##### 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 September 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)



State the number of shares outstanding of each of the

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



---



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 November 5, 2004 there were 1,598,399 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 September 30, 2004                                                                           |  | 3       
|           |  |                                                                                       | 
|           |  |                                                                                       |  | Consolidated Statements of Earnings (Unaudited) for the Three Months and the Nine Months Ended September 30, 2004 and 2003             |  | 4       
|           |  |                                                                                       | 
|           |  |                                                                                       |  | Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and the Nine Months Ended September 30, 2004 and 2003 |  | 5       
|           |  |                                                                                       | 
|           |  |                                                                                       |  | Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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 |  | 10                                                                                                                                    
|           |  |                                                                                      
|Item 3.    |  | Controls and Procedures                                                               |  | 14                                                                                                                                    
|           |  |                                                                                       | 
|PART II.   |  |                                                                                       |  | OTHER INFORMATION                                                                                                                      |  |         
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 14                                                                                                                                    
|           |  |                                                                                      
|Item 2.    |  | Changes in Securities and Repurchases of Equity Securities                            |  | 14                                                                                                                                    
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 14                                                                                                                                    
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 14                                                                                                                                    
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 14                                                                                                                                    
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 15                                                                                                                                    
|           | 
|SIGNATURES |  | 16                                                                                   
|           | 
|Exhibits   |  | 17                                                                                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Balance Sheet



September 30, 2004

(Unaudited)



|                                                                                                                          |  |   |            
|------------------------------------------------------------------------------------------------------------------------- |  | - | -----------
|Assets                                                                                                                    |  |   |            
|                                                                                                                          | 
|Cash and due from banks                                                                                                   |  | $ | 5,271,739  
|Federal funds sold                                                                                                        |  |   | 8,869,000  
|                                                                                                                          |  |   |            
|Cash and cash equivalents                                                                                                 |  |   | 14,140,739 
|                                                                                                                          | 
|Investment securities available for sale                                                                                  |  |   | 16,268,393 
|Other investments                                                                                                         |  |   | 468,518    
|Loans, net of allowance for loan losses of $2,005,846                                                                     |  |   | 151,854,264
|Premises and equipment, net                                                                                               |  |   | 4,764,969  
|Other assets                                                                                                              |  |   | 1,553,234  
|                                                                                                                          |  |   |            
|Total assets                                                                                                              |  | $ | 189,050,117
|                                                                                                                          |  |   |            
|Liabilities and Stockholders Equity                                                                                      |  |   |            
|                                                                                                                          | 
|Liabilities:                                                                                                              |  |   |            
|Deposits:                                                                                                                 |  |   |            
|Demand                                                                                                                    |  | $ | 25,346,383 
|Interest-bearing demand and money market                                                                                  |  |   | 50,657,187 
|Savings                                                                                                                   |  |   | 4,073,188  
|Time deposits of $100,000 or more                                                                                         |  |   | 29,948,379 
|Other Time                                                                                                                |  |   | 60,392,745 
|                                                                                                                          |  |   |            
|Total deposits                                                                                                            |  |   | 170,417,882
|                                                                                                                          | 
|Accrued interest payable                                                                                                  |  |   | 138,745    
|Other liabilities                                                                                                         |  |   | 452,115    
|FHLB advances                                                                                                             |  |   | 2,500,000  
|Other borrowings                                                                                                          |  |   | 2,500,000  
|                                                                                                                          |  |   |            
|Total liabilities                                                                                                         |  |   | 176,008,742
|                                                                                                                          |  |   |            
|Stockholders equity: Common stock, $.50 par value; authorized 10,000,000 shares; 1,598,399 shares issued and outstanding |  |   | 799,200    
|Additional paid-in capital                                                                                                |  |   | 7,631,338  
|Retained earnings                                                                                                         |  |   | 4,599,409  
|Accumulated other comprehensive income                                                                                    |  |   | 11,428     
|                                                                                                                          |  |   |            
|Total stockholders equity                                                                                                |  |   | 13,041,375 
|                                                                                                                          |  |   |            
|Total liabilities and stockholders equity                                                                                |  | $ | 189,050,117
|                                                                                                                          |  |   |            



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 Nine Months Ended September 30, 2004 and 2003

(Unaudited)



|                                                    |  |                                 |           |                                |           |      |           |      |          
|--------------------------------------------------- |  | ------------------------------- | --------- | ------------------------------ | --------- | ---- | --------- | ---- | ---------
|                                                    |  | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|                                                    |  | 2004                            |           | 2003                           |           | 2004 |           | 2003
|Interest and dividend income:                       |  |                                 |           |                                |           |      |           |      |          
|Loans                                               |  | $                               | 2,372,497 |                                | 1,966,171 |      | 6,723,962 |      | 5,719,576
|Investment securities:                              |  |                                 |           |                                |           |      |           |      |          
|Taxable                                             |  |                                 | 124,675   |                                | 102,196   |      | 341,226   |      | 320,089  
|Tax exempt                                          |  |                                 | 9,139     |                                | 11,221    |      | 53,811    |      | 46,617   
|Federal funds sold                                  |  |                                 | 19,056    |                                | 8,713     |      | 50,928    |      | 34,677   
|Interest on deposits with other banks               |  |                                 | 1,692     |                                | 847       |      | 2,543     |      | 2,218    
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Total interest income                               |  |                                 | 2,527,059 |                                | 2,089,148 |      | 7,172,470 |      | 6,123,177
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Interest expense:                                   |  |                                 |           |                                |           |      |           |      |          
|Deposits                                            |  |                                 | 702,115   |                                | 611,361   |      | 2,069,277 |      | 1,926,724
|Federal Home Loan Bank advances                     |  |                                 | 43,125    |                                | 42,895    |      | 128,906   |      | 128,208  
|Notes payable                                       |  |                                 | 24,804    |                                | 13,416    |      | 70,643    |      | 30,541   
|Federal funds purchased                             |  |                                 | 480       |                                | 155       |      | 733       |      | 3,903    
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Total interest expense                              |  |                                 | 770,524   |                                | 667,827   |      | 2,269,559 |      | 2,089,376
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Net interest income                                 |  |                                 | 1,756,535 |                                | 1,421,321 |      | 4,902,911 |      | 4,033,801
|                                                    |  |                                 |           |                               
|Provision for loan losses                           |  |                                 | 136,847   |                                | 41,349    |      | 367,040   |      | 327,289  
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Net interest income after provision for loan losses |  |                                 | 1,619,688 |                                | 1,379,972 |      | 4,535,871 |      | 3,706,512
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Other operating income:                             |  |                                 |           |                                |           |      |           |      |          
|Service charges on deposit accounts                 |  |                                 | 341,373   |                                | 311,691   |      | 992,420   |      | 899,967  
|Securities gains                                    |  |                                 |          |                                | 10,000    |      |          |      | 10,000   
|Other operating income                              |  |                                 | 117,909   |                                | 92,210    |      | 392,462   |      | 408,664  
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Total other operating income                        |  |                                 | 459,282   |                                | 413,901   |      | 1,384,882 |      | 1,318,631
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Other operating expense:                            |  |                                 |           |                                |           |      |           |      |          
|Salaries and other personnel expense                |  |                                 | 637,169   |                                | 632,166   |      | 1,956,020 |      | 1,817,795
|Net occupancy and equipment expense                 |  |                                 | 176,746   |                                | 178,727   |      | 528,936   |      | 482,471  
|Other operating expense                             |  |                                 | 435,317   |                                | 346,603   |      | 1,254,294 |      | 1,098,601
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Total other operating expense                       |  |                                 | 1,249,232 |                                | 1,157,496 |      | 3,739,250 |      | 3,398,867
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Earnings before income taxes                        |  |                                 | 829,738   |                                | 636,377   |      | 2,181,503 |      | 1,626,276
|                                                    |  |                                 |           |                               
|Income tax expense                                  |  |                                 | 302,086   |                                | 237,470   |      | 789,972   |      | 576,919  
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Net earnings                                        |  | $                               | 527,652   |                                | 398,907   |      | 1,391,531 |      | 1,049,357
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Basic net earnings per share                        |  | $                               | .33       |                                | .27       |      | .91       |      | .72      
|                                                    |  |                                 |           |                                |           |      |           |      |          
|Diluted net earnings per share                      |  | $                               | .32       |                                | .25       |      | .86       |      | .67      
|                                                    |  |                                 |           |                                |           |      |           |      |          



See accompanying notes to unaudited
consolidated financial statements.



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Comprehensive Income



For the Three Months and the Nine Months Ended September 30, 2004 and 2003

(Unaudited)



|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | -------- | - | ---- | --------- | - | ---- | --------- | -
|                                                                                                        |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |         
|                                                                                                        |  | 2004                            |         |   | 2003                           |          |   | 2004 |           |   | 2003 |          
|Net earnings                                                                                            |  | $                               | 527,652 |   |                                | 398,907  |   |      | 1,391,531 |   |      | 1,049,357 |  
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Other comprehensive income (loss), net of tax:                                                          |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Unrealized holding gains (losses) on investment securities available for sale arising during the period |  |                                 | 173,403 |   |                                | (164,112 | ) |      | (202,106  | ) |      | (67,215   | )
|Reclassification adjustment for (gains) losses on investment securities available for sale              |  |                                 |        |   |                                | (10,000  | ) |      |          |   |      | (10,000   | )
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Total other comprehensive income (loss), before tax                                                     |  |                                 | 173,403 |   |                                | (174,112 | ) |      | (202,106  | ) |      | (77,215   | )
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Income taxes related to other comprehensive income:                                                     |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Unrealized holding gains (losses) on investment securities available for sale arising during the period |  |                                 | (58,957 | ) |                                | 55,798   |   |      | 68,716    |   |      | 22,853    |  
|Reclassification adjustment for gains (losses) on investment securities available for sale              |  |                                 |        |   |                                | 3,400    |   |      |          |   |      | 3,400     |  
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Total income taxes related to other comprehensive income (loss)                                         |  |                                 | (58,957 | ) |                                | 59,198   |   |      | 68,716    |   |      | 26,253    |  
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Total other comprehensive income (loss), net of tax                                                     |  |                                 | 114,446 |   |                                | (114,914 | ) |      | (133,390  | ) |      | (50,962   | )
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  
|Comprehensive income                                                                                    |  | $                               | 642,098 |   |                                | 283,993  |   |      | 1,258,141 |   |      | 998,395   |  
|                                                                                                        |  |                                 |         |   |                                |          |   |      |           |   |      |           |  



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 Nine Months Ended September 30, 2004 and 2003

(Unaudited)



|                                                                                       |  |                                 |             |   |      |             |  
|-------------------------------------------------------------------------------------- |  | ------------------------------- | ----------- | - | ---- | ----------- | -
|                                                                                       |  | Nine Months Ended September 30, |            
|                                                                                       |  | 2004                            |             |   | 2003 |            
|Cash flows from operating activities:                                                  |  |                                 |             |   |      |             |  
|Net earnings                                                                           |  | $                               | 1,391,531   |   |      | 1,049,357   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:    |  |                                 |             |   |      |             |  
|Provision for loan losses                                                              |  |                                 | 367,040     |   |      | 327,289     |  
|Gain on call of investment securities                                                  |  |                                 |            |   |      | (10,000     | )
|Gain on sale of other real estate owned                                                |  |                                 | (18,770     | ) |      |            |  
|Depreciation, amortization and accretion                                               |  |                                 | 294,683     |   |      | 292,867     |  
|Net change in other assets and other liabilities                                       |  |                                 | (266,156    | ) |      | (39,365     | )
|                                                                                       |  |                                 |             |   |      |             |  
|Net cash provided by operating activities                                              |  |                                 | 1,768,328   |   |      | 1,620,148   |  
|                                                                                       |  |                                 |             |   |      |             |  
|Cash flows from investing activities:                                                  |  |                                 |             |   |      |             |  
|Purchases of investment securities                                                     |  |                                 | (8,647,120  | ) |      |            |  
|Proceeds from calls of investment securities                                           |  |                                 | 750,000     |   |      | 1,510,000   |  
|Proceeds from maturities and paydowns of investment securities available for sale      |  |                                 | 4,064,178   |   |      | 471,414     |  
|Net change in loans                                                                    |  |                                 | (23,452,842 | ) |      | (21,059,755 | )
|Proceeds from the sale of other real estate                                            |  |                                 | 252,144     |   |      |            |  
|Purchases of premises and equipment                                                    |  |                                 | (127,215    | ) |      | (1,409,102  | )
|                                                                                       |  |                                 |             |   |      |             |  
|Net cash used by investing activities                                                  |  |                                 | (27,160,855 | ) |      | (20,487,443 | )
|                                                                                       |  |                                 |             |   |      |             |  
|Cash flows from financing activities:                                                  |  |                                 |             |   |      |             |  
|Net change in deposits                                                                 |  |                                 | 29,837,381  |   |      | 18,561,529  |  
|Notes payable advances                                                                 |  |                                 | 400,000     |   |      | 700,000     |  
|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                                            |  |                                 | 689,250     |   |      | 52,827      |  
|                                                                                       |  |                                 |             |   |      |             |  
|Net cash provided by financing activities                                              |  |                                 | 30,526,631  |   |      | 19,745,671  |  
|                                                                                       |  |                                 |             |   |      |             |  
|Net change in cash and cash equivalents                                                |  |                                 | 5,134,104   |   |      | 878,376     |  
|                                                                                       |  |                                
|Cash and cash equivalents at beginning of period                                       |  |                                 | 9,006,635   |   |      | 6,677,093   |  
|                                                                                       |  |                                 |             |   |      |             |  
|Cash and cash equivalents at end of period                                             |  | $                               | 14,140,739  |   |      | 7,555,469   |  
|                                                                                       |  |                                 |             |   |      |             |  
|Supplemental cash flow information:                                                    |  |                                 |             |   |      |             |  
|Cash paid for income taxes                                                             |  | $                               | 857,000     |   |      | 728,548     |  
|Cash paid for interest                                                                 |  | $                               | 2,235,490   |   |      | 2,078,561   |  
|Change in net unrealized gains on investment securities available for sale, net of tax |  | $                               | (133,390    | ) |      | (50,962     | )



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 September 30, 2004 and for the nine-month period ended September 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.



|(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, 2004 and 2003, is as follows:



|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    
|-------------------------------- |  | --------------------------------------------- | --------- | --------------------------------------------- | --------- | --------------- | - | ----------- |  | -------------------------- | --------- | --------------- | --------- |  | - | ---
|                                 |  | For the three months ended September 30, 2004 |           | For the three months ended September 30, 2003
|                                 |  | NetEarnings                                   |           | Average Shares Outstanding                    |           | Per ShareAmount |   | NetEarnings |  | Average Shares Outstanding |           | Per ShareAmount
|Net earnings  basic             |  | $                                             | 527,652   |                                               | 1,591,714 |                 | $ | .33         |  | $                          | 398,907   |                 | 1,472,399 |  | $ | .27
|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    
|Effect of dilutive stock options |  |                                               |          |                                               | 63,450    |                 |   |             |  |                            |          |                 | 119,817   |  |   |    
|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    
|Net earnings  diluted           |  | $                                             | 527,652   |                                               | 1,655,164 |                 | $ | .32         |  | $                          | 398,907   |                 | 1,592,216 |  | $ | .25
|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    
|                                 |  |                                              
|                                 |  | For the nine months ended September 30, 2004  |           | For the nine months ended September 30, 2003 
|                                 |  | NetEarnings                                   |           | Average Shares Outstanding                    |           | PerShareAmount  |   | NetEarnings |  | Average Shares Outstanding |           | PerShareAmount 
|Net earnings  basic             |  | $                                             | 1,391,531 |                                               | 1,532,866 |                 | $ | .91         |  | $                          | 1,049,357 |                 | 1,459,677 |  | $ | .72
|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    
|Effect of dilutive stock options |  |                                               |          |                                               | 92,443    |                 |   |             |  |                            |          |                 | 114,889   |  |   |    
|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    
|Net earnings  diluted           |  | $                                             | 1,391,531 |                                               | 1,625,309 |                 | $ | .86         |  | $                          | 1,049,357 |                 | 1,574,566 |  | $ | .67
|                                 |  |                                               |           |                                               |           |                 |   |             |  |                            |           |                 |           |  |   |    



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##### Table of Contents

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 Nine Months Ended:



|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | --------------------------------------- | ------- | ---- | --------- | - | ---- | ---------
|                                                                                                                      |  | For the three months Ended September 30, |         | For the nine months Ended September 30,
|                                                                                                                      |  | 2004                                     |         | 2003                                    |         | 2004 |           |   | 2003
|Net earnings, as reported                                                                                             |  | $                                        | 527,652 |                                         | 398,907 |      | 1,391,531 |   |      | 1,049,357
|Pro forma stock-based compensation cost adjustments associated with new grants and forfeitures, net of tax            |  |                                          |        |                                         |        |      | (13,220   | ) |      | 3,951    
|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          
|Pro forma net earnings                                                                                                |  | $                                        | 527,652 |                                         | 398,907 |      | 1,378,311 |   |      | 1,053,308
|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          
|Basic earnings per share, as reported                                                                                 |  | $                                        | .33     |                                         | .27     |      | .91       |   |      | .72      
|                                                                                                                      |  |                                          |         |                                        
|Pro forma stock-based compensation cost adjustments associated with new grants and forfeitures, net of tax, per share |  |                                          |        |                                         |        |      | (.01      | ) |      |         
|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          
|Basic pro forma earnings, per share                                                                                   |  | $                                        | .33     |                                         | .27     |      | .90       |   |      | .72      
|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          
|Diluted earnings per share, as reported                                                                               |  | $                                        | .32     |                                         | .25     |      | .86       |   |      | .67      
|                                                                                                                      |  |                                          |         |                                        
|Pro forma stock-based compensation cost adjustments associated with new grants and forfeitures, net of tax, per share |  |                                          |        |                                         |        |      | (.01      | ) |      |         
|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          
|Diluted pro forma earnings, per share                                                                                 |  | $                                        | .32     |                                         | .25     |      | .85       |   |      | .67      
|                                                                                                                      |  |                                          |         |                                         |         |      |           |   |      |          



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 September 30, 2004, outstanding
borrowings under this credit facility were $2,500,000, with an interest rate of 4.25%.



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##### Table of Contents

LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, continued

(Unaudited)



|(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 is the market price of a share of stock on the date of grant.



All previously granted Director options had been exercised by September 30, 2004 under this plan.



|                    |  |                                     |   |  |                             |     
|------------------- |  | ----------------------------------- | - |  | --------------------------- | ----
|                    |  | Nine Months EndedSeptember 30, 2004
|                    |  | Shares                              |   |  | WeightedAvg. Exercise Price
|Beginning of period |  | 124,000                             |   |  | $                           | 5.52
|Granted             |  |                                    |   |  |                             |    
|Exercised           |  | (124,000                            | ) |  |                             | 5.52
|Cancelled           |  |                                    |   |  |                             |    
|                    |  |                                     |   |  |                             |     
|End of period       |  |                                    |   |  |                             |    
|                    |  |                                     |   |  |                             |     



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 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 nine-month period ended September 30, 2004 under this plan, consisted of the following:



|                    |  |                                     |   |  |                            |      
|------------------- |  | ----------------------------------- | - |  | -------------------------- | -----
|                    |  | Nine Months EndedSeptember 30, 2004
|                    |  | Shares                              |   |  | WeightedAvg.Exercise Price
|Beginning of period |  | 94,534                              |   |  | $                          | 6.63 
|Granted             |  | 4,500                               |   |  |                            | 12.33
|Exercised           |  |                                    |   |  |                            |      
|Cancelled           |  | (1,500                              | ) |  |                            | 11.00
|End of period       |  | 97,534                              |   |  |                            | 6.56 
|                    |  |                                     |   |  |                            |      



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##### Table of Contents

(7) Merger with United Community Banks, Inc.



On August 24, 2004, the Board of Directors approved an agreement to merge with United Community Banks, Inc. (United), a
Blairsville, Georgia-based bank holding company. The agreement calls for each share of Bank stock to be exchanged for $21.65 in cash or .9415 shares of United common stock or a combination of cash and United common stock with a limit of 15% of the
total number of shares involved in the exchange in cash. The merger is subject to shareholder and regulatory approval.



On September 30, 2004, United Community Banks, Inc. had $10,000,000 in short term deposits with Liberty National Bank. The total consisted on one certificate of deposit
of $5,000,000 which matured on November 1, 2004 and another certificate of deposit of $5,000,000 which will mature on December 1, 2004.



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.



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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 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, 2004, were $189,050,117, representing a $31,906,825 (20.3%) increase from December 31, 2003. Deposits increased $29,837,381 (21.2%) from
December 31, 2003 as the Company remained competitive in deposit acquisition in order to fund loan growth. Gross loans increased $23,287,590 (17.8%) from December 31, 2003 to $153,860,110 at September 30, 2004. The allowance for loan losses at
September 30, 2004, totaled $2,005,846, representing 1.30% of total loans compared to the December 31, 2003 total of $1,699,162, representing 1.30% of total loans.



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,
2004, the Company reported net earnings of $1,391,531 or $.87 per diluted share, compared to $1,049,357, or $.67 per diluted share, for the same period in 2003. Net earnings for the three months ended September 30, 2003 increased $128,745, or 32.3%,
compared to the same period in 2003.



Net interest income increased $869,110
(21.5%) to $4,902,911 in the first nine months of 2004 compared to the same period for 2003. Interest income for the first nine months of 2004 was $7,172,470, representing an increase of $1,049,293 (17.1%) over the same period in 2003. Interest
expense for the first nine months of 2004 increased $180,183 (8.6%) to $2,269,559 compared to the same period in 2003. The primary reason for the increase in net interest income for the nine-month period ended September 30, 2004, versus the same
period in 2003 was the increase in outstanding loan balances by over $23,000,000 during the first nine months of 2004. The volume increase more than offset the negative impact of continued margin compression. The net interest margin decreased by 28
basis points from 4.27% in the first nine months of 2003 to 3.99% for the same period in 2004. Additionally, the Bank remained competitive for time deposits to preserve liquidity and to provide stable funding sources for anticipated loan growth.



The provision for loan losses for the nine months of 2004 increased $39,751 to
$367,040 compared to the same period for 2003 because of the increase in outstanding loans. Net loan charge-offs for the nine months



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##### Table of Contents

ended September 30, 2004, were $60,356, compared to $28,950, for the same period in 2003. 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 by $66,251 (5.0%) for the nine months ended September 30, 2004 as compared to $1,384,882 during the same period in 2003, primarily due to
increases in fees related to deposit accounts such as monthly service charges and revenue from the overdraft privilege service. Mortgage activity continued to decline as a result of the reduction in the volume of refinancings the Bank has
experienced over the last two years.



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 2004 compared to the first nine months of 2003



|                             |  |      |           |      |           |        |         |   |          |       |  
|---------------------------- |  | ---- | --------- | ---- | --------- | ------ | ------- | - | -------- | ----- | -
|                             |  | 2004 |           | 2003 |           | Change |         |   | % Change |      
|Monthly deposit service fees |  | $    | 112,096   |      | 89,782    |        | 22,314  |   |          | 24.9  |  
|NSF charges                  |  |      | 759,814   |      | 704,828   |        | 54,986  |   |          | 7.8   |  
|Mortgage origination income  |  |      | 263,173   |      | 311,851   |        | (48,678 | ) |          | (15.6 | )
|Miscellaneous                |  |      | 249,799   |      | 212,170   |        | 37,629  |   |          | 17.7  |  
|                             |  |      |           |      |           |        |         |   |          |       |  
|                             |  | $    | 1,384,882 |      | 1,318,631 |        | 66,251  |   |          | 5.0   |  
|                             |  |      |           |      |           |        |         |   |          |       |  



Other operating expenses increased
$340,383 (10.0%) for the first nine months of 2004 as compared to $3,739,250 for the first nine months in 2003. The following table details the changes in other operating expenses for the first nine months of 2004 compared to the first nine months
of 2003:



|                                        |  |      |           |      |           |        |         |   |          |      |  
|--------------------------------------- |  | ---- | --------- | ---- | --------- | ------ | ------- | - | -------- | ---- | -
|                                        |  | 2004 |           | 2003 |           | Change |         |   | % Change |     
|Salaries and other personnel expense    |  | $    | 1,956,020 |      | 1,817,795 |        | 138,225 |   |          | 7.6  |  
|Net occupancy and equipment expense     |  |      | 528,936   |      | 479,300   |        | 49,636  |   |          | 10.4 |  
|Data processing expense                 |  |      | 437,975   |      | 385,351   |        | 52,624  |   |          | 13.7 |  
|Telecommunications                      |  |      | 32,380    |      | 32,648    |        | (268    | ) |          | (.8  | )
|Legal, audit and other outside services |  |      | 209,643   |      | 142,930   |        | 66,713  |   |          | 46.7 |  
|Postage, freight, and supplies          |  |      | 165,439   |      | 142,242   |        | 23,197  |   |          | 16.3 |  
|Miscellaneous                           |  |      | 408,857   |      | 398,601   |        | 10,256  |   |          | 2.6  |  
|                                        |  |      |           |      |           |        |         |   |          |      |  
|                                        |  | $    | 3,739,250 |      | 3,398,867 |        | 340,383 |   |          | 10.0 |  
|                                        |  |      |           |      |           |        |         |   |          |      |  



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 36.2% in 2004 from 35.5% 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



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##### Table of Contents

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 September 30,
2004, the allowance was $2,005,846. The allowance for loan losses, as a percentage of total gross loans, remained at 1.30% at December 31, 2003 and September 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.



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 September 30, 2004 there was one loan in the amount of $596,743 on a non-accrual status. The loan was made to finance a real estate development project that was partially
completed at the end of June, 2004. Subsequent to the end of the third quarter of 2004, the loan was collected when the collateral for the loan was sold and no loss was recognized on the transaction. There were no related party loans which were
considered nonperforming at September 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 September 30, 2004 evidence a satisfactory liquidity position as total cash and cash equivalents totaled
approximately $14.1 million, representing 7.5% of total assets. Investment securities totaled approximately $16.3 million, representing 8.6% of total assets as of September 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 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, 2004:



|                               |  |                   |   |  |                                |  
|------------------------------ |  | ----------------- | - |  | ------------------------------ | -
|                               |  | September 30,2004 |   |  | Minimum Regulatory Requirement |  
|Consolidated                   |  |                   |   |  |                                |  
|                               |  |                  
|Tier 1 Capital                 |  | 7.83              | % |  | 4.0                            | %
|Tier 2 Capital                 |  | 1.20              | % |  |                               | %
|                               |  |                   |   |  |                                |  
|Total risk-based capital ratio |  | 9.03              | % |  | 8.0                            | %
|                               |  |                   |   |  |                                |  
|Leverage ratio                 |  | 7.28              | % |  | 4.0                            | %
|                               |  |                   |   |  |                                |  
|Bank                           |  |                   |   |  |                                |  
|Tier 1 Capital                 |  | 8.93              | % |  | 4.0                            | %
|Tier 2 Capital                 |  | 1.20              | % |  |                               | %
|                               |  |                   |   |  |                                |  
|Total risk-based capital ratio |  | 10.13             | % |  | 8.0                            | %
|                               |  |                   |   |  |                                |  
|Leverage ratio                 |  | 8.33              | % |  | 4.0                            | %
|                               |  |                   |   |  |                                |  



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



|                             |  |                   |            |                  |   |           
|---------------------------- |  | ----------------- | ---------- | ---------------- | - | ----------
|                             |  | September 30,2004 |            | December 31,2003
|Commitments to extend credit |  | $                 | 30,600,000 |                  | $ | 31,125,000
|Standby letters of credit    |  |                   | 494,000    |                  |   | 350,000   
|                             |  |                   |            |                  |   |           
|Total                        |  | $                 | 31,094,000 |                  | $ | 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 September 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.



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.



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



Not applicable



Item 5. Other Information



Not
applicable



- 14 -



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##### Table of Contents

Item 6. 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



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##### Table of Contents

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 11, 2004 |  | By:                               |  | /s/ William L. Daniel                     
|                        |  |                                   |  | William L. Daniel, President              
|                        |  |                                   |  | (Principal Executive Officer)             
|                        |  |                                  
|Date: November 11, 2004 |  | By:                               |  | /s/ Jesse R. Cheatham                     
|                        |  |                                   |  | Jesse R. Cheatham, Chief Financial Officer
|                        |  |                                   |  | (Principal Accounting Officer)            



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