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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-QSB





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





For the Quarterly Period Ended June 30, 2002





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

30013Conyers, Georgia

(Zip Code)(Address of principal executive offices)





770-785-7880


(Telephone Number)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.     YES x     NO  ̈





Common stock, par value $1.00 per share: 709,500 shares
outstanding as of August 8, 2002 (provided, however, that pursuant to a previously declared 2-for-1 stock split, and a subsequent amendment to the Amended and Restated Articles of Incorporation, as of August 15, 2002, 1,419,000 shares of common
stock, $.50 par value per share, will be outstanding).





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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY





INDEX





Page No.PART I.

FINANCIAL INFORMATIONItem 1.

Financial StatementsConsolidated Balance Sheet (Unaudited) at June 30, 2002

3Consolidated Statements of Earnings (Unaudited) for the ThreeMonths and the Six Months Ended June 30, 2002 and 2001

4Consolidated Statements of Comprehensive Income (Unaudited)for the Three Months and the Six Months Ended June 30, 2002 and 2001

5Consolidated Statements of Cash Flows (Unaudited) for the SixMonths Ended June 30, 2002 and 2001

6Notes to Consolidated Financial Statements (Unaudited)

7Item 2.

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

9PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings

12Item 2.

Changes in Securities

12Item 3.

Defaults Upon Senior Securities

12Item 4.

Submission of Matters to a Vote of Security Holders

12Item 5.

Other Information

12Item 6.

Exhibits and Reports on Form 8-K

12SIGNATURES

13Articles of Amendment

15Certification Pursuant to Sarbanes-Oxley Act of 2002

16




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##### Table of Contents




PART I.    
FINANCIAL INFORMATION





Item 1.    
Financial Statements





LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY





Consolidated Balance Sheet





June 30, 2002


(Unaudited)





AssetsCash and due from banks

$
4,342,268Federal funds sold


8,751,000Cash and cash equivalents


13,093,268Investment securities available for sale


11,138,789Other investments


368,568Loans, (net of allowance for loan losses of $1,236,848)


81,354,952Premises and equipment, net


3,744,151Other assets


960,129Total assets

$
110,659,857Liabilities and Stockholders
EquityLiabilities:Deposits:Demand

$
16,106,252Interest-bearing demand


30,189,958Savings


2,397,480Time


50,070,675Total deposits


98,764,365Notes Payable


800,000Accrued interest payable and other liabilities


307,401FHLB advances


2,500,000Total liabilities


102,371,766


Stockholders equity: Common stock, $.50 par value; authorized10,000,000 shares; 1,419,000 shares issued and
outstanding


709,500Additional paid-in capital


6,502,828Retained earnings


990,533Accumulated other comprehensive income


85,230Total stockholders equity


8,288,091Total liabilities and stockholders equity

$
110,659,857





See accompanying notes to unaudited consolidated financial statements.




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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY





Consolidated Statements of Earnings





For the Three Months and the Six Months Ended June 30,
2002 and 2001


(Unaudited)





Three Months Ended

Six Months Ended2002

2001

2002

2001Interest and dividend income:Loans

$
1,593,004

1,446,853

3,090,857

2,832,866Investment securities:Taxable


111,601

130,625

222,299

277,841Tax exempt


20,119

20,566

35,858

32,127Federal funds sold


21,990

48,718

45,780

115,166Interest on deposit with other banks


394

1,836

394

3,820Total interest income


1,747,108

1,648,598

3,395,188

3,261,820Interest expense:Deposits


603,277

687,787

1,216,707

1,383,260Federal Home Loan Bank advances


42,885

42,656

85,073

84,844Notes payable


6,646



6,646

Federal funds purchased




82



3,310Total interest expense


652,808

730,525

1,308,426

1,471,414Net interest income


1,094,300

918,073

2,086,762

1,790,406Provision for loan losses


87,068

126,581

207,118

198,042Net interest income after provision for loan losses


1,007,232

791,492

1,879,644

1,592,364Other operating income:Service charges on deposit accounts


274,623

152,734

451,373

278,416Securities gains


2,024



2,024

Other operating income


60,980

54,874

134,105

91,210Total other operating income


337,627

207,608

587,502

369,626Other operating expense:Salaries and other personnel expense


490,013

341,843

979,392

686,277Net occupancy and equipment expense


150,736

100,706

306,256

205,998Other operating expense


337,106

252,244

712,703

464,035Total other operating expense


977,855

694,793

1,998,351

1,356,310Earnings before income taxes


367,004

304,307

468,795

605,680Income tax expense


105,548

104,378

147,138

207,951Net earnings

$
261,456

199,929

321,657

397,729Basic net earnings per share

$
.19

.15

.23

.29Diluted net earnings per share

$
.18

.14

.22

.29





See accompanying notes to unaudited consolidated financial statements.




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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY





Consolidated Statements of Comprehensive Income





For the Three Months and the Six Months
Ended June 30, 2002 and 2001


(Unaudited)





Three Months Ended


Six Months Ended2002


2001


2002


2001Net earnings

$
261,456


199,929


321,657


397,729Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) on investment securities available for sale arising during the period


118,042


36,390


95,744


180,389Reclassification adjustment for (gains) losses on investment securities available for sale


(2,024
)




(2,024
)

Total other comprehensive income (loss) before tax


116,018


36,390


93,720


180,389Income taxes related to other comprehensive income:Unrealized holding gains (losses) on investment securities available for sale arising during the period


(40,134
)

(12,372
)

(32,553
)

(61,332
)Reclassification adjustment for gains (losses) on investment securities available for sale


688





688


Total income taxes related to other comprehensive income (loss)


(39,446
)

(12,372
)

(31,865
)

(61,332
)Total other comprehensive income, net of tax


76,572


24,018


61,855


119,057Comprehensive income

$
338,028


223,947


383,512


516,786





See accompanying notes to unaudited consolidated financial statements.




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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY





Consolidated Statements of Cash Flows





For the Six Months Ended June 30, 2002 and 2001


(Unaudited)





Six Months Ended June
30,2002


2001Cash flows from operating activities:Net earnings

$
321,657


397,729Adjustments to reconcile net earnings to net cash provided by operating activities:Provision for loan losses


207,118


198,042Gain on sale of investment securities


(2,024
)

Depreciation, amortization and accretion


156,019


121,299Change in assets and liabilities:Net change in other assets and other liabilities


(23,792
)

(253,433
)Net cash provided by operating activities


658,978


463,637Cash flows from investing activities:Proceeds from sales of investment securities


102,024


Proceeds from maturities and paydowns of investment securities available for sale


74,799


8,193,638Purchases of investment securities available for sale





(8,934,827
)Net change in loans


(8,688,538
)

(13,067,552
)Purchases of premises and equipment


(42,817
)

(132,209
)Net cash used by investing activities


(8,554,532
)

(13,940,950
)Cash flows from financing activities:Net change in federal funds purchased





(2,500,000
)Net change in deposits


2,103,574


23,249,041Notes payable advances


800,000


Proceeds from the sale of common stock


34,944


Net cash provided by financing activities


2,938,518


20,749,041Net change in cash and cash equivalents


(4,957,036
)

7,271,728Cash and cash equivalents at beginning of period


18,050,304


2,045,665Cash and cash equivalents at end of period

$
13,093,268


9,317,393Supplemental cash flow information:Cash paid for income taxes

$
145,069


266,549Cash paid for interest

$
1,282,561


1,448,782Noncash investing and financing activities:Change in net unrealized gains on investment securities available for sale, net of tax

$
61,855


119,057





See accompanying notes to unaudited consolidated financial statements.




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LIBERTY NATIONAL BANCSHARES, INC. AND SUBSIDIARY





Notes to Consolidated Financial Statements


(Unaudited)





|(1) |  | Basis of Presentation
|--- |  | ---------------------

The consolidated
financial statements include the accounts of Liberty National Bancshares, Inc. (the Company) and its wholly owned subsidiary, Liberty National Bank (the Bank). All significant intercompany accounts and transactions have been
eliminated in consolidation.





The consolidated financial information furnished herein reflects all adjustments,
which are, in the opinion of management, necessary to present a fair statement of the results of operations and financial position for the periods covered herein. All such adjustments are of a normal recurring nature.





|(2) |  | 2 for 1 stock split
|--- |  | -------------------

The Board of
Directors declared a 2-for-1 stock split for shareholders of record as of July 31, 2002. The distribution of the additional shares will be executed on August 15, 2002. As a result of the stock split, all share and per share information has been
presented to show the effect of the 2-for-1 stock split.





|(3) |  | Earnings Per Share
|--- |  | ------------------

Basic net earnings
per share is based on the weighted average number of common shares outstanding during the period. Diluted net earnings per share include the effects of potential common shares outstanding during the period. The average market price during the period
is used to compute equivalent shares.





The reconciliation of the amounts used in the computation of both basic
earnings per share and diluted earnings per share for the three-month periods ended June 30, 2002 and 2001, is as follows:





Net Earnings

Average Shares Outstanding

Per Share AmountFor the three months ended June 30, 2002:Net earnings  basic

261,456

1,417,144

.19Effect of dilutive stock options



71,744Net earnings  diluted

261,456

1,488,888

.18For the three months ended June 30, 2001:Net earnings  basic

199,929

1,352,376

.15Effect of dilutive stock options



37,164Net earnings  diluted

199,929

1,389,540

.14


|
|

Net Earnings

Average Shares Outstanding

Per Share AmountFor the six months ended June 30, 2002:Net earnings  basic


321,657

1,414,754


.23Effect of dilutive stock options




61,474Net earnings  diluted


321,657

1,476,228


.22For the six months ended June 30, 2001:Net earnings  basic


397,729

1,352,376


.29Effect of dilutive stock options




36,654Net earnings  diluted

$
397,729

1,389,030

$
.29







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|(4) |  | Other Borrowings
|--- |  | ----------------




In March 2002. The Company 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 Liberty National Bank. The Company is subject to certain covenants that
include minimum tangible capital levels and capital ratios, return on asset ratios, non-performing asset limits, and allowance for loan loss levels. At June 30, 2002, outstanding borrowings under this credit facility were $800,000.




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




Forward-Looking Statements





This discussion contains 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 June 30, 2002, were
$110,659,857 representing a $3,247,417 (3.02%) increase from December 31, 2001. Deposits increased $2,103,574 (2.18%) from December 31, 2001. Gross loans increased $8,626,966 (11.66%) for December 31, 2001. The allowance for loan losses at June 30,
2002, totaled $1,236,848, representing 1.50% of total loans compared to the December 31, 2001, total of $1,059,635 representing 1.43% of total loans. Cash and cash equivalents decreased $4,957,036 from December 31, 2001 to fund growth in loans.





There were no nonperforming loans as of June 30, 2002. Nonperforming loans include nonaccruing loans, loans on
which foreclosure proceedings have commenced and loans for which payments are more than 90 days past due. Subsequent to June 30, 2002, a loan of $175,000 was classified as nonperforming, and the collateral was repossessed and sold. The transaction
resulted in a net loan loss of approximately $32,000 recognized in July 2002. The Company continues other collection efforts to recover additional amounts related to the charge off. There were no related party loans which were considered
nonperforming at June 30, 2002.





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





Results of Operations





For the six months ended June 30, 2002, the Company reported
net earnings of $321,657 or $.22 per diluted share, compared to $397,729, or $.29 per diluted share, for the same period in 2001. Net earnings for the three months ended June 30, 2002, increased $61,527 or 30.77%, compared to the same period in
2001. The increase in the net earnings for the three months and six months ended June 30, 2002, resulted primarily from increased loan volume, improving earning asset performance, and an increase in non-interest income resulting from an overdraft
privilege service introduced in early 2002.





Net interest income increased $296,356 (16.55%) in the first six
months of 2002 compared to the same period for 2001. Interest income for the first six months of 2002 was $3,395,188, representing an increase of $133,368 (4.09%) over the same period in 2001. Interest expense for the first six months of 2002
decreased $162,988 (11.08%) compared to the same period in 2001. The primary reason for the increase in net interest income for the six month period ended June 30, 2002, versus the same period in 2001 was a volume increase in average earning assets
of $13 million. The net interest margin decreased by 53 basis points from 4.89% in the first six months of 2001 to 4.36% in the same period in 2002. Net interest margin decreased as the general




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interest rate environment dropped rapidly and the Banks variable rate loans repriced faster than the Banks deposits. 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 six months of 2002 increased $9,076 compared to the same period for 2001. Net loan charge-offs for the six months ended June 30, 2002, were $30,377, compared to $2,774, for the same period in 2001. It is managements belief that
the allowance for loan losses is adequate to absorb probable losses in the portfolio.





Other operating income
increased for the six months ended June 30, 2002, by $217,876 or 58.95%, compared to the same period in 2001, primarily due to the introduction of a new overdraft protection service which provided an additional $149,401 in service charges over the
same period in 2001. Additional increases in business activity generated increases in service charge revenue. The following table details the changes in other operating income for the first six months of 2002 compared to the first six months of
2001:





2002

2001

Change

% ChangeService charges on deposit accounts

$
37,465

$
22,747

$
14,718

64.7
%NSF charges


353,441


204,040


149,401

73.2
%Mortgage origination income


90,198


55,554


34,644

62.4
%Miscellaneous


106,398


87,285


19,113

21.9
%$
587,502

$
369,626

$
217,876

58.9
%





Other operating expenses for the first six months of 2002 increased
$642,041 (47.34%) compared to the first six months in 2001. The increase is primarily attributable to the opening of a branch of the Bank in Covington, Georgia, as well as a general increase in operating expenses associated with business volume
increases. Additionally, in July of 2001, the Banks Operations Center moved from the Companys main office to another location. The following table details the changes in other operating expenses for the first six months of 2002 compared
to the first six months of 2001:





2002

2001

Change

% ChangeSalaries and other personnel expense

$
979,392

$
686,277

$
293,115

42.7
%Net occupancy and equipment expense


306,256


205,998


100,258

48.7
%Data processing expense


156,900


118,516


38,384

32.4
%Telecommunications


45,510


16,691


28,819

172.7
%Debit card expense


73,908


43,627


30,281

69.4
%Postage, freight, and supplies


106,371


69,891


36,480

52.2
%Miscellaneous


330,014


215,310


114,704

53.3
%$
1,998,351

$
1,356,310

$
642,041

47.3
%





Most of the expenses noted in the table above increased primarily
due to the addition of two new locations, an increased customer base with more accounts, and marketing and signage costs associated with the change in the Companys name. Debit card expenses increased due to a change in pricing by the vendor
associated with lost or stolen debit cards.





Liquidity and Sources of Capital





Liquidity is the Banks ability to meet all deposit withdrawals immediately, while also providing for the credit needs of customers.
Management believes that the financial statements, as of June 30, 2002, evidence a satisfactory liquidity position as total cash and cash equivalents amounted to $13.1 million, representing 11.8% of total assets. Investment securities amounted to
$11.1 million, representing 10.1%




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of total assets as of June 30, 2002. Investment securities provide a secondary source of liquidity for the Bank since they can be converted into
cash in a timely manner. The Banks ability to maintain and expand its deposit base and borrowing capabilities is an additional source of liquidity. The Bank maintains federal funds lines totaling $6,800,000 with four regional banks in an
effort to support short-term liquidity. The Bank is a member of the Federal Home Loan Bank and is eligible to apply for term advances. Management closely monitors and maintains appropriate levels of interest earning assets and interest bearing
liabilities so that maturities of assets are such that adequate funds are provided to meet customer withdrawals and loan demands.





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





The table below illustrates the Banks and the Companys regulatory capital ratios at June 30, 2002:





Consolidated



June 30, 2002


Minimum Regulatory RequirementTier 1 Capital

8.89
%

4.0
%Tier 2 Capital

1.25
%


%Total risk-based capital ratio

10.14
%

8.0
%Leverage ratio

7.68
%

4.0
%BankTier 1 Capital

9.26
%

4.0
%Tier 2 Capital

1.25
%


%Total risk-based capital ratio

10.51
%

8.0
%Leverage ratio

8.02
%

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 June 30, 2002, outstanding borrowings under this credit facility were $800,000 and the interest rate was 4.25%.




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PART II.    
OTHER INFORMATION





Item 1.    
Legal Proceedings





None.





Item 2.    
Changes in Securities





On August 9, 2002, in connection with the 2-for-1 stock split of
the Companys common stock previously authorized by the Board of Directors, the Company filed Articles of Amendment to its Amended and Restated Articles of Incorporation reducing the par value of its common stock from $1.00 per share to $.50
per share. The amendment to the Companys Amended and Restated Articles of Incorporation does not affect the rights of the Companys security holders.





Item 3.    
Defaults Upon Senior Securities





None





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





The 2002 Annual Meeting of
Shareholders of the Company was held on May 15, 2002. At the meeting the following persons were elected as directors to serve for a term of three years and until their successors are elected and qualified: Johnny L. Capes, John A. Fountain, M.D.,
Michael P. Jones, CPA, and R. Flynn Nance, D.V.M.





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





Votes FOR

Votes WITHHELDJohnny L. Capes

888,360

200John A. Fountain, M.D.

888,360

200Michael P. Jones, CPA

888,360

200R. Flynn Nance, D.V.M.

888,360

200





The following persons did not stand for reelection to the Board of
Directors at the 2002 Annual Meeting of Shareholders as their term of office continued after the Annual Meeting: Julia W. Morgan, Michael R. Potts and Arthur J. Torsiglieri, Jr., M.D., C. Dean Alford, Troy A. Athon, William L. Daniel, Hazel E.
Durden, and William R. Walker, II.





No other matters were presented or voted upon at the 2002 Annual Meeting of
Shareholders.





Item 5.    
Other Information





None





Item 6.    
Exhibits and Reports on Form 8-K





a)    Exhibits.    The following exhibit is filed with this report.





Exhibit No.

Description3.1.1

Articles of Amendment to the Amended and restated Articles of Incorporation99.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





b)    Reports on Form
8-K.    No reports on Form 8-K were filed by the Company during the period ended June 30, 2002.




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LIBERTY NATIONAL BANCSHARES, INC.





SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.





LIBERTY NATIONAL BANCSHARES, INC.   By:                            /s/    WILLIAM L.
DANIEL William L. Daniel,President (Principal Executive Officer)
  Date:     August 7, 2002By:                        /s/    JESSE R.
CHEATHAM Jesse R. Cheatham Chief Financial Officer (Principal Accounting
Officer)   Date:     August 7, 2002













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EXHIBIT INDEX





Exhibit No.

Description3.1.1

Articles of Amendment to the Amended and Restated Articles of Incorporation99.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




14