet financial instruments which are not reflected in the financial statements. These instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded when funds are disbursed
or the instruments become payable.



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Following is an analysis of significant off-balance sheet financial instruments at June 30, 2004 and
December 31, 2003.



|                             |  |                  |            |                      |   |           
|---------------------------- |  | ---------------- | ---------- | -------------------- | - | ----------
|                             |  | At June 30, 2004 |            | At December 31, 2003
|Commitments to extend credit |  | $                | 27,664,047 |                      | $ | 31,125,000
|Standby letters of credit    |  |                  | 512,000    |                      |   | 350,000   
|                             |  |                  |            |                      |   |           
|Total                        |  | $                | 28,176,047 |                      | $ | 31,475,000
|                             |  |                  |            |                      |   |           



Item 3. Controls and Procedures



Management has developed and implemented a policy and procedures for reviewing disclosure controls and procedures and internal controls over financial reporting on a quarterly basis. Management, including the principal executive and
financial officers, evaluated the effectiveness of the design and operation of disclosure controls and procedures as of June 30, 2004 and, based on their evaluation, the Companys principal executive and financial officers have concluded that
these controls and procedures are operating effectively. There were no significant changes in the Companys internal control over financial reporting during the Companys last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting. Management noted no significant deficiencies in the design or operation of the Companys internal control over financial reporting and the Companys
auditors were so advised.



Disclosure controls and procedures
are the Companys controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding
required disclosure.



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##### Table of Contents

PART II. OTHER INFORMATION



Item 1. Legal Proceedings



Not
applicable.



Item 2. Changes in Securities and Repurchases of Equity Securities



Not applicable.



Item 3. Defaults Upon Senior Securities



Not applicable.



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



The 2004 Annual Meeting of Shareholders of the Company was held on May 12, 2004. At the meeting the following persons were elected as Class I directors to serve for a term of three years and until their successors are
elected and qualified: C. Dean Alford, Troy A. Athon, William L. Daniel, and Hazel E. Durden.



The number of votes cast for and withheld for the election of each nominee for Class I director was as follows:



|                  |  |           |  |              
|----------------- |  | --------- |  | -------------
|                  |  | Votes For |  | VotesWithheld
|C. Dean Alford    |  | 890,303   |  | 4,000        
|Troy A. Athon     |  | 892,103   |  | 2,200        
|William L. Daniel |  | 892,703   |  | 1,600        
|Hazel E. Durden   |  | 893,703   |  | 600          



The following persons
did not stand for reelection to the Board of Directors at the 2004 Annual Meeting of Shareholders as their term of office continued after the Annual Meeting: Michael R. Potts, Arthur J. Torsiglieri, Jr., M.D., William K. Walker, II, John A.
Fountain, M.D., Michael P. Jones, CPA, and R. Flynn Nance, D.V.M.



No other matters were presented or voted upon at the 2004 Annual Meeting of Shareholders.



Item 5. Other Information



Not
applicable.



Item 6. Exhibits and Reports on Form 8-K



| | a) | Exhibits  The following exhibits are filed with this report.
| | -- | -------------------------------------------------------------



|            |  |                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                          
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   
|            | 
|32          |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



| | b) | Reports on Form 8-K. On April 28, 2004, the Company furnished a Report on Form 8-K with respect to its press release regarding financial results for the three months ended
March 31, 2004.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LIBERTY NATIONAL BANCSHARES, INC.



SIGNATURES



In accordance with the requirements
of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |                                   |  |                                             
|--------------------- |  | --------------------------------- |  | --------------------------------------------
|                      |  | LIBERTY NATIONAL BANCSHARES, INC.
|                      |  |                                  
|Date: August 12, 2004 |  |                                   |  |                                             
|                      |  | By:                               |  | /s/ William L. Daniel                       
|                      |  |                                   |  | William L. Daniel, President                
|                      |  |                                   |  | (principal executive officer)               
|                      |  |                                  
|Date: August 12, 2004 |  |                                   |  |                                             
|                      |  | By:                               |  | /s/ Jesse R. Cheatham                       
|                      |  |                                   |  | Jesse R. Cheatham, Chief Financial Officer  
|                      |  |                                   |  | (principal financial and accounting officer)



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