---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-QSB



x QUARTERLY REPORT UNDER SECTION
13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended September 30, 2003



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)



|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)



State the number of shares outstanding of each of the

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



Common stock, par value $.50 per share: 1,474,399 shares

outstanding as of November 12, 2003.



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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



INDEX



|         |  |                                                                                                                                        |  | Page No.
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|PART I   |  | FINANCIAL INFORMATION                                                                                                                  |  |         
|         |  |                                                                                                                                       
|Item 1.  |  | Financial Statements                                                                                                                   |  |         
|         |  |                                                                                                                                       
|         |  | Consolidated Balance Sheet (Unaudited) at September 30, 2003                                                                           |  | 3       
|         |  |                                                                                                                                       
|         |  | Consolidated Statements of Earnings (Unaudited) for the Three Months and the Nine Months Ended September 30, 2003 and 2002             |  | 4       
|         |  |                                                                                                                                       
|         |  | Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and the Nine Months Ended September 30, 2003 and 2002 |  | 5       
|         |  |                                                                                                                                       
|         |  | Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2003 and 2002                                |  | 6       
|         |  |                                                                                                                                       
|         |  | Notes to Consolidated Financial Statements (Unaudited)                                                                                 |  | 7       
|         |  |                                                                                                                                       
|Item 2.  |  | Managements Discussion and Analysis or Plan of Operation                                                                              |  | 9       
|         |  |                                                                                                                                       
|Item 3.  |  | Controls and Procedures                                                                                                                |  | 12      
|         |  |                                                                                                                                       
|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      
|         |  |                                                                                                                                       
|         |  | Exhibits                                                                                                                               |  | 15      



- 2 -



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PART I. FINANCIAL INFORMATION



Item 1. Financial
Statements



LIBERTY NATIONAL BANCSHARES, INC. AND
SUBSIDIARY



Consolidated Balance Sheet



September 30, 2003

(Unaudited)



|Assets                                                                                                                    |  |   |            
|------------------------------------------------------------------------------------------------------------------------- |  | - | -----------
|Cash and due from banks                                                                                                   |  | $ | 4,908,469  
|Federal funds sold                                                                                                        |  |   | 2,647,000  
|                                                                                                                          |  |   |            
|                                                                                                                          | 
|Cash and cash equivalents                                                                                                 |  |   | 7,555,469  
|Investment securities available for sale                                                                                  |  |   | 11,524,055 
|Other investments                                                                                                         |  |   | 426,518    
|Loans, net of allowance for loan losses of $1,644,841                                                                     |  |   | 115,741,139
|Premises and equipment, net                                                                                               |  |   | 4,908,950  
|Other assets                                                                                                              |  |   | 1,377,678  
|                                                                                                                          |  |   |            
|                                                                                                                          | 
|Total assets                                                                                                              |  | $ | 141,533,809
|                                                                                                                          |  |   |            
|Liabilities and Stockholders Equity                                                                                      |  |   |            
|Liabilities:                                                                                                              |  |   |            
|Deposits:                                                                                                                 |  |   |            
|Demand                                                                                                                    |  | $ | 21,573,693 
|Interest-bearing demand                                                                                                   |  |   | 10,811,734 
|Savings and Money Market                                                                                                  |  |   | 26,698,148 
|Time                                                                                                                      |  |   | 67,192,394 
|                                                                                                                          |  |   |            
|Total deposits                                                                                                            |  |   | 126,275,969
|Notes payable                                                                                                             |  |   | 1,700,000  
|Accrued interest payable and other liabilities                                                                            |  |   | 406,799    
|FHLB advances                                                                                                             |  |   | 2,500,000  
|                                                                                                                          |  |   |            
|                                                                                                                          | 
|Total liabilities                                                                                                         |  |   | 130,882,768
|                                                                                                                          |  |   |            
|Stockholders equity: Common stock, $.50 par value; authorized 10,000,000 shares; 1,472,399 shares issued and
outstanding |  |   | 736,200    
|Additional paid-in capital                                                                                                |  |   | 6,968,385  
|Retained earnings                                                                                                         |  |   | 2,768,517  
|Accumulated other comprehensive income                                                                                    |  |   | 177,939    
|                                                                                                                          |  |   |            
|                                                                                                                          | 
|Total stockholders equity                                                                                                |  |   | 10,651,041 
|                                                                                                                          |  |   |            
|                                                                                                                          | 
|Total liabilities and stockholders equity                                                                                |  | $ | 141,533,809
|                                                                                                                          |  |   |            



See accompanying notes to unaudited
consolidated financial statements.



- 3 -



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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Earnings



For the Three Months and the Nine Months Ended September 30, 2003 and 2002

(Unaudited)



|                                                    |  | Three Months Ended September 30, |           |      | Nine Months Ended September 30,
|--------------------------------------------------- |  | -------------------------------- | --------- | ---- | -------------------------------
|                                                    |  | 2003                             |           | 2002 |                                
|Interest and dividend income:                       |  |                                  |           |      |                                
|Loans                                               |  | $                                | 1,966,171 |      | 1,770,499                      
|Investment securities:                              |  |                                  |           |      |                                
|Taxable                                             |  |                                  | 102,196   |      | 108,283                        
|Tax exempt                                          |  |                                  | 11,221    |      | 20,118                         
|Federal funds sold                                  |  |                                  | 8,713     |      | 64,244                         
|Interest on deposits with other banks               |  |                                  | 847       |      | 374                            
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Total interest income                               |  |                                  | 2,089,148 |      | 1,963,518                      
|                                                    |  |                                  |           |      |                                
|Interest expense:                                   |  |                                  |           |      |                                
|Deposits                                            |  |                                  | 611,361   |      | 725,822                        
|Federal Home Loan Bank advances                     |  |                                  | 42,895    |      | 42,896                         
|Notes payable                                       |  |                                  | 13,416    |      | 8,689                          
|Federal funds purchased                             |  |                                  | 155       |      |                               
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Total interest expense                              |  |                                  | 667,827   |      | 777,407                        
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Net interest income                                 |  |                                  | 1,421,321 |      | 1,186,111                      
|                                                    |  |                                  |           |     
|Provision for loan losses                           |  |                                  | 41,349    |      | 64,858                         
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Net interest income after provision for loan losses |  |                                  | 1,379,972 |      | 1,121,253                      
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Other operating income:                             |  |                                  |           |      |                                
|Service charges on deposit accounts                 |  |                                  | 311,691   |      | 293,699                        
|Securities gains (losses)                           |  |                                  | 10,000    |      | (1,255                         
|Other operating income                              |  |                                  | 92,210    |      | 91,053                         
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Total other operating income                        |  |                                  | 413,901   |      | 383,497                        
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Other operating expense:                            |  |                                  |           |      |                                
|Salaries and other personnel expense                |  |                                  | 632,166   |      | 487,848                        
|Net occupancy and equipment expense                 |  |                                  | 178,727   |      | 150,956                        
|Other operating expense                             |  |                                  | 346,603   |      | 311,555                        
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Total other operating expense                       |  |                                  | 1,157,496 |      | 950,359                        
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Earnings before income taxes                        |  |                                  | 636,377   |      | 554,391                        
|                                                    |  |                                  |           |     
|Income tax expense                                  |  |                                  | 237,470   |      | 204,287                        
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Net earnings                                        |  | $                                | 398,907   |      | 350,104                        
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Basic net earnings per share                        |  | $                                | .27       |      | .25                            
|                                                    |  |                                  |           |      |                                
|                                                    |  |                                  |           |     
|Diluted net earnings per share                      |  | $                                | .25       |      | .24                            
|                                                    |  |                                  |           |      |                                



See accompanying notes to unaudited
consolidated financial statements.



- 4 -



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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Comprehensive Income



For the Three Months and the Nine Months Ended September 30, 2003 and 2002

(Unaudited)



|                                                                                                        |  | Three Months Ended September 30, |          |   | Nine Months Ended September 30, |        
|------------------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ------------------------------- | -------
|                                                                                                        |  | 2003                             |          |   | 2002                            |        
|Net earnings                                                                                            |  | $                                | 398,907  |   |                                 | 350,104
|                                                                                                        |  |                                  |          |  
|Other comprehensive income (loss), net of tax:                                                          |  |                                  |          |   |                                 |        
|Unrealized holding gains (losses) on investment securities available for sale arising during the period |  |                                  | (164,112 | ) |                                 | 200,554
|Reclassification adjustment for (gains) losses on investment securities available for sale              |  |                                  | (10,000  | ) |                                 | 1,255  
|                                                                                                        |  |                                  |          |   |                                 |        
|                                                                                                        |  |                                  |          |  
|Total other comprehensive income (loss), before tax                                                     |  |                                  | (174,112 | ) |                                 | 201,809
|                                                                                                        |  |                                  |          |   |                                 |        
|                                                                                                        |  |                                  |          |  
|Income taxes related to other comprehensive income:                                                     |  |                                  |          |   |                                 |        
|                                                                                                        |  |                                  |          |  
|Unrealized holding gains (losses) on investment securities available for sale arising during the period |  |                                  | 55,798   |   |                                 | (68,188
|Reclassification adjustment for gains (losses) on investment securities available for sale              |  |                                  | 3,400    |   |                                 | (427   
|                                                                                                        |  |                                  |          |   |                                 |        
|                                                                                                        |  |                                  |          |  
|Total income taxes related to other comprehensive income (loss)                                         |  |                                  | 59,198   |   |                                 | (68,615
|                                                                                                        |  |                                  |          |   |                                 |        
|                                                                                                        |  |                                  |          |  
|Total other comprehensive income (loss), net of tax                                                     |  |                                  | (114,914 | ) |                                 | 133,194
|                                                                                                        |  |                                  |          |   |                                 |        
|                                                                                                        |  |                                  |          |  
|Comprehensive income                                                                                    |  | $                                | 283,993  |   |                                 | 483,298
|                                                                                                        |  |                                  |          |   |                                 |        



See accompanying notes to unaudited
consolidated financial statements.



- 5 -



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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Cash Flows



For the Nine Months Ended September 30, 2003 and 2002

(Unaudited)



|                                                                                       |  | Nine Months Ended September 30, |            
|-------------------------------------------------------------------------------------- |  | ------------------------------- | -----------
|                                                                                       |  | 2003                            |            
|Cash flows from operating activities:                                                  |  |                                 |            
|Net earnings                                                                           |  | $                               | 1,049,357  
|Adjustments to reconcile net earnings to net cash provided by operating activities:    |  |                                 |            
|Provision for loan losses                                                              |  |                                 | 327,289    
|Gain on call of investment securities                                                  |  |                                 | (10,000    
|Depreciation, amortization and accretion                                               |  |                                 | 292,867    
|Net change in other assets and other liabilities                                       |  |                                 | (39,365    
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Net cash provided by operating activities                                              |  |                                 | 1,620,148  
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Cash flows from investing activities:                                                  |  |                                 |            
|Proceeds from calls of investment securities                                           |  |                                 | 1,510,000  
|Proceeds from sales of investment securities                                           |  |                                 |           
|Proceeds from maturities and paydowns of investment securities available for sale      |  |                                 | 471,414    
|Purchases of investment securities available for sale                                  |  |                                 |           
|Net change in loans                                                                    |  |                                 | (21,059,755
|Purchases of premises and equipment                                                    |  |                                 | (1,409,102 
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Net cash used by investing activities                                                  |  |                                 | (20,487,443
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Cash flows from financing activities:                                                  |  |                                 |            
|Net change in deposits                                                                 |  |                                 | 18,561,529 
|Notes payable advances                                                                 |  |                                 | 700,000    
|Proceeds from private placement offering, net of offering costs of $12,685             |  |                                 | 431,315    
|Proceeds from the exercise of stock options                                            |  |                                 | 52,827     
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Net cash provided by financing activities                                              |  |                                 | 19,745,671 
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Net change in cash and cash equivalents                                                |  |                                 | 878,376    
|                                                                                       |  |                                
|Cash and cash equivalents at beginning of period                                       |  |                                 | 6,677,093  
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Cash and cash equivalents at end of period                                             |  | $                               | 7,555,469  
|                                                                                       |  |                                 |            
|                                                                                       |  |                                
|Supplemental cash flow information:                                                    |  |                                 |            
|Cash paid for income taxes                                                             |  | $                               | 728,548    
|Cash paid for interest                                                                 |  | $                               | 2,078,561  
|                                                                                       |  |                                
|Noncash investing and financing activities:                                            |  |                                 |            
|Change in net unrealized gains on investment securities available for sale, net of tax |  | $                               | (50,962    



See accompanying notes to unaudited
consolidated financial statements.



- 6 -



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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 accounting principles generally accepted in the United States of America 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 September 30, 2003, and the nine-month period ending September 30, 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- and nine- month periods ended September 30, 2003 and 2002, is as follows:



|                                 |  | For the three months ended September 30, 2003 |         | For the three months ended September 30, 2002
|-------------------------------- |  | --------------------------------------------- | ------- | ---------------------------------------------
|                                 |  | NetEarnings                                   |         | AverageSharesOutstanding                     
|Net earnings  basic             |  | $                                             | 398,907 |                                              
|                                 |  |                                               |         |                                              
|Effect of dilutive stock options |  |                                               |        |                                              
|                                 |  |                                               |         |                                              
|Net earnings  diluted           |  | $                                             | 398,907 |                                              
|                                 |  |                                               |         |                                              



|                                 |  | For the nine months ended September 30, 2003 |           | For the nine months ended September 30, 2002
|-------------------------------- |  | -------------------------------------------- | --------- | --------------------------------------------
|                                 |  | NetEarnings                                  |           | AverageSharesOutstanding                    
|Net earnings  basic             |  | $                                            | 1,049,357 |                                             
|                                 |  |                                              |           |                                             
|Effect of dilutive stock options |  |                                              |          |                                             
|                                 |  |                                              |           |                                             
|Net earnings  diluted           |  | $                                            | 1,049,357 |                                             
|                                 |  |                                              |           |                                             



- 7 -



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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 and earnings per share
would have reflected the proforma amounts in the following table:



For the three monthsEnded September 30,

For the nine monthsEnded September 30,2003

2002

2003

2002Net earnings, as reported

$
398,907

350,104

1,049,357

671,761Proforma stock-based compensation cost adjustments associated with new grants and forfeitures, net of tax






3,951

(97,089
)Proforma net earnings

$
398,907

350,104

1,053,308

574,672Basic earnings per share, as reported

$
.27

.25

.72

.47Proforma stock-based compensation cost adjustments associated with new grants and forfeitures, net of tax, per
share








(.07
)Basic proforma earnings, per share

$
.27

.25

.72

.40Diluted earnings per share, as reported

$
.25

.24

.67

.45Proforma stock-based compensation cost adjustments associated with new grants and forfeitures, net of tax, per
share








(.07
)Diluted proforma earnings, per share

$
.25

.24

.67

.38




For the
proforma disclosure purposes above, the Company immediately recognized the expense associated with the option grants assuming that all awards will vest in full immediately. There were no grants during the three-month periods ended September 30, 2003
and 2002.



- 8 -



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Item 2. Managements Discussion and Analysis or Plan of Operation



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 the forward-looking statements contained in
the 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 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 September 30, 2003, were $141,533,809 representing a $20,901,238 (17.3%) increase from December 31, 2002. Deposits increased
$18,561,529 (17.2%) from December 31, 2002 as the Company remained competitive in deposit acquisition in order to fund loan growth. Gross loans increased $21,004,207 (21.8%) from December 31, 2002 to $117,485,606. The allowance for loan losses at
September 30, 2003, totaled $1,644,841, representing 1.40% of total loans compared to the December 31, 2002, total of $1,346,502 also representing 1.40% of total loans. Cash and cash equivalents increased $878,376 from December 31, 2002, to
$7,555,469.



During the third quarter of 2003, two loan relationships totaling
approximately $259,000 moved from nonaccrual status to Other Real Estate Owned because of non-performance. The loans are secured by real estate and due to the value of the collateral relative to the balance owed, management does not anticipate a
material loss on these relationships. Nonperforming loans include nonaccruing loans, loans on which foreclosure proceedings have commenced and loans for which payments are more than 90 days past due. There were no related party loans which were
considered nonperforming at September 30, 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 nine months ended September 30, 2003, the Company reported net earnings of $1,049,357 or $.67 per diluted share, compared to $671,761, or $.45 per diluted share,
for the same period in 2002. Net earnings for the three months ended September 30, 2003, increased $48,803 or 13.9%, compared to the same period in 2002 to $398,907.



Net interest income increased $760,928 (23.2%) in the first nine months of 2003 compared to the same period for 2002 to $4,033,801. Interest
income for the first nine months of 2003 was $6,123,177, representing an increase of $764,471 (14.3%) over the same period in 2002. Interest expense for the first nine-months of 2003 increased $3,543 (.2%) compared to the same period in 2002 to
$2,089,376. The primary reason for the increase in net interest income for the nine-month period ended September 30, 2003, versus the same period in 2002 was the increase in loans outstanding of over $20 million during the first nine months of 2003.
The net interest margin decreased by one basis point from 4.28% in the first nine months of 2002 to 4.27% for the same period in 2003. The net interest margin remained constant as the general interest rate environment stabilized at



- 9 -



---

unprecedented lower levels. Additionally, the Bank remained competitive for time deposits to preserve liquidity and to
provide stable funding sources for anticipated loan growth.



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.



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.



The provision for loan losses for the nine months of 2003 increased $55,313 to $327,289 compared to the same period for 2002 because of the
increase in outstanding loans. Net loan charge-offs for the nine months ended September 30, 2003, were $28,950, compared to $30,377, for the same period in 2002. It is managements belief that the allowance for loan losses is adequate to absorb
probable losses in the portfolio, but there can be no assurance that will be the case.



Other operating income increased for the nine months ended September 30, 2003, by $347,632 (35.8%), compared to the same period in 2002 to $1,318,631, primarily due to the continuing success of the Banks NSF/ Overdraft Privilege
Service and the doubling of mortgage origination income. Mortgage activity continued to be a great source of business because of the unprecedented low interest rate environment leading to a high volume of refinancings.



Additional increases in business activity generated increases in service charge revenue. The
following table details the changes in other operating income for the first nine months of 2003 compared to the first nine months of 2002:



|                             |  | 2003 |           | 2002 |         | Change |         | % Change
|---------------------------- |  | ---- | --------- | ---- | ------- | ------ | ------- | --------
|Monthly deposit service fees |  | $    | 89,782    |      | 64,109  |        | 25,673  |         
|NSF charges                  |  |      | 704,828   |      | 583,195 |        | 121,633 |         
|Mortgage origination income  |  |      | 311,851   |      | 155,035 |        | 156,816 |         
|Miscellaneous                |  |      | 212,170   |      | 168,660 |        | 43,510  |         
|                             |  |      |           |      |         |        |         |         
|                             |  | $    | 1,318,631 |      | 970,999 |        | 347,632 |         
|                             |  |      |           |      |         |        |         |         



Other operating expenses for the first
nine months of 2003 increased $450,157 (15.3%) compared to the first nine months in 2002 to $3,398,867. The following table details the changes in other operating expenses for the first nine months of 2003 compared to the first nine months of 2002:



|                                     |  | 2003 |           | 2002 |           | Change |         |   | % Change |      
|------------------------------------ |  | ---- | --------- | ---- | --------- | ------ | ------- | - | -------- | -----
|Salaries and other personnel expense |  | $    | 1,817,795 |      | 1,467,240 |        | 350,555 |   |          | 23.9 
|Net occupancy and equipment expense  |  |      | 482,471   |      | 457,213   |        | 25,258  |   |          | 5.5  
|Data processing expense              |  |      | 270,351   |      | 216,858   |        | 53,493  |   |          | 24.7 
|Telecommunications                   |  |      | 70,749    |      | 66,363    |        | 4,386   |   |          | 6.6  
|Debit card expense                   |  |      | 1,564     |      | 29,496    |        | (27,932 | ) |          | (94.7
|Postage, freight, and supplies       |  |      | 136,299   |      | 145,330   |        | (9,031  | ) |          | (6.2 
|Miscellaneous                        |  |      | 619,638   |      | 566,210   |        | 53,428  |   |          | 9.4  
|                                     |  |      |           |      |           |        |         |   |          |      
|                                     |  | $    | 3,398,867 |      | 2,948,710 |        | 450,157 |   |          | 15.3 
|                                     |  |      |           |      |           |        |         |   |          |      



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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 35.5% in 2003 from 34.3% in 2002 due to a decrease in tax-exempt income relative to earnings before income taxes.



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 September 30, 2003, evidence a satisfactory liquidity position as total cash and cash equivalents totaled approximately $7.6 million, representing 5.3% of total assets. Investment securities totaled approximately $11.5
million, representing 8.1% of total assets as of September 30, 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 $7,500,000 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 September 30, 2003:



|                               |  | September 30, 2003 |   |  | MinimumRegulatoryRequirement |  
|------------------------------ |  | ------------------ | - |  | ---------------------------- | -
|Consolidated                   |  |                    |   |  |                              |  
|Tier 1 Capital                 |  | 8.15               | % |  | 4.0                          | %
|Tier 2 Capital                 |  | 1.25               | % |  |                             | %
|                               |  |                    |   |  |                              |  
|Total risk-based capital ratio |  | 9.40               | % |  | 8.0                          | %
|                               |  |                    |   |  |                              |  
|Leverage ratio                 |  | 7.43               | % |  | 4.0                          | %
|                               |  |                    |   |  |                              |  
|Bank                           |  |                    |   |  |                              |  
|Tier 1 Capital                 |  | 8.99               | % |  | 4.0                          | %
|Tier 2 Capital                 |  | 1.25               | % |  |                             | %
|                               |  |                    |   |  |                              |  
|Total risk-based capital ratio |  | 10.24              | % |  | 8.0                          | %
|                               |  |                    |   |  |                              |  
|Leverage ratio                 |  | 8.21               | % |  | 4.0                          | %
|                               |  |                    |   |  |                              |  



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 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 September 30, 2003, outstanding borrowings under this credit facility were $1,700,000 and the interest rate was 3.50%.



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Item 3. Controls and Procedures



Our Chief
Executive Officer and Chief Financial Officer have evaluated the Companys disclosure controls and procedures as of the end of the quarterly period covered by this Report on Form 10-QSB and have concluded that the Companys disclosure
controls and procedures are effective. During the third quarter of 2003 there were no changes in the Companys internal controls over financial reporting that have materially affected, or that are reasonably likely to materially affect, the
Companys internal control over financial reporting.



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PART II. OTHER INFORMATION



Item 1. Legal
Proceedings



None



Item 2. Changes in Securities and Use of Proceeds



None



Item 3. Defaults Upon Senior Securities



None



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



None



Item 5. Other Information



None



Item 6. Exhibits and Reports on Form 8-K



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



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. The company furnished a Current Report on Form 8-K on July 17, 2003, with respect to its financial results for the quarter ended June 30, 2003.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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: November 12, 2003 |  |  |  | By:                              
|                        |  |  |  |                                  
|                        |  |  |  |                                  





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





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